To pay off loan sharks, New York attorney Arthur G. Nadel violated a basic tenet of legal ethics — he dipped into an escrow account and took $50,000 that did not belong to him.
That was in the late 1970s, and Art Nadel was subsequently disbarred for "dishonesty, fraud, deceit and misrepresentation."
But in 2004 — by which time Nadel was living in Sarasota — he never disclosed his legal disgrace to investors in his Scoop Real Estate Limited Partnership. Thus, many were blindsided last week when the 75-year-old Nadel vanished, along with an estimated $350-million managed by him and his companies.
Had prospective investors known of Nadel's past, they might have been far more wary about entrusting their money to a man who promised unusually high, steady returns even as the stock market tanked. And should Nadel ever turn up, he, his partners and even Holland & Knight, the law firm for Scoop Real Estate, could be held liable by investors claiming they were misled about Nadel's background.
"Absolutely," Lizabeth Moody, former dean of Stetson University College of Law, said when asked if Nadel's disbarment for fraud and dishonesty should have been disclosed. "You have to decide if this is something a reasonable investor would consider in making a decision, and in my estimation it certainly is."
In a case strikingly similar to that of Bernard Madoff — accused of bilking clients out of $50-billion in history's biggest Ponzi scheme — dozens of investors and non-profit groups been left wondering how $350-million managed by Nadel could seemingly evaporate overnight.
Among the biggest losers are the YMCA of Sarasota, whose $1.2-million endowment was wiped out, and Mace International, the maker of defense sprays, which lost $2.2-million.
Using cell phone records, investigators reportedly have traced Nadel to the New Orleans suburb of Slidell, days after his Subaru turned up at the Sarasota airport. The Sarasota County Sheriff's Office said Tuesday that Nadel disappeared voluntarily and that it is closing its investigation into his whereabouts.
In recent years, Nadel has been an admired figure in Sarasota, generously donating to churches, youth groups and arts organizations. Few, if any, knew of his aborted legal career in New York.
According to records obtained by the St. Petersburg Times, Nadel in 1978 represented CCN Realty Corp. and its president, Richard Sanchez, in the sale of CCN property to a hospital. After the two parties entered into a contract, Nadel put the hospital's $50,000 deposit into an escrow account.
The deal fell through, and in May, 1980, the hospital asked for its money back. But Nadel was unable to return it because all but $152 had been spent "in connection with loan-shark transactions and related events and circumstances with his client (Sanchez)," New York Supreme Court records show. "(Nadel) further stated that he shared in the problems and concerns of Sanchez."
In early 1981, Nadel made full restitution, and a disciplinary committee said it was "not totally clear" whether Nadel himself was directly involved with loan sharks.
"Nonetheless, it may be fairly stated that (Nadel) acted with a misplaced allegiance to his client, Sanchez, and in dereliction of his duty to the hospital in removing the monies from the escrow account and paying them to the 'loan sharks,' " the committee said. For "professional misconduct of such a serious nature," Nadel was disbarred on March 11, 1982.
In 2004, Nadel began soliciting investors for his Scoop Real Estate Limited Partnership, which planned to buy income-producing residential and commercial properties. A "private placement memorandum" given to prospective investors included biographical data about Nadel, noting that he had a law degree from New York University.
The memorandum says nothing about Nadel's disbarment.
Private placements "are basically an attempt to avoid securities laws" governing publicly traded companies, says Moody of Stetson Law School. But they are still subject to federal antifraud rules that require disclosure of any "material" fact that might affect a person's decision to invest.
Scoop's private placement memorandum lists Holland & Knight, one of Florida's top law firms, as its general counsel. Whether the firm could be held liable for Nadel's failure to mention his disbarment 22 years before "is kind of hard to say," especially if Nadel didn't volunteer the information and lawyers didn't ask, Moody says.
"If they know something or learn something, they have to disclose it as part of their ethics," she says. "But if they didn't know it, I can't believe it would have come up unless there was some reason to look into it."
A representative of Holland & Knight said, "We are reviewing our records and have no comment at this time."
Hugh Culverhouse Jr., an attorney who has spoken with several Scoop Real Estate investors, says Nadel's charitable activities apparently kept people from looking too closely at his background.
"You've got to really do some bad things to be totally disbarred," Culverhouse says. "But nobody did any research."
Susan Taylor Martin can be contacted at email@example.com.