One would think that with the prosecution of Bernie Madoff either investors or shysters would figure out that Ponzi schemes are a bad deal. However, attorneys continue to get caught in involvement in Ponzi schemes even in our post Madoff world. A Florida attorney has recently been disbarred for running a real estate investment fraud “similar to a Ponzi scheme.” The fraud involved investments of at least $1.8 million. Yesterday, Jonathan Bristol, 55, a former partner at the New York firm Winston & Strawn, pled guilty of conspiracy to launder almost $19 million in funds. He faces up to five years in prison and a fine of $250,000, but will also by paying $18.8 million in restitution. Last month, William Parente, 59, another New York lawyer, killed his wife, his two children, and then himself in a Maryland hotel. Mr. Parente was under investigation by the FBI for his involvement in what may be a $20 million Ponzi-type scheme.
The professional liability implications of involvement in Ponzi schemes are obvious, as are the attorney ethics and professional responsibility implications. Stealing a client’s money is never a good idea, it is a breach of fiduciary duty and a clear ethical violation. It is unclear how many lawyers get involved in these type of activities consciously. Frequently (although by no means always) the Ponzi schemes start with a single bad decision which snowballs as the attorney attempts to cover-up a mistake. As the examples above show, any short term financial gain comes at an enormous cost!