Thursday, August 11, 2011

Suspended, Disbarred, Disbarred

An attorney who had been suspended for two years in Massachusetts was disbarred as reciprocal discipline in the District of Columbia. The New York First Department agreed with D.C. and today also imposed disbarment as reciprocal discipline.

The New York court set forth the facts:

Respondent's misconduct is predicated upon acts that occurred in connection with respondent's position at NetFax Incorporated (NetFax), a Delaware corporation which he and others founded in 1995 to develop and exploit technology for the transmission of faxes through the internet. As of August 1996, respondent was NetFax's chief executive officer and sole director. In 1996, respondent opened a checking account at US Trust in NetFax's name, on which account he was the sole signatory and for which the bank statements were sent to his home. While respondent provided NetFax with some legal services, including ensuring compliance with federal and state securities law, he did not bill NetFax for such services and was not specifically compensated for those services.

In April 1996, the Maine Supreme Judicial Court affirmed an order foreclosing on property that respondent and his wife owned in Maine. Respondent believed that the property could be redeemed for $130,000. In July 1996, he withdrew $130,000 from NetFax's US Trust account by issuing a check payable to the bank, which he used to purchase a bank check with which he paid his mortgage company and its counsel. The mortgage company accepted the funds, but deemed them insufficient and refused to discharge the mortgage. Respondent did not obtain NetFax's consent before withdrawing the funds or inform NetFax that he would be doing so.

In December 1996, in anticipation of an outside audit of NetFax's accounts, respondent borrowed $130,000 from a NetFax investor, Victor Lombardi. He secured this loan based upon his false representation that the money would be used to pay off the mortgage on respondent's Maine property. Respondent did not inform Lombardi that he had already used NetFax's funds for such purpose and intended to use the loan to repay NetFax.

In June 1997, respondent prepared a "reconciliation report" for NetFax's auditors wherein he falsely represented that his $130,000 withdrawal was a payment to Acorn Computers, Inc. (Acorn). In a separate "schedule of deposits," respondent falsely identified the December 1996 deposit as a "[r]eturn of deposit" from Acorn. Respondent knowingly made these misrepresentations to cover up his use of funds. Lombardi later learned of respondent's misconduct. In July 1998, he filed a complaint against respondent with the Massachusetts Bar Counsel.

The court here considered the attorney's failure to advise New York of the Massachusetts and District of Columbia sanctions as a reason (along with the underlying misconduct) to impose disbarment. D.C. picked the case up through the ABA National Regulatory Data Bank.

The Data Bank was created when I was still at the D.C. Bar Counsel. I spent the next several years processing reams of unreported sanctions that we discovered as a result. (Mike Frisch)

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