Two former clients of Bryan Cave and Holland & Knight are now suing the firms, and alleging that the firms had a part to play in the companies bankruptcies.
The bankruptcy trustees for Estate Financial Inc. (EFI) and Estate Financial Mortgage Fund (EFMF), an affiliate, have filed complaints for malpractice against Bryan Cave on April 28 in Santa Barbara, California.
These trustees are claiming that Bryan Cave and Katherine Windler, Los Angeles restructuring counsel, didn’t watch over EFI and EFMF, and let them fraudulently sell securities that were mortgage-backed to investors. The suits are looking for $100 million in damages from Bryan Cave, and the firm is maintaining that the suits have no merit.
In October 2009, EFI principals Karen Guth and Joshua Yaguda pled guilty to 26 felonies and were sentenced to twelve and eight years in prison, respectively.
Representing Bryan Cave is Kevin Rosen, who is chair of the legal malpractice defense group at Gibson, Dunn & Crutcher in LA, along with bankruptcy partner Samuel Newman.
Industrial Enterprises of America (IEAM), a company which used to sell automotive chemicals and antifreeze, has also filed a civil complaint against Holland & Knight. The firm has been accused of taking part in a “large-scale scheme to loot IEAM” through “willful participation, gross negligence, conflicts of interest, and fraud” which deprived the company of its own working capital.
IEAM filed for Chapter 11 in May 2009 after being caught running a $60 million stock scheme. Its former chief executive, John Mazzuto, and James Margulies, an outside lawyer and one of the partners who founded Margulies & Levinson, were both indicted in 2010 for the stock scheme which contributed to IEAM’s collapse.