Law firm accused of ties to schemes

Law firm Greenberg Traurig LLP will have to defend itself in court against allegations that it was an active participant in the fraudulent schemes of its former client, the now-bankrupt Phoenix commercial-real-estate lender Mortgages Ltd.

The Miami-based law firm also is the lead defendant in a related lawsuit, filed by ML Servicing Co. Inc., a company set up to service the remaining Mortgages Ltd. assets. ML Servicing accuses the firm of legal malpractice.

Plaintiffs in both U.S. District Court lawsuits accuse Greenberg Traurig and one of the firm's shareholders, Phoenix-based attorney Robert Kant, of helping the defunct lender misrepresent itself to investors as a financially healthy enterprise when it actually was on the verge of collapse.

Greenberg spokeswoman Jill Perry denied those accusations, saying the law firm "acted properly at all times in its representation of Mortgages Ltd."

The investor lawsuit, led by California-based former Mortgages Ltd. investor Robert Facciola, originated as a much bigger case, with investors from Mortgages Ltd. and its former lending partner Radical Bunny LLC on the plaintiffs' side and Greenberg Traurig, former Radical Bunny counsel Quarles & Brady and former Mortgages Ltd. accounting firm Mayer Hoffman McCann PC on the defendants' side.

All three defendants filed motions to dismiss the lawsuit, with one common defense argument being that each firm was merely doing the job it had been hired to do.

U.S. District Judge Frederick Martone agreed with defendants Quarles and Mayer Hoffman and dismissed the charges against them.

He also effectively dropped Radical Bunny investors from the lawsuit, granting all defendant motions to dismiss their specific claims.

Martone left intact only certain allegations made by the Mortgages Ltd. investors against Greenberg Traurig.

The lawsuit's plaintiffs argue in a complaint filed in May 2010 that the three large professional-services firms knowingly helped Mortgages Ltd. and former investment partner Radical Bunny LLC defraud investors.

It also argues that the legal and accounting firms should have reported the fraud to investors and legal authorities.

According to investors and court records, Mortgages Ltd. collected more than $700 million from hundreds of private investors in 2006 and 2007, in part by making false claims about the company's financial health.

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

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

Now, only Greenberg remains as a defendant and only against the claims of Mortgages Ltd. investors.

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

In June 2008, just weeks after its then-CEO Scott Coles died of apparent self-inflicted means, the lender was forced into bankruptcy by developers.

Since then, both the Arizona Corporation Commission and the U.S. Securities and Exchange Commission have found evidence of illegal dealings by the firm and its affiliated lender Radical Bunny.

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, they said.

by J. Craig Anderson The Arizona Republic Jun. 16, 2011 12:00 AM




Law firm accused of ties to schemes