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Regarding a lawsuit that cost Harriet Miers’ Dallas law firm a $22 million settlement (for participating in a fraud that cost investors an estimated $33 million) WND has obtained the original petition filed on behalf of the defrauded investors in the District Court of Travis County, Texas, on Oct. 13, 1999, charging that the Lock Liddell’s lawyers were a knowing part of the scheme.
The class-action petition argued that attorneys from Locke Liddell had directly assisted convicted con man Russell Erxleben and Austin Forex International, the company Erxleben created to engage in a currency trading Ponzi scheme. Three Locke Liddell lawyers were named in the suit: Dan Matheson, Jane Matheson, and Curtis Ashmos, all of whom were directors, partners and shareholders in both the original Locke Purnell firm and the new Locke Liddell firm that resulted from a merger.
The class-action suit charged that the Locke Liddell lawyers “made it possible” for Erxleben to commit his fraud, going so far as to assert that without the assistance of the Locke Liddell legal team, the fleeced investors “would not have sustained the damages” of $33 million in investment losses that the suit asserted. Michael Shaunessy, one of the two Austin lawyers who brought the class-action suit, said the people cheated were typically unsophisticated investors, many of whom were retirees who lost their life savings. Some of the people swindled ended up losing their homes because they could no longer make house payments.
“There were over 600 individuals involved,” Shaunessy told WND, “who established over 800 different investment accounts.” When the swindle went bust, all the money was gone. Investors turned over thousands of dollars, sometimes even hundreds of thousands of dollars, to Erxleben who used materials prepared and approved by the Locke Liddell lawyers to assure investors that their money would be safe.
The class-action petition stated asserted that the named lawyers in Miers’ firm had:
… aided and assisted Erxleben and AFI in making various misrepresentations to potential and actual investors regarding such material facts as the nature of the investment, the risk associated with the investment, and the returns being realized by AFI clients.
The professional Defendants rendered erroneous professional advice to AFI and to Erxleben and drafted documents in a way to foster the fraud being perpetrated on the investors. They knowingly gave their endorsement of the scheme and gave it an appearance of legitimacy.
The fingerprints of Harriet Miers’ law firm were all over the fraud. Again, from the class-action petition:
The Locke Purnell letterhead gave the cloak of credibility and legitimacy to AFI’s operation and thus served to draw investor funds into the company. Dozens, if not hundreds, of copies of this letter were printed up and delivered by Locke Purnell to AFI for the express purpose of providing copies to actual and potential investors as a means of assuring investors that AFI’s conduct was not subject to regulation and that a highly prestigious law firm had endorsed AFI’s actions. The representations in the memo and letter were actually relied upon by investors.
Even when the Locke Liddell lawyers knew that Erxleben and AFI were taking huge loses, they continued the fraud by allowing “false statements to be sent to investors right up until the time AFI closed its doors, suddenly and without notice, on Sept. 14, 1998.”
Moreover, if Locke Liddell had done any homework, the law firm should have known they were dealing with a criminal. According to the class-action petition, Erxleben had a history that “includes personal bankruptcy, indictment on felony bad-check charges, multiple tax leans, and numerous lawsuits alleging fraud, assaults and threats of bodily injury upon investors who questioned his schemes and other misconduct.” In 1993, Erxleben had become involved in foreign currency trading in Houston through a company called Frankwell Investments. By the time he quit Frankwell, the company was suing him for nonpayment of a promissory note and losses in his trading account.
All through the time the lawyers in Locke Liddell’s Austin office were in the middle of Erxleben’s fraud, Harriet Miers was co-managing the firm from Dallas. Throughout the scandal, she was the firm’s principle spokesperson. When the class-action suit was filed, she bravely told the press that “Locke Liddell has done nothing improper. We should not have been named in the suit.” That was in October 1999 when the suit was filed. By April 2000, Locke Liddell settled the class-action suit, agreeing to pay the defrauded investors $22 million.
Defenders of Harriet Miers point out that the firm had over 400 lawyers in 1999 and Harriet Miers was co-managing from the Dallas office, not the Austin office where the fraud was perpetrated. They also argue that a managing partner in a firm this large cannot possibly know what exact client work each of the partners is doing. The class-action suit offers a different view.
Repeatedly, the petition for the defrauded investors asserts that at best the actions of the law firm were negligent. Over and over again, the petition charges that the lawyers “knew, should have known, or recklessly disregarded the facts.” Credibility is strained to imagine that a large client generating significant fees and allowing the firm’s name to be distributed in marketing materials went unnoticed by the managers of the firm, even if they were in a different city.
Nor was this the only investment fraud scheme Locke Liddell participated in. A year later, in 2001, the firm agreed to pay $8.5 million to settle a suit brought by investors who had been defrauded by a bond-buying scheme hatched by Brian Russell Stearns, another client of the firm.
On Sept. 18, 2000, U.S. District Court Judge James R. Nowlin sentenced Russell Allen Erxleben to 84 months in a federal prison, a $1 million fine, and $28 million in restitution in connection with his conviction for one count of conspiracy to commit currency fraud, mail fraud and money laundering, and a second count of securities fraud in connection with his activities as president of AFI. Mr. Erxleben’s sentence was considered relatively lenient given the magnitude of his crimes. Had he not pleaded guilty, the sentence would have been much more severe.
Brian Russell Stearns insisted upon a trial, evidently betting that he could even con a jury. Stearns was charged with 82 counts of fraud in federal court and was convicted. He was sentenced to 30 years in federal prison and ordered to pay over $36 million in restitution. This was all that remained of the investors’ lost money after the government seized all of Stearns remaining assets.
The record is that in 2000-2001, Locke Liddell paid out nearly $30.5 million to settle investor lawsuits while Harriet Miers was at the helm. The defrauded investors were successful in pressing a settlement after asserting that the law firm was complicit in defrauding.
Investors in the two scams lost more than $70 million. Austin attorney Michael Shaunessy, who represented the receiver in the class-action petition against Locke Liddell, told WND that investors only recovered about 66 cents on the dollar. This left investors out some $23 million, despite the hefty restitution paid by Miers’ firm.
How do these investment scams add up? Quite simply, on Harriet Miers’ watch, while she was the co-manager of Locke Liddell, the Texas law firm helped con artists steal money from trusting investors, including many seniors and retirees, some of whom lost everything they had.
Negligence of this magnitude is hardly a recommendation for a lifetime seat on the highest court of the land. Mr. President, please withdraw this dreadful nomination. Or, if that is too politically difficult for you to do, then we call on the nominee herself. Ms. Miers, please withdraw from the nomination, so we can avoid the pain of what may well become disgraceful confirmation hearings under oath before the Senate.
At a minimum, Ms. Miers, think of Locke Liddell. Are you sure the law firm in Texas wants this continued adverse national attention on these past professional stains on the firm’s reputation?