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Lawyer Who Lost Client Funds Playing Stock Market Pleads Guilty to Fraud
The National Law Journal
October 05, 2009
A Southern California lawyer who lost nearly all of a $2.5 million class action recovery by investing client trust funds in the stock market has pleaded guilty to criminal charges.
Sandeep Baweja, 39, of the Baweja Law Group in Irvine, Calif., pleaded guilty on Thursday to one count of wire fraud and one count of obstruction of justice. He faces a maximum sentence of 30 years in federal prison and fines of up to $500,000.
"One of the worst things an attorney can do is to steal from his clients. Another is to lie to the court. Mr. Baweja did both," said Assistant U.S. Attorney Richard Robinson, lead prosecutor in the case. "To his credit, however, he eventually decided to self-report his misconduct to the authorities."
Baweja's attorney, Jeffrey Rutherford, a partner in the Los Angeles office of Crowell & Moring, issued a statement via e-mail.
"Before anyone had learned about what he'd done, Mr. Baweja stepped forward and self-reported his conduct to the Court, his clients, the State Bar, and the criminal authorities," Rutherford said. "He did this, fully understanding the consequences, because it was the right thing to do. He has agreed to plead guilty for the same reason."
In 2007, Baweja filed a class action on behalf of current and former agents of ZipRealty Inc., alleging that their employer failed to pay certain sales commissions, refused to reimburse business expenses and made unlawful wage deductions. The case settled later that year for $3.55 million.
On March 10, 2008, U.S. District Judge S. James Otero of the Central District of California approved the settlement, which included about $887,000 in attorney fees for Baweja and his co-counsel, Ernest Franceschi, a solo practitioner in Los Angeles. Baweja received 75 percent of the fee award, according to an information filed with his plea agreement.
Approximately $2.5 million was deposited into an account at Union Bank of California for approximately 800 class members, according to court documents. Baweja clandestinely transferred all of that money, plus some of his awarded legal fees, to an online stock brokerage account with TD Ameritrade Inc., from which he began investing in the securities market.
"In pursuing his fraudulent scheme, defendant Baweja removed client trust funds from the safety and security of an insured fiduciary bank account at Union Bank, and placed them at extreme risk by using them to day trade securities on margin," federal prosecutors assert in the information.
During 2008, Baweja failed to disclose the real reason for his delays in distributing the proceeds to the class, according to court documents. As of December 2008, Baweja had lost all but $55,000 of the money. About $121,500 ended up being distributed to 46 class members before Baweja confessed that he had lost the rest. He filed a motion to withdraw from the case; at least two lawsuits were filed on behalf of class members seeking to remove Baweja and Franceschi from the case.
Otero granted Baweja's motion and disqualified Franceschi from the case.
A State Bar of California security fund is expected to reimburse class members, according to court documents.
Baweja is to make his first court appearance later this month.
