Tuesday, December 20, 2011

Ponzi Scheme Gets Attorney Disbarred

In cases involving misappropriation of entrusted funds, the most important issue for sanction purposes is the intent of the responsible attorney. When a trust account balance falls below the amount required held in trust, there is misappropriation per se. The sanction remains an issue.

 In an opinion issued last Friday, the Michigan Attorney Discipline Board overturned a 2 1/2 year suspension imposed by a hearing panel and ordered disbarment. The board concluded that the attorney's explanation that he let his wife administer his IOLTA account did not negate his intent:

The client's funds were not to be touched except for authorized purposes. Respondent took them for unauthorized purposes. The fact that the balance in the trust account later rose to a level exceeding the amount required to be held for the client does not make the misappropriation go away. The new funds deposited into the account were for the benefit of other clients, and were also required to be held inviolate. Missing client funds cannot be "made good" or "covered" with someone else's money. The use of one client's funds to cover up the conversion of another's is the very essence of a Ponzi scheme.

Both the Administrator and the attorney had sought the board's review of the sanction.

The attorney also made misrepresentations about the account balance. (Mike Frisch)


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