Wednesday, March 21, 2018

Accessory After The Fact: A "Very Bad Act"

A conviction as an accessory after the fact to a securities fraud drew a four-year suspension from the New York Appellate Division for the Second Judicial Department.

On March 31, 2017, Judge Arthur D. Spatt of the United States District Court for the Eastern District of New York, in summarizing the facts, noted that the respondent had committed a “very bad act.”  The sentencing court remarked as follows:

“Between January 2009 and February 2011, a period of approximately 25 months, this defendant, knowing that a crime has been committed, namely a conspiracy to defraud the United States through the commission of securities fraud, received and released, comfort[ed] and assisted, the offender in order to hinder and prevent the offender’s apprehension in violation of federal law. That’s the nature of the crime he pled guilty to.

“The defendant was an attorney for the company called Permapave Industries, Inc. He was convicted of being an accessory due to his assistance of the defendant Eric Aronson in covering up or attempting to cover up the fraudulent scheme to avoid detection.

“These other persons, Mr. Aronson and company, raised money by investments secured by promissory notes. When it became apparent that the promissory notes would not be paid, the defendant, as the attorney for the company, was involved in exchanging the promissory notes for convertible debentures. And, ultimately, the defendant, on January 8, 2009, sent a letter to investors holding the promissory notes with respect to what was happening.

“But the major point here, the major bad act, very bad act, was that the defendant let Aronson use his attorney escrow account to put the money away, to deposit and withdraw investor funds to keep the scheme operating and to help Mr. Aronson, and the defendant concealed the truth about this escrow account from investors.

“Portions of [the funds] in the escrow account [were] misappropriated by the defendant Aronson. And I don’t know whether any was taken by this defendant. I’m not sure about that.

“But it’s very difficult in this case to ascertain how many victims were defrauded as a result of this defendant’s action in this coverup. He was involved clearly in the coverup rather than commission of the crime.

“As set forth in the presentence report as revised, the defendant was the attorney who allowed Aronson to use his escrow account to deposit and withdraw funds which perpetrated the instant scheme. He worked with Aronson which resulted in a scheme where people were defrauded.

“This was an abuse of a position of public trust as he was a licensed and experienced attorney who knew that he could not use this attorney escrow account for anything like this.

The court noted mitigation but

Notwithstanding the Special Referee’s failure to mention any aggravating factors in her report, this Court notes the following aggravating factors: the respondent knowingly used his escrow account to shield funds from creditors, the respondent knowingly frustrated the judicial process when he agreed to use his escrow account to circumvent a freeze of Permapave’s bank accounts, the respondent minimized his culpability by denying knowledge of the fraud; and the respondent was an experienced attorney whose career included one year of full-time employment with the SEC. Moreover, contrary to the Special Referee’s findings, we find that individuals were harmed, namely, the investors who were defrauded. In covering up the fraudulent scheme, the respondent perpetuated the harm. While the respondent did not use the funds deposited into his escrow account for personal gain, he was paid a lucrative retainer fee of $10,000 per month for his services.

Under the totality of the circumstances, we conclude that the respondent’s criminal conduct warrants a suspension from the practice of law for a period of four years.

(Mike Frisch)

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