Former Crowell & Moring counsel Douglas Arntsen, who is serving up to 12 years in prison after admitting he embezzled $10.7 million in client escrow funds, can no longer practice law in the state of New York.
The state’s First Judicial Department officially disbarred Arntsen on Tuesday, nearly six months after he pleaded guilty to three counts of first-degree grand larceny and one count of first-degree scheme to defraud. According to the court’s decision, first-degree felony convictions trigger automatic disbarment in New York. Sibling publication the New York Law Journal reports that the disbarment is retroactive to October 2.
Tuesday’s ruling is the latest development in a scandal that dates back to September 2011, when initial reports surfaced that Arntsen—a real estate lawyer and commercial litigator who joined Crowell in February 2007 from Buchanan Ingersoll—had been arrested in Hong Kong in connection with an alleged escrow theft.
Media reports at the time detailed a confrontation between Arntsen and his then-client Regal Real Estate, whose managers had noticed that money was missing from their escrow account. On September 14, 2011, according to Reuters, Regal managing partner William Punch followed Arntsen to several Manhattan bank branches, where the lawyer handed over more than $1.8 million of the missing cash. Arntsen then told Punch he needed to travel to Miami and Hong Kong to get the rest of the money. Concerned, Punch notified authorities and set up a sting operation for the following day. Arntsen never appeared at the designated meeting place, Reuters reported, and instead fled to Hong Kong.
The criminal case against Arntsen—who was admitted to the New York bar in 2003—concluded last fall, when the judge presiding over the matter sentenced him to serve between four and 12 years in prison while ordering him to pay $10.7 million in restitution. As NYLJ noted, Arnsten stole the money from two corporate clients, Regal and investment fund Doina Capital, and used it to make loans and investments; go to sporting events, restaurants and strip clubs; and buy businesses, including a laundromat and cookie and potato chip distributorships.
Arntsen’s actions sparked several lawsuits, including one filed against Crowell and Arntsen by Regal in a bid to recoup what the company said was $5.5 million in stolen escrow funds. That suit settled in December 2011, according to our past reports. Crowell said in a statement at the time that it had agreed to fully reimburse Regal for the lost funds and that the firm was "appalled to learn that a former employee seems to have been involved in an elaborate plot to defraud our client and his colleagues at Crowell & Moring."
A pair of real estate developers, BCN 16th Street and Aristone Realty Capital, also sued Crowell and Arnsten. In an initial suit filed in November 2011, BCN claimed Arntsen improperly diverted $1 million in funds given to Crowell for the purchase of a property. BCN agreed to drop those claims in January 2012, court filings show, but launched a new suit in March 2012 claiming that Crowell, Arnsten, and Regal had breached a contract agreement related to the property sale.
Aristone, meanwhile, sued Crowell, Regal, and other defendants over the same property sale, first filing suit in May 2011, before news of Arnsten’s alleged wrongdoing emerged. In an amended complaint filed in October 2011, Aristone claimed the defendants had engaged in a kickback scheme.
The suits filed by Aristone and BCN were discontinued on the same day last May, according to court filings covered at the time by NYLJ. Reached Wednesday, Aristone lawyer Luke McGrath said simply that the parties had resolved their dispute. A lawyer for BCN did not immediately return a call for comment. (A second suit filed by Regal against Crowell claiming the firm exposed it to litigation by failing to properly supervise Arntsen also settled in May).
For its part, a Crowell spokeswoman confirmed Wednesday that all Arntsen-related litigation had been settled but said the firm had no comment.