Lawyer, Two of HIs Former Firms Sued for $10 Million in Ponzi Mess

Lawyer, Two of His Former Firms Sued for $10 Million in Ponzi Mess
The Legal Intellingencer by Shannon P. Duffy - January 5, 2011

PHILADELPHIA, PA - A West Chester, Pa., lawyer and two of his former firms have been hit with a $10 million legal malpractice suit by the court-appointed receiver who is overseeing the recoupment of funds for victims of the $78 million Ponzi scheme run by Joseph Forte. In the suit, receiver Marion A. Hecht claims that attorney Kevin J. Ryan and his former firms — Crawford Wilson & Ryan and Crawford Wilson Ryan & Agulnick — negligently prepared partnership documents that allowed Forte to evade federal registration and reporting requirements. The 11 lawyers in Crawford Wilson & Ryan became members of Montgomery McCracken Walker & Rhoads in June 2006 when the two firms merged. Ryan left Montgomery McCracken in 2009 to form a three-lawyer firm, Ryan Morton & Imms, where he continues to practice. Ryan declined to be interviewed about the lawsuit except to say that he intends to deny any wrongdoing in his representation of Forte. Forte, who has been dubbed a "mini-Madoff," pleaded guilty to a slew of fraud charges in November 2009 and is currently serving a 15-year prison term. Court papers show that from 1995 to 2008, Forte raked in $78.6 million from 125 investors by falsely promising annual returns of 18 to 38 percent. In reality, prosecutors said, Forte was paying off early investors with funds from later investors. Of the 125 investors, 41 were "net winners" who recovered their full $22.2 million principal payments as well as $8.6 million in "profits." But 84 others lost a total of $34.8 million from their original investments of $56.4 million. Hecht has filed eight other lawsuits to recover funds that will be distributed among Forte's victims. Representing Hecht in all of the suits are attorneys Lawrence T. Hoyle Jr., Arlene Fickler, George P. Podolin and Benjamin H. Field of Hoyle Fickler Herschel & Mathes. Hoyle, in an interview, said the receiver also has more than 100 tolling agreements with parties that are currently under investigation and that he expects more lawsuits to be filed. The most recent suit focuses on the legal advice Forte was given by Ryan in 1995 and in 2000 on how to structure his limited partnership. According to the suit, Forte and John N. Irwin hired Ryan in 1995 to form a partnership that would invest in securities futures. The suit alleges that the partnership agreement drafted by Ryan included requirements under Pennsylvania law — such as filing with the Department of State — but did not reference any requirements under federal law. Ryan allegedly advised Forte that, as a "commodity pool operator," he was not required to register with the Commodity Futures Trading Commission because the partnership had fewer than 15 participants and less than $200,000 in gross capital and was therefore exempt. But the suit alleges that, under the Commodity Exchange Act, a pool operator is required to provide a statement of exemption to the commission and to all participants in the pool. In July 2000, the suit says, Ryan drafted an amended partnership agreement that had 30 signature lines for limited partners. With that number of partners, the suit says, Forte was no longer exempt and should have been subject to reporting requirements that included monthly or quarterly financial statements and an annual report to the commission and all participants. The suit alleges that Ryan "failed to advise" Forte and the partnership of the reporting requirements. As a result, the suit alleges, Ryan "enabled and facilitated the conduct of Forte in operating his Ponzi scheme." The suit alleges that Ryan also established a partnership account for a "profit sharing" plan, and that Ryan's investment of $10,000 gave him the status of trustee. Ryan invested another $10,000 in 2001, the suit alleges, for a corporation he had formed. As a result of those investments, the suit alleges, Ryan would have received copies of the partnership's account statements and tax filings, and therefore "should have been aware that the partnership was not complying with its requirements." The suit is captioned Hecht v. Crawford Wilson Ryan & Agulnick , 10-cv-7440, and has been assigned to U.S. District Judge Paul S. Diamond, who is presiding over all of the lawsuits filed by the receiver.