By Nate Raymond
June 21 In a rare instance of law firms
compensating investors burned in the mortgage meltdown,
Greenberg Traurig and Quarles & Brady moved closer on Wednesday
to settling a class action that accused them of participating in
a $900 million Ponzi scheme.
Greenberg, accused of assisting the fraud by advising
now-defunct lender Mortgages Ltd, agreed to settle charges for
$61 million. Quarles & Brady, which advised Radical Bunny, an
investment firm that funded Mortgages, received preliminary
approval of a $26.5 million accord from U.S. District Judge
Frederick Martone in Phoenix.
The deals were disclosed in papers filed in U.S. District
Court in Phoenix. If they receive final approval, the agreements
will end the certified class action.
"While we have always stood behind the work we did in this
matter, entering into this settlement is a sensible step for the
firm," Greenberg Traurig said in a statement.
Quarles & Brady in a statement said that while it "believes
its conduct was at all times lawful and ethical," it agreed to
settle the case to avoid future expenses and uncertainty. The
firm also said neither the U.S. Securities and Exchange
Commission nor Arizona securities regulators found any fault in
the firm's representation of Radical Bunny.
Greenberg Traurig and Quarles & Brady will pay for the
settlements out of insurance funds, according to court papers.
A U.S. Supreme Court decision in 2008 restricted federal
securities claims for aiding and abetting by third-party
advisers such as law firms and accounting firms. The Mortgages
Ltd and Radical Bunny cases instead relied on Arizona's state
securities law statute, which plaintiffs lawyers in a brief
Wednesday described as remedial in nature and providing broader
protections than federal law.
Prior to its collapse, the Arizona-based Mortgages Ltd made
high-interest bridge loans to real estate developers. Radical
Bunny in turn helped raise $197 million from investors
nationally to lend to Mortgages Ltd.
But the class-action complaint claims that by 2005,
Mortgages Ltd was insolvent and had been raising money to prop
up the "extravagant" lifestyle of its CEO Scott Coles. Amid the
real estate market's collapse, Coles committed suicide in June
2008, and the company filed for bankruptcy weeks later. Radical
Bunny, which investors and the U.S. Securities and Exchange
Commission say was never registered to sell the securities,
filed for bankruptcy as well.
Investors sued Greenberg Traurig and Quarles & Brady,
claiming the law firms' actions as counsel to Mortgages Ltd and
Radical Bunny helped mask the fraud, enabled the Ponzi scheme
and allowed for the illegal sale of securities. Both law firms
continue to deny the allegations.
Martone certified two investor classes against the firms in
March. Lawyers for the plaintiffs in their settlement papers
estimated damages in the case could have reached $552 million
for Quarles & Brady and $499 million for Greenberg Traurig.
But in both cases, the plaintiffs lawyers said they factored
in the risk that verdicts of those sizes "would trigger a mass
exodus of partners (at the firms) leaving the class members with
a largely uncollectible paper judgment."
The co-lead plaintiffs firms Tiffany & Bosco and Bonnett,
Fairbourn, Friedman & Balint plan to seek a fee of 15 percent of
the settlements, or $13.1 million.
A lawyer for the plaintiffs, Andrew Friedman of Bonnett
Fairbourn, declined to comment.
The settlements were first reported by Law 360.
The case is Facciola v. Greenberg Traurig, LLP, U.S.
District Court for the District of Arizona, 10-cv-01025
For the Rapid Bunny plaintiffs: Richard Himelrick, Tiffany &
For the Mortgage Ltd. plaintiffs: Andrew Friedman, Bonnett,
Fairbourn, Friedman & Balint
For Greenberg Traurig: Kevin Downey, Kenneth Smurzynski and
Ellen Oberwetter, Williams & Connolly
For Quarles & Brady: Robert Gooding, Morgan, Lewis &