Sunday, August 20, 2017

Pennsylvania Supremes OK Record $4.4 Million Payout As Partial Reimbursement For Claimed $11.3 Million Fleeced From Ex-Clients By Thieving Lawyer; Recent 4-Year Fund Payouts Triggered By Sticky-Fingered Attorneys Now Up To $15 Million

In Harrisburg, Pennsylvania, reports:
  • More than four dozen victims of a Ponzi scheme perpetrated by late Hummelstown attorney Jeffrey Mottern will share in what is the largest payout ever made from a fund created by the state Supreme Court to help those cheated by dishonest lawyers.

    The 47 former Mottern clients whose claims were approved by the Pennsylvania Lawyers Fund for Client Security will receive a combined total of $4.4 million in two separate payments, half this December and the other half next December, said the fund's executive director Kathryn Peifer Morgan.(1)

    That represents about 39 percent of the $11.3 million in combined losses that 67 clients, in a pending lawsuit, are claiming that Mottern stole.

    It was the first real bit of good news they have received since they realized, after Mottern's suicide three years ago, that they had been the victims of a scam that cost some their life's savings. It was news that some had begun to doubt they would ever receive.

    "At the rate it was going for a while there, it didn't look good at all," said Cosmo Agostino of Hummelstown, whose claim to the lawyers fund was approved. "I think the clients will be satisfied to a point. At least it's something."

    The letter caught Carol Bingaman of Swatara Township and her husband Stanley by surprise.

    "We were thrilled," she said. "We couldn't believe it. For us and for our brother [who also was a scam victim] it pretty much covers what we lost. It's fantastic."

    But she also feels for victims who lost more money -- in some cases, hundreds of thousands of dollars and, in two cases, more than $1 million.

    The maximum amount that the fund allows any of the victims to receive is $100,000.

    "A $100,000 doesn't do a lot for them," Bingaman said.

    Because of the number of victims and the combined amount of money that Mottern had fraudulently taken from them, the Supreme Court waived its $1 million aggregate cap on what the fund could pay for claims against any single lawyer, said Peifer Morgan.

    "We're just grateful for the court providing us with the financial resources to be able to help these people," she said.

    The Lawyers Fund for Client Security's primary funding source is $45 from the $200 lawyers pay annually to keep their law license active in Pennsylvania.

    Mottern took advantage of the trusted relationships he had developed with clients and family members of clients by encouraging them to allow him to pool their money - oftentimes, inheritances from estates he handled - with that of other clients' money in a certificate of deposit that never existed.

    He bolstered his clients' confidence that the investment was legitimate by sending out monthly financial statements on his law office stationery showing the balance was growing. He allegedly used money from new investors to make monthly payments to clients who requested them.

    Court records show he also spent some on himself and to pay personal bills, gave some to his wife Susan, and used some to play the stock market, losing most of it.

    As others became aware of his scam, Mottern voluntarily surrendered his law license in the fall of 2013 rather than face punishment from the Supreme Court's lawyers disciplinary board. But he didn't tell his clients and continued the pretense of practicing law.

    In March 2014, two of his elderly clients, who had given Mottern control over more than $2.2 million of their money, became aware that Mottern no longer was a practicing attorney. They became nervous and filed a civil action against him demanding their money back. Two days later, the FBI, tipped off by the court's disciplinary board, raided Mottern's law office, removing boxes of files and his computer.

    Three days after that, Mottern admitted his guilt in what several of his former clients later say was a cowardly way by taking his life in his Main Street office. He was 62.

    Scam victims filed a lawsuit in Dauphin County Court against three financial institutions with which Mottern had accounts. A trial date is set to begin on May 21, 2018. They hope to recover more of the money they lost through that effort.

    Most of Mottern's victims were senior citizens, and at least a couple have died since the scheme was discovered. Given the circumstances that cost them their nest eggs or savings they wanted to leave to their children, Peifer Morgan said the Lawyers Fund for Client Security board modified its rules for recovering money it is paying out to the victims.

    Its past practice was to recover every dollar the fund pays out whenever a court ruling or verdict results in a monetary award. Instead, the fund's board decided to use a calculation that takes into account the principal amount the victim lost and the amount of money, less attorney fees, that are awarded through the litigation.

    So, for example, if a victim lost a principal amount of $500,000 and was paid $100,000 from the fund, that represents 20 percent of their loss. So if the litigation results in $300,000 for that victim after attorney and other fees associated with the litigation are deducted, the fund would receive $60,000 of the settlement and the victim would receive the remaining $240,000.

    But the idea that a portion of any money that the lawsuit might recover would be deducted from what victims receive doesn't sit well with Paul Stokes of Middletown. He said some of the other victims he has spoken with also find it hard to swallow.

    "I'll take what I can get. Don't get me wrong," Stokes said. "That being said, I just think it's low of them to want 20 percent back of what you receive on the other end, especially when the fund was set up to take care of clients like me who got screwed. To me, that's low."

    Peifer Morgan admits the Lawyers Fund for Client Security board considered waiving its rights to recover any money paid out to victims in the Mottern case, given the large size of some of the losses. But in the end, it decided it had to strike a balance, particularly given the rash of big-dollar cases that have come before it within the past four years.

    Since 2013, the fund has approved aggregate awards to victims of four different lawyers' criminal conduct that ranged between $3.4 million and Mottern's $4.4 million. Those awards combined add up to $15 million, the most the 35-year-old fund has ever paid out in a four-year span.

    "The board thought long and hard about this," Peifer Morgan said. "We have a duty to victims and that's our primary concern but we also have fiduciary duty to members of the Pennsylvania Bar Association who provide these resources. It's a balancing act."
For the story, see Victims of Pa. lawyer's Ponzi scheme get record payout.
(1) For other "attorney ripoff reimbursement funds" that sometimes help cover the losses created by the dishonest conduct of lawyers licensed in other states in the United States and in the Canadian provinces, see:
Maps available courtesy of The National Client Protection Organization, Inc.