Investors in failed mortgage firm sue

by J. Craig Anderson The Arizona Republic May. 18, 2010 12:00 AM

Investors in Mortgages Ltd. have filed a $900 million lawsuit alleging that the now-bankrupt investment firm's lawyers and accountants should have blown the whistle on its risky lending practices.

The lawsuit's plaintiffs argue in a complaint filed May 11 in U.S. District Court for the District of Arizona that three large professional-services firms intentionally helped Mortgages Ltd. and former investment partner Radical Bunny LLC defraud investors.

The three firms, not named as defendants in previous Mortgages Ltd. lawsuits, are Miami, Fla.-based law firm Greenberg Traurig LLP, Milwaukee-based law firm Quarles & Brady LLP and accounting firm Mayer Hoffman McCann PC, which is based in St. Louis.

"Mortgages Ltd. and Radical Bunny could not have perpetrated and concealed a fraud so massive without the complicity of lawyers and accountants," alleges the lawsuit, whose plaintiffs include investors Robert Facciola, Honeylou Reznik and Fred Hagel. "These professionals provided a façade of legitimacy to the scheme."

Representatives of the two law firms have issued statements denying the allegations and expressing their readiness to defend against them in court. Mayer Hoffman McCann did not respond Monday to requests for comment.

Both Mortgages Ltd. and Radical Bunny are insolvent and in bankruptcy, whereas Greenberg, Quarles and Mayer are going concerns.

Mortgages Ltd. financed several high-profile projects in the Phoenix area during the real-estate boom that began in 2005.

In June 2008, after the death of Mortgages Ltd. Chief Executive Scott Coles, the lender was forced into bankruptcy by developers.

Last month, at the conclusion of an investigation that lasted nearly two years, the Arizona Corporation Commission ordered Radical Bunny to pay $190 million to investors.

It found that Radical Bunny, which loaned money from almost 900 investors to Mortgages Ltd., was not registered as a securities dealer, misled investors about the degree of risk, and continued to solicit investment after its lawyers warned that doing so would violate securities laws.

Investors in failed mortgage firm sue