Greenberg Fights Subpoena Seeking Clawback Money From Partner

Greenberg Fights Subpoena Seeking Clawback Money From Partner J. Albert Diaz Greenberg Traurig

Greenberg Traurig is fighting a wide-ranging subpoena from a Michigan receiver seeking documents from its Boca Raton managing partner related to a $72 million Ponzi scheme.

The receiver, Robert Gordon of Clark Hill in Birmingham, Mich., is seeking about 50 boxes of documents from Greenberg partner Bruce Rosetto. In court papers, Gordon’s lawyers have accused Greenberg of obstruction in first claiming it did not have the documents and later claiming attorney-client privilege.

The receiver sued Rosetto, his wife and son in a separate federal clawback action filed in Michigan in 2009. That suit, which was stayed pending a Financial Industry Regulatory Authority arbitration, is seeking $9.3 million allegedly obtained by Rosetto and companies he founded with his family called Royal Palm Real Estate Investment Fund LLLP and Royal Palm Investment Management Co. LLC.

“This is a proceeding seeking to narrow an overly broad subpoena in a third-party litigation,” a Greenberg spokeswoman said. “This lawsuit has nothing to do with any conduct or activities that occurred at our firm.”

Bruce Rosetto moved to Greenberg Traurig with a group from Blank Rome in 2008.

Rosetto’s attorney, Clarence Pozza Jr., called the allegations against the Rosetto family “meritless.”

“I thought this was all a giant stretch by the receiver, and I thought the allegations were silly,” said Pozza of Miller Canfield in Detroit. “We will defend this vigorously. Basically, there was capital collected for real estate investments and buildings were purchased, so the notion of a Ponzi or a fraud is without merit with respect to the Rosettos. I am very confident in the outcome.”

Greenberg has assigned Steven Mendelsohn, one of its West Palm Beach litigators, to the subpoena case filed last October.

Untenable Guarantees

Gordon is the receiver for Flint, Mich.-based Legisi Marketing Inc. Former executive Greg McKnight is serving a 16-year prison sentence for running a scheme that promised returns of 50 percent and fleeced 3,000 mostly Michigan residents, many of their life savings.

The Ponzi scheme reached into South Florida. Gordon filed a shareholder lawsuit in Michigan federal court against the Rosettos, their Royal Palm companies and three of Rosetto’s clients, Boca Raton broker-dealers Alan Goddard Jr., Michael Lichtenstein and Eric Bloom.

The complaint alleges the brokers worked at the Boca Raton-based investment company Sierra Equity Ltd., which is no longer in operation because Bloom was permanently barred from the securities industry by FINRA.

Upon the advice of Rosetto, Sierra Equity sold securities worth $20 million to Legisi, according to the suit.

Rosetto should have clearly seen from Legisi’s website that the company was selling securities without being registered, was offering untenable guaranteed rates of return and its trading strategy was suspect, according to the receiver’s reply motion in Greenberg’s subpoena litigation.

The brokers reaped over $2 million in fees from these investment sales, the suit alleges.

“In Legisi, the defendants recognized an opportunity to earn exorbitant fees and raise capital to start a real estate private equity fund,” the suit said.

Rosetto’s 23-year-old son, Robert, was named manager of the fund formed in 2007, even though he had no real estate property management experience, states the suit. Robert Rosetto and Roxanne Rosetto, Bruce’s wife, are each 50 percent owners of a Royal Palm affiliate.

A month later, Sierra and Royal Palm entered into a selling agreement with Royal Palm appointing Sierra as its agent to sell Royal Palm units to potential investors.

Fraud Alleged

“The Royal Palm sale representations were false and material,” according to the suit.

Lichtenstein was not licensed or registered to offer or sell securities in Michigan, the suit said. Additionally, the suit said Royal Palm failed to make a number of disclosures to investors: managers had no commercial real estate management experience, the terms of the selling agreement called for Sierra to receive 13 percent of Legisi’s investments, the three brokers had a conflict of interest due to their ownership interest in RP Management, Rosetto had a conflict of interest with his son involved in the company, and RP Management would receive a 50 percent stake in Royal Palm without making any capital contribution.

Legisi sent $9.3 million in investors’ money to Royal Palm, and that money is gone, Murphy said.

“Through its agent, Sierra, and its other agents, Royal Palm carried out a planned scheme and course of conduct which was intended to and did deceive Legisi,” the suit said. “Such material misrepresentations and/or omissions were done knowingly or recklessly for the purpose and effect of concealing the true value of the Royal Palm securities and the artificially inflated prices of the Royal Palm securities.”

The suit accuses Rosetto and the brokers of violating the U.S. Exchange Act, the Michigan Uniform Securities Act, the Florida Securities Transaction Act, common law fraud, innocent misrepresentation, unjust enrichment and avoidance of fraudulent transfers under the Michigan Uniform Fraudulent Conveyances Act.

“The investigation that we have conducted to date has confirmed that Mr. Rosetto participated in securities fraud with respect to the Royal Palm Real Estate Investment Fund,” Murphy said in an interview.

A spokeswoman for the Florida Bar said no complaint or investigation is pending against Rosetto.

Document Dispute

The lawsuit was stayed last October pending resolution of a FINRA arbitration against the three brokers. Trial in that case is set for this June.

Preparing for trial, attorneys for Gordon served a subpoena on Greenberg Traurig’s New York office after they were unable to serve it at the firm’s Boca Raton office. In June 2013, Greenberg responded that it did not have the documents sought.

Through third parties, Gordon discovered Rosetto represented Royal Palm after joining Greenberg. In August 2013, a Greenberg assistant general counsel left a message for Gordon “apologizing for the mistake” and assuring him paralegals were “working nonstop” reviewing documents, states Gordon’s motion. Later that month, Greenberg produced 781 pages of documents.

While inspecting documents at Blank Rome’s Philadelphia headquarters, Gordon’s attorneys learned that firm had transferred 45 to 50 boxes of documents to Greenberg or Rosetto. Gordon issued a second subpoena, prompting Greenberg to file its suit.

The firm maintains it’s not a party to the FINRA arbitration, the documents sought are protected by attorney-client privilege and the subpoena is “oppressive and unduly burdensome.”

“GT possesses voluminous quantities of privileged documents concerning the FINRA respondents and the non-FINRA respondents,” Greenberg said in a court filing.

In its reply motion, Gordon’s attorneys accused Greenberg of stalling and obstructing discovery, and asserted no attorney-client privilege exists by order of the FINRA arbitrators.

The two sides are negotiating document production issues, Murphy said. If Greenberg doesn’t produce documents soon, he said he would request a hearing on the issue before U.S. District Judge Kenneth Marra in West Palm Beach.

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