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Lawyers' $11 Million Bonus Request Leaves Judge, SEC Surprised
SEC counsel argues that a fee enhancement would trim payments to bilked investors and give lawyers a windfall equivalent to more than $800 per hour
Daily Business Review
November 02, 2009
When Chief U.S. District Judge Federico Moreno first read the final fee request for the Mutual Benefits fraud receivership, he thought lawyers were seeking $1.1 million, not $11 million.
Then he realized there was no decimal point, the judge recounted Thursday at a hearing in Miami.
"I needed a defibrillator," he joked. "We're talking about a lot of money."
It is up to Moreno to resolve a simmering dispute over how richly to compensate lawyers for five years of work on one of the largest scams in South Florida history.
Roberto Martinez, the court-appointed receiver, is seeking the $11 million bonus to split between his law firm, Colson Hicks Eidson, and primary counsel Kozyak Tropin & Throckmorton. To date, the two Coral Gables, Fla., firms have jointly collected about $4 million.
Moreno did not say when he would rule on the request.
Robert Levenson, regional trial counsel for the Securities and Exchange Commission, argued against any fee enhancement, saying it would reduce payments to bilked investors and award lawyers a windfall equivalent to more than $800 per hour.
Receivers should be viewed as public servants and be paid moderately in fairness to victims, he said.
"The investors are only going to recover a fraction of their losses," Levenson said. "These aren't corporate, market-rate clients."
In his fee request, Martinez, a former Miami U.S. Attorney, acknowledged an "inherent tension" between maximizing the payout to victims and compensating professionals for their work on the case.
He said awarding the bonus would barely dent the investors' recovery, decreasing payments by 1 percent to 4 percent. Without his team's work, there would be far less to distribute.
"We stepped in, and we preserved assets that could have dissipated," Martinez said.
VIATICAL FRAUD
Fort Lauderdale-based Mutual Benefits traded in viatical settlements, acquiring life insurance policies from elderly and terminally ill people and selling shares of their death benefits to investors. In 2004, the SEC accused firm leaders of operating a massive Ponzi scheme, and a federal judge turned over operations to Martinez.
At the time, the company was administering 7,000-plus insurance policies worth more than $1.5 billion for 30,000 investors around the world, making it a complex case to unravel for law enforcement and the receiver.
The investigation spawned numerous criminal prosecutions, including a case against four Mutual Benefits principals set for trial in 2011.
All told, investors lost about $837 million. The receivership amassed roughly $120 million to split among the investors, according to court filings.
Their recovery depends on whether they chose to sell their policy interests or hold them and continue paying premiums. Those who sell stand to receive about 23 percent of their initial investment. Investors who keep the policies will recover about 13 percent of their investment plus any proceeds from the policies.
In seeking the fee enhancement, Martinez contends his legal team should receive 15 percent of the bounty they helped secure -- for a total of roughly $15 million. The calculation is based on $100 million in recovered funds excluding $20 million obtained from former Mutual Benefits principals through SEC disgorgement orders.
No investors spoke at the hearing. In an Oct. 15 letter to Moreno, one investor said he was "appalled" by the receiver's request.
"Please, let's get these funds back where they belong -- in the hands of the investors -- and away from greedy hands," wrote Ronald Meyers of Sanibel Island.
But Michael Hanzman, of counsel with West Palm Beach-based Ackerman Link & Sartory, who represented defrauded investors in class action litigation, told Moreno the receivership lawyers "deserve a significant fee enhancement." He did not specify an amount.
"If you want to attract the best and the brightest people to take these cases, you have to pay a reasonable fee," Hanzman said. "This is not a pro bono case."
SUPREME COURT REVIEW
At the outset, Colson Hicks and Kozyak Tropin agreed to charge a flat hourly rate of $350 for partners and a discounted rate for associates and paralegals. That compares to current partner billing rates topping $500.
As further discount, Moreno frequently trimmed legal bills before authorizing payment. Overall, the two firms worked on the matter at average hourly rates of $218 and $264, respectively.
"I wish I could get paid that," Levenson, the SEC attorney, quipped when Moreno asked whether the compensation seemed reasonable.
But Moreno seemed less certain. "If you want to drive a good car, you've got to pay a good price."
Federal law allows courts to award bonuses in some cases based on factors including the time and labor required, the novelty and difficulty of the legal questions presented, the amount of money involved, the results obtained and awards in similar cases.
Moreno said he was mindful of recent arguments in Perdue v. Kenny, a U.S. Supreme Court case dealing with attorney fees in a Georgia federal case. Several justices seemed critical during arguments this month of a $10.5 million award that included a $4 million enhancement.
Some lawyers at the Mutual Benefits hearing suggested $4 million in unclaimed funds could go to the receivership attorneys. Levenson said that money too should be dispersed to investors.
The agency's opposition has been less vehement than in its public battle with the court-appointed receiver for the investment group of Texas financier R. Allen Stanford.
In that case, fees and expenses accrued by Dallas attorney Ralph Janvey since March total more than $36 million -- or about $100,000 a day, according to court filings. The SEC has called Janvey's spending "excessive" and "counterproductive."
In contrast, Levenson commended Martinez for handling the Mutual Benefits receivership with great efficiency.
"This is not about the receiver's performance," he said. "They have done a good job under difficult circumstances."
