A law firm that represented convicted con man Reed Slatkin has agreed to pay $650,000 to settle claims that it cost investors tens of millions of dollars because it didn't discover Slatkin's scam months before it unraveled.
Slatkin was sentenced to 14 years in prison this month for taking $593 million from investors in a Ponzi scheme. Slatkin, a Santa Barbara money manager, pleaded guilty to 15 counts of fraud, conspiracy and money laundering.
Bankruptcy trustee R. Todd Neilson alleged that Bryan Cave, a St. Louis-based law firm that represented Slatkin, mishandled his case, allowing investors to continue to pour money into his illegal schemes.
Slatkin's attorney, Gerald Boltz, a former Securities and Exchange Commission administrator, should have discovered the pyramid scheme in early 2000, shortly after he was hired, Neilson said. But Slatkin's scheme wasn't spotted until it began to come apart shortly before he filed for Chapter 11 bankruptcy protection in May 2001.
"Bryan Cave did not ... recognize possible signs that Slatkin was running a Ponzi scheme, or at the very least defrauding hundreds of investors," Neilson said in a court filing.
Boltz and other Bryan Cave officials declined to comment.
Under the terms of a tentative settlement filed last week, the law firm does not admit to wrongdoing. But it will pay $650,000 to Slatkin's trust to be distributed to creditors, said R. Alexander Pilmer, Neilson's attorney.
The settlement still has to be approved by U.S. Bankruptcy Judge Robin Riblet, who is overseeing Slatkin's case.
Investors who gave money to Slatkin still are owed about $240 million, and more than 200 lawsuits are pending to recover money from the banks and investors who profited from the scheme, Pilmer said.
Attorneys also are negotiating with groups affiliated with the Church of Scientology that allegedly wound up with tens of millions of dollars in donations from Slatkin clients.
In court filings, Bryan Cave said that it too was a victim of Slatkin's deception and that he gave the firm fake documents. However, the firm claimed it was shielded from liability in the case, because its duty as Slatkin's counsel was to represent its client and not investors.