New York Securities Lawyers Blog

In a follow up to our recent critique of dividing defrauded consumers into "net winners" and "net losers" comes a decision from U.S. District Judge Jed Rakoff, who has dismissed Bernie Madoff trustee Irving Picard's claims filed to regain nearly $1 billion from Fred Wilpon and Saul Katz, the owners of baseball's New York Mets. The decision may potentially limit Picard's future chances of recouping investors' initial investments with Madoff, in what analysts have dubbed "clawback suits" filed by the trustee against the defrauded.

The judge's decision illustrates a difference between U.S. bankruptcy law and securities law regarding when investors should return money previously received from their broker. A thorough, easy-to-read explanation of fraud can be found on our home site. For New York law, that period spans up to six years prior to a broker's bankruptcy, while Federal law caps that limit at only two years. What Picard will be able to recoup depends greatly upon whether he will continue to be held to Federal standards. Several district court judges have in recent months sided with Madoff investors' requests to move cases out of bankruptcy court, a setting that typically favors the trustee.

What we can all learn from these rulings is that where and when an investment is made - as well as where and when any necessary litigation takes place - can be just as important as the venture you've chosen to pursue. For one, it's notable that our national standard for "clawback" measures is more favorable than that of New York, a state housing Wall Street and an immense amount of high stakes real estate, as well as many entertainment and banking endeavors. Clearly, it pays for investors to be informed about their state's "clawback" legislature: for those of us engaging the market longterm, timing is everything, and how recently you've been the victim of fraud sets crucial perimeters.

With only nine of eleven of Picard's claims against the Mets tossed out in court, he may still go forward in seeking to recoup $301 million in principal and $83.3 million in what he brands "false profits". Picard's challenge comes in explicitly proving that the Mets were "willfully blind" in ignoring warning signs of fraud, thereby placing the duty of such investigation upon the investor. "[Why] would defendants willfully blind themselves to the fact that they had invested in a fraudulent enterprise?" asked Judge Rakoff in his written decision. It is a succinct and astute question that sums up the value of accountability in our marketplace, and makes an apt demand of those committing fraud to accept the penalties of their deception.

Malecki Law, a New York securities law firm based in Manhattan, is currently investigating claims against IRA Services Trust Company and Fiserv, Inc. arising out of investments solicited and promissory notes issued through the Van Zandt Agency in relation to real estate investments in the Bronx, New York and elsewhere.

The Attorney General of the State of New York is currently investigating the practices of the Van Zandts and on April 6, 2011, filed an application in the Supreme Court of the State of New York for an order of discovery and preliminary injunction against the Van Zandts and other related agencies.

Based on the initial inquiry of the securities fraud lawyers of Malecki Law and the Attorney General's investigation, there are questions about whether or not the Van Zandt Agency broke the law by engaging in the fraudulent issuance, promotion offer and sale of securities to the public in the State of New York. It is believed that hundreds and possibly thousands of investors may have lost money invested with the Van Zandts.

There may be claims against IRA Services and Fiserv for failing in their due diligence, supervision and providing a facility for an alleged fraud by an unregistered investment advisor that was also not a broker dealer. The lawyers at Malecki Law are focusing on potential claims against IRA Services and Fiserv, who may have breached various duties to individual investors, as they may be the only hope of a recovery for those who lost money.

Continue reading "Malecki Law Announces Investigation of IRA Services Trust Company and Fiserv, Inc. Arising Out of Investments with the Van Zandt Agency" »

In Why Your CPA Might Blab, by Arden Dale, the Wall Street Journal reports what your CPA knows could be subject to disclosure. As New York business lawyers know from experience, your accountant is not your attorney and he or she is not your priest.

Certainly when facing an audit or investigation, the first order of business is to consult an experienced New York business attorney to help protect your rights. As a decision we secured earlier this month illustrates (Salt Aire Trading LLC v. Enterprise Financial Services Corp.), communications involving your accountant may be privileged if assisting your law firm in your defense.

In that case, plaintiffs submitted to an in camera review of IRS audit documents for which attorney-client privilege was claimed. Plaintiffs claimed the documents were produced by plaintiffs' attorneys and accountants for the purpose of legal advice. Defendants in the case contested attorney-client privilege. As the court noted, generally attorney-client privilege cannot be asserted in the presence of a third party, in this case the accountant. An exception would be if the accountant was facilitating attorney-client conversation, such as acting as an interpreter.

The court found in this case that the accountant did act as a facilitator and that the plaintiffs met their burden of proof. Still, the court ruled portions of the documents not covered by attorney-client privilege must be disclosed.

As The Journal reports, the Internal Revenue Service is more often challenging attorney-client privilege when tax attorneys try to extend such protection to CPAs. Known as the Kovel Rule, such protections have been in place for half a century. However, the IRS and the courts continue to limit such protections.

Advocates warn taxpayers to beware a false sense of security. Conversations with your accountant are not automatically protected. In more and more cases, courts are taking a look at the extent to which the accountant's work was done to facilitate the attorney-client privilege. Thus, having an attorney at the outset of such cases can be critical in both preparing a defense and determining whether the accountant's work product will be subject to disclosure.

The Kovel Rule stems from the case of Louis Kovel, a former IRS agent who went to work for a tax law firm and was sent to prison in 1961 after refusing to answer grand jury questions about a client. The decision was ultimately overturned by an appeals court decision.

Continue reading "Kovel Rule no Guarantee of Accounting Privacy in New York Audits and Investigations " »