Friday, May 14, 2010

"Uniquely Positioned" To Uncover Partner's Thefts

The New York Appellate Division for the Second Judicial Department has imposed a three-year suspension for an attorney's failure to adequately supervise his thieving law partner. The attorney also failed to fully respond to the complaints that poured in in the wake of the partner's defalcations. There were 30 complaints with 17 responses and a failure to respond to further requests for information.

The court stated:

In determining an appropriate measure of discipline to impose, the Grievance Committee has expressed strong disagreement with the Special Referee's conclusion and the respondent's contention that he was a victim of Belletieri's fraudulent scheme. The respondent's position is that Bellettieri [the partner] acted alone, without his knowledge, and that he acted to hide his misconduct from the respondent. He submits that had he been able to obtain Bellettieri's testimony at the hearing, the extent of the obstruction he created to prevent the respondent from finding out what he was doing would be revealed. The division of labor at BF & L [the law firm] was such that the respondent and [partner] Laudonio attended closings, while Belletieri ran the office, particularly the escrow accounts. The respondent issued checks at closings only after confirming that the requisite funds were in BF & L's escrow account. He maintains that he had no reason to suspect criminal behavior on the part of Bellettieri, who was the firm's founder and "a pillar of the community." Moreover, the high volume of transactions engaged in on a daily and weekly basis, together with the onerous schedule of closings the respondent was required to attend, would have made it a practical impossibility for him to reconcile the firm's accounts while continuing to meet his duties to clients.

The Grievance Committee maintains that the respondent displayed a long-term, near total ignorance of his fiduciary duties as attorney and escrowee. He ignored multiple warning signs and blatantly apparent indicators of criminality which could have forestalled such a massive escrow fraud by Belletieri. These included the $900,000 defalcation in BF & L's former escrow account at Fleet Bank in 2003, Bellettieri's refusal to produce the records for that account despite the respondent's requests, and the mysterious destruction of records maintained in BF & L's storage archive at that time. In the face of these warnings, greater oversight and immediate intervention was warranted.

With respect to the respondent, it bears noting that he was no stranger to the real estate and mortgage business. Far from being a business novice, he had an accounting background and had worked for an accounting firm for about three years after graduating from law school. He thereafter worked for a Manhattan law firm which handled real estate matters, where he was trained to represent buyers and sellers in residential and commercial transactions before starting his own practice and eventually entering a partnership with Bellettieri. He was comfortably drawing approximately $7,000 per week from BF & L during the period in question and knowingly permitted Bellettieri's commingling in order to allow BF & L to continue operating. The respondent's disciplinary history consists of one Letter of Caution, dated April 29, 2005, for his delay of approximately three years in resolving a $4,000 escrow problem arising from the sale of real property in Ozone Park, Queens. While it may have been difficult and time consuming to obtain the necessary documents to establish that the subject premises was a two-family dwelling on the tax records as of 1937, the Grievance Committee found no valid reason for the respondent's excessive delay in turning over the first $1,000 to the seller, who had promptly vacated the premises pursuant to the possession agreement. The respondent's failure to take any meaningful measures to resolve the tax record issue until after the filing of the underlying complaint resulted in the issuance of a Letter of Caution.

While the respondent was, to some extent, victimized by Bellettieri, he was also uniquely positioned to put an end to Bellettieri's scheme and thereby minimize damage to clients who had entrusted funds to BF & L. In this regard, he failed to uphold his nonwaivable fiduciary duty. Under the totality of circumstances, the respondent is suspended from the practice of law for a period of three years.

I'm not sure that I've seen this long a suspension for failure to discover the thefts of a law partner. (Mike Frisch)

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This is an interesting situation, and very difficult for the attorney. This is similar to the not-uncommon situation of a trusted office manager or paralegal stealing client funds. The attorneys is often held responsible in such circumstance.

Posted by: Sherman Texas Attorney | May 17, 2010 7:23:18 PM

Bizarre as it may sound within the scope of decent civil society, the crime of false imprisonment, or possibly murder that is similar to those faced by domestic violence victims when they attempt to leave may be occuring in situations where long time arrangements of theft that pose as estate planning can occur. In fact, there is more reason to believe that the losses anticipated from firms who have arranged to hold high value funds for an elderly would be less likely to allow that elder to leave than would be the case in an ordinary domestic violence case - because perhaps they already spent the money, or were relying upon its retention.

Whenever there is a case of escrowed property or funds and a threat of removal by the client, reasonable inquiry suggests an investigation into the nature of death, if unexpected, and sudden, after such a threat, that the elder may have been murdered by associates of the firm or trustee, or attorney who made such arrangements.

If significant losses occur within the administration of probate, or the undervaluation of assets, etc., along with unresponsive personnel, there is more likelihood than not that nefarious crimes have been committed which warrant further inquiry.

The interesting feature of this scenario is that there are few or no laws which govern the realm, and the possibility of continuing violence is always present where there is family who are made beneficiaries of such trusts, even if organizations are designated remainders. In fact, there may be more danger than not in such circumstances depending upon the flow of income and assets as they are set out in wills and trusts. The human mind never lacked for imagination and creativity when it comes to greed and acquisitive takings, by seduction or by coercion, much less by deception.

That the elderly may be subject to such forces is reason enough to ponder the extent to which they may be, and the control systems in place to prevent it. Because spousal murder in the act of leaving is so well documented, it seems reasonable to address that problem when the victim is a client, not a spouse since the same psychological motivations may be present, plus the added incentive of trust fund retention, access, and its benefits. Stalking features are regularly written into many boiler plate trusts these days that can work to the advantage of the perpetrator, not the proposed victim and his/her family.

Posted by: Pat | May 20, 2010 11:20:26 AM

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