WASHINGTON – While Supreme Court nominee Harriet Miers presided over a major Texas law firm, it was forced to pay more than $30 million to settle claims it vouched for the reputation of two clients who cheated investors out of millions in an elaborate Ponzi scheme.
While there is no evidence Miers knew about the actions of partners who represented the clients until investors began filing lawsuits against Locke Liddell & Sapp LLC, she publicly defended the firm’s actions saying it never should have been named as a co-defendant in the case.
The law firm represented some of the state’s biggest corporations and most famous residents, including George W. Bush before and after he was elected governor in 1994.
The lawsuits were sparked by work done by partners at Locke Purnell Rain Harrell, one of Dallas’ largest law firms when Miers ran it during the late 1990s. By 1998, the law firm, then called Locke Liddell, found itself on the receiving end of lawsuits over two of its clients, Brian Russell Stearns and Russell Erxleben, a star football player at the University of Texas in the 1970s who played 10 years in the NFL as a placekicker.
Erxleben’s firm, Austin Forex Investments, placed short-term investments in volatile foreign currency markets. The investors contended Erxleben and Stearns used money from new investors to pay off old ones until the schemes unraveled. They also said Stearns often bragged that he used the same law firm as Bush.
The investors said they were cheated in part because Locke Liddell helped make the operations look legitimate and ignored signs of fraud and the selling of unregistered securities. They alleged that the law firm used its trust fund to direct millions in investor money to Stearns.
The lawsuit over Erxleben also named Locke Liddell partners Curtis Ashmos, Daniel N. Matheson III and Jane Matheson as defendants, and the case involving Stearns named another partner, Phillip Wylie.
In 2000, Locke Liddell agreed to pay Erxleben’s clients $22 million, and in 2001 it agreed to pay $8.5 million to settle claims by Stearns’ customers.
Linda Eads, a law professor at Southern Methodist University, where Miers got her undergraduate degree in mathematics and her law degree, wrote an ethics report for the plaintiffs in the Stearns case. Eads said one of the firm’s partners, occasionally sending notes on Locke Liddell letterhead, “represented to investors that Stearns was up-and-up,” according to an Associated Press report. However, Eads said she found no evidence that Miers was involved.
Erxleben and Stearns were both sentenced to prison terms.
On October 13, 1999, a suit was filed in Travis County alleging Miers’ Dallas firm had developed work product including internal memos and notes that aided Austin Forex International in its scheme to defraud investors, reports WND columnist Jerome Corsi today.
“Locke Liddel has done nothing improper and in our judgment never should have been named as a defendant,” Miers told the press at the time.
Still, on April 14, 2000, Locke Liddel agreed to pay $22 million to settle the suit.
Bankruptcy.com noted that the amount was so high because court authorities approving the settlement believe that Locke Liddel’s behavior in the fraud was so outrageous that an example needed to be made of the firm, to serve as a warning to other firms, writes Corsi.
According to Bankruptcy.com, the case was viewed as a test of the Texas Supreme Court’s April 1999 ruling that a lawyer can be sued by a non-client for negligent representation. This ruling only applies if the lawyer’s actions invited the non-client to rely upon the lawyer’s fraudulent opinions and misrepresentations.