TAMPA — One of the nation's biggest law firms was accused Friday of failing to give investors critically important information about a Sarasota financier at the center of a $397 million fraud case.
Holland & Knight attorneys prepared disclosure documents for funds controlled by Arthur G. Nadel, but those memos never said Nadel was disbarred as a lawyer in 1982, according to a lawsuit filed in U.S. District Court.
Nadel, 76, is now jailed in New York in lieu of $5 million bail. He is charged with one count each of securities fraud and wire fraud. Each count carries a penalty of up to 20 years in prison.
In the lawsuit, attorneys said Chicago-area investor Michael J. Sullivan lost $1.85 million to Nadel.
The disclosure documents Sullivan read described Nadel as a law school graduate, developer, securities investor and construction company CEO, the suit said.
But it contended they said nothing of his disbarment in New York for draining nearly $50,000 from a client's escrow account to pay off loan sharks.
The suit, filed by the Tampa office of Johnson, Pope, Bokor, Ruppel & Burns, seeks to have the case made a class-action suit on behalf of more than 600 investors nationwide. It demands more than $5 million in damages.
"We are aware of the lawsuit, we've done nothing wrong and we intend to vigorously defend it," said Karen McBride, Holland & Knight's director of marketing.
With roots in Tampa, Holland & Knight is the nation's 22nd largest law firm. It has 1,125 lawyers throughout the United States and in countries such as China, Israel and Mexico.
Sullivan's suit contends that until 2006, the disclosure documents prepared by Holland & Knight said Michael Zucker was a CPA who worked with Nadel's funds as an independent accountant.
But Zucker's license was declared null and void in 1989, and he was sanctioned by the Florida Department of Professional Regulation 10 years later after continuing to hold himself out to the public as a CPA, the suit adds.
"You've got a couple of characters here that you think would raise suspicion," attorney Guy Burns said.
But while disclosure memos from 2006 dropped the reference to Zucker being a CPA, Holland & Knight did not determine whether the investment funds were sound, the suit said.
"Even a cursory review of the financial records of the Nadel funds would have disclosed the existence of a Ponzi scheme," the suit said.
Also Friday, a federal judge denied an unrelated motion to unfreeze about $250,000 so Nadel can pay Barry Cohen's Tampa law firm for representing him.
Defense attorneys said Nadel's wife, Peg, had money for their fees that she earned or received before marrying Nadel in 2001.
After the wedding, they said, she put her money into Nadel's now-frozen funds, Scoop Capital and Scoop Management.
Defense attorney Todd Foster said Cohen's firm has been talking with prosecutors and hopes to resolve the criminal case in a few weeks. That would allow Nadel to turn his attention to a civil case from the U.S. Securities and Exchange Commission.
So far, Cohen's firm has piled up an estimated $93,185 in fees and costs. That's based on a discounted attorneys' rate of $300 per hour, plus reduced rates for paralegals and investigators.
Foster said that's less than the rate being paid to the receiver in the case and is a fraction of the firm's usual rate, which he declined to disclose.
But U.S. District Judge Richard Lazzara said it would be a "gross abuse" to unfreeze any assets.
Authorities say the assets identified so far don't come close to covering even the most conservative estimate of what Nadel could be liable to repay.
After the hearing, Foster said he didn't know whether he would appeal the ruling or how much longer the firm would represent Nadel.
Times staff writer Colleen Jenkins contributed to this report.