Brooklyn federal prosecutors have further charged a former Baker & McKenzie partner, indicted last fall on securities fraud charges, with stealing from a client escrow account.
Martin E. Weisberg, 57, then a corporate partner in Chicago-based Baker & McKenzie's New York office, was charged in October by the Eastern District U.S. Attorney's Office with participating in an illegal short-selling scheme that netted two Israeli investors $55 million. The counts in the indictment include securities fraud, conspiracy and money laundering.
Federal prosecutors said Tuesday they had since uncovered Weisberg's involvement in a separate fraud scheme.
According to a new indictment charging him with several additional counts of wire fraud and money laundering, Weisberg told three clients they would not receive interest on $30 million they deposited with him in an escrow account. Weisberg then allegedly deposited the money in an interest-bearing account that generated $1.6 million in interest between August 2006 and October 2007. Prosecutors claim Weisberg stole $1.3 million of it.
At his arraignment Tuesday on the new charges, Weisberg pleaded not guilty and said he had already replaced the money in the escrow account. Prosecutors contended Weisberg had only done so because an investigation was ongoing.
Weisberg was represented Tuesday by Barry Slotnick of Buchanan Ingersoll & Rooney. Slotnick said that Weisberg had taken an authorized loan which he had repaid and no crime had been committed.
Weisberg also pleaded not guilty to the October charges.
Elkan Abramowitz of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, appeared for Weisberg in October and said Tuesday he remains defense counsel in the securities fraud case.
Weisberg faces a maximum of 20 years in prison on each wire fraud count and 10 years in prison on each money laundering count. He had already faced similar maximum sentences on his earlier securities fraud charges, as well as millions of dollars in fines.
One of the clients that placed escrow funds with Weisberg, Bahamas-based SIAM Capital Management, recently sued Baker & McKenzie over the firm's turning over of the company's documents to prosecutors in alleged violation of attorney-client privilege. But William J. Linklater, a partner who acts as spokesman for the firm, said recently the case had been resolved with the firm returning SIAM's documents.
Baker & McKenzie asked Mr. Weisberg to resign shortly after his indictment last year. Linklater did not return a call for comment on the new indictment.
PIPE DEALS
The scheme charged in October involved a series of so-called PIPE (private investment in public equity) transactions. In such transactions, large investors are allotted blocks of discounted shares, the sale of which is restricted until after a registration statement becomes effective.
From 2001 to 2004, Weisberg allegedly helped Israeli investors Zev Saltsman and Menachem Eitan gain access to hundreds of millions of PIPE shares in two companies he represented, New York health care software company Ramp Corp. and Virginia-based Xybernaut Corp., a maker of wearable computers.
The government charges that, prior to the effective date of the registration statements, Saltsman and Eitan would take short positions in the two companies' stock. A technique utilized by investors betting a stock price will drop, short-selling typically involves borrowing stock to be repaid at a later date when the investor hopes it will be cheaper. Saltsman and Eitan would set this date after the effective date of the registration statement, permitting them to use their discounted PIPE shares to repay the borrowed stock.
Saltsman and Eitan were also charged in the October indictment, as were Edward G. Newman, Steven A. Newman and Andrew Brown, the top executives at Xybernaut and Ramp. According to prosecutors, Weisberg and the executives were aware of what Saltsman and Eitan were doing and accepted money to give them continued access to the company's PIPE deals.
Weisberg allegedly received $3.1 million from the Israeli investors, keeping $1.7 million for himself and transferring $1.4 million to Steven A. Newman. Edward Newman and Andrew Brown allegedly received payments of $100,000 and $50,000, respectively.
During most of the time the alleged PIPE scheme was ongoing, Weisberg was a partner at New York's Jenkens & Gilchrist Parker Chapin, then an arm of now-defunct Dallas law firm Jenkens & Gilchrist. Most of the lawyers in the office, including Weisberg, left to open a New York office for Atlanta's Troutman Sanders in April 2005. Weisberg left Troutman Sanders soon after and became a partner in the New York office of Baker & McKenzie in August 2005.
In a strange twist, Weisberg also had previously faced fraud and money laundering in a 1991 case brought by federal prosecutors in Texas.
Weisberg had been a partner in the New York office of Philadelphia's Morgan, Lewis & Bockius when he was retained in 1989 by William W. Gray of Horseshoe Bay, Texas, to launch a corporation specializing in "arbitrage" of the Mexican peso. In a January 1991 indictment, the government charged the arbitrage was in fact a Ponzi scheme in which investors were promised returns of up to 600 percent a year based on the supposed currency trades. Investors allegedly lost $27 million in the scheme.
Weisberg left Morgan Lewis, where he had been a partner since 1987, in February 1991, shortly before he was added to the indictment.
Gray was found guilty on all counts and sentenced in October 1991 to 18 years in prison, from which he was released in 1998. Most of the other participants reached plea agreements. But Weisberg was acquitted after a trial at which Dick Clark of American Bandstand fame, a longtime client, testified as a character witness.
