Greenberg Traurig and Quarles & Brady have agreed to fork over a combined $87.5 million to resolve claims that they failed to put the brakes on a $900 million Ponzi scheme carried out by two mortgage-industry clients.

Greenberg agreed to pay $61 million to settle a class action brought in federal court in Phoenix, Ariz., by investors in mortgage lender Mortgages Ltd. and securities dealer Radical Bunny LLC. The plaintiffs filed settlement papers on Wednesday with U.S. District Judge Frederick Martone–the same day the judge preliminarily approved a $26.5 million class settlement with Quarles & Brady.

The plaintiffs sued the firms in May 2010, claiming they violated Arizona state securities laws by aiding and abetting a Ponzi scheme run by Greenberg client Mortgages, Ltd and Quarles client Radical Bunny. Mortgages Ltd. was an Arizona company that made loans to real-estate developers and then sold most of the loans to investors. Radical Bunny helped raise money for Mortgages Ltd. by illegally operating as an unlicensed securities dealer, according to the investors’ complaint. After Mortgages Ltd. filed for bankruptcy in 2008, both the the Securities and Exchange Commission and Arizona regulators conducted investigations. In 2010, the Arizona Corporation Commission issued a cease and desist order against Radical Bunny and the SEC found that a Mortgages Ltd. affiliate had willfully violated securities law.

According to the plaintiffs, Mortgages Ltd. hired Greenberg in April 2006, and the firm prepared 11 private-offering memorandums for investors over the next two years. The class action alleged that from at least December 2006, Greenberg’s lead partner on Mortgages Ltd. matters, Robert Kant, was aware that the company was being funded with proceeds collected from illegal securities sales by Radical Bunny. “Kant’s concerns about the illegal securities sales were so great that he admonished the Radical Bunny managers in late 2006 to obtain securities counsel, so that their pictures would not wind up ‘on the front page of the Arizona Republic,’” the complaint said.

The investors also claimed that a Quarles partner questioned in a file note whether Mortgages Ltd.’s relationship with Radical Bunny had “a Ponzi scheme feel” to it. Quarles lawyers later stated in SEC testimony that they told Radical Bunny managers to stop selling the securities and to contact regulators to admit they had violated securities laws, according to the complaint. The plaintiffs maintained that the firm, however, continued to assist Radical Bunny in new securities sales, and that lawyers at both Greenberg and Quarles ignored their obligations to report their clients’ illegal conduct to securities regulators.

As we’ve reported, bringing claims under Arizona state law allowed the plaintiffs to bypass the limits placed on aider and abettor liability by third-party advisors in the U.S. Supreme Court’s Stoneridge v Scientific-Atlanta decision. Plaintiffs overcame a huge hurdle in March, when Judge Martone certified two classes of investors in the case.

In motions urging approval of the settlements (here and here), class counsel at Bonnett, Fairbourn, Friedman & Balint and Tiffany & Bosco wrote that their expert had pegged damages at up to $499 million for Greenberg Traurig and up to $552 million for Quarles & Brady. They wrote that jury verdicts of that magnitude–or even the threat of such “existential exposure”–could spark a partner exodus at the firms and leave class members with “a largely uncollectable paper judgment.” Bonnett Fairbourn’s Andrew Friedman didn’t immediately return our call for comment. The plaintiffs firms are set to seek a fee of 15 percent of the settlement, or about $13.1 million.

In an e-mailed statement, a spokeswoman for Greenberg called the settlement “a sensible step for the firm,” adding that “we have always stood behind the work we did in this matter.” Greenberg is represented in the suit by Williams & Connolly.

When its settlement was submitted for court approval earlier this month, Quarles & Brady Phoenix managing partner Jon Pettibone said in a statement that neither federal or Arizona securities regulators had found fault by Quarles & Brady in its representation of Radical Bunny.

“Although the firm believes its conduct was at all times lawful and ethical, in order to avoid the burden, expense and uncertainty of continued litigation Quarles & Brady agreed to settle the class action for $26.5 million,” Pettibone said in the statement, which noted that the settlement was funded by the firm’s insurer. Quarles & Brady was represented by Robert Gooding Jr., who moved from Howrey to Morgan, Lewis & Bockius early last year.