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Real estate investment firm Walton Houston Galleria Office claims corporate and litigation law firm Andrews Kurth neglected to inform the company about a federal investigation into another one of the firm’s clients, R. Allen Stanford, whose company leased space in a key Walton property. Walton Houston Galleria Office, a Houston-based real estate investment firm backed by billionaire Neil Bluhm, claims Andrews Kurth neglected to inform the company about the Securities and Exchange Commission investigation. Stanford served as the head of Stanford Financial Group, a Houston-based financial services company that federal prosecutors now claim was actually a $7 billion Ponzi scheme. Court proceedings against Stanford, who faces securities fraud and money laundering charges, were temporarily postponed in January after a judge found Stanford mentally unstable to stand trial. The civil complaint filed last week in Houston state court states SFG leased space in The Galleria development in Houston and engaged in lease and sale negotiations for the Galleria Towers property. Andrews Kurth represented both SFG and Walton in the 2005 negotiations after Walton agreed to let its lawyers advise both sides of the deal according to the malpractice, negligence and breach of contract complaint. But the sale fell through, and Stanford sued Walton the same year. After SFG collapsed in 2009, Walton was still tied up in the litigation and couldn’t sell the property, which cost it millions in attorney fees and lost lease revenue, the company claims. Attorney Probed Walton’s suit against Andrews Kurth comes a year after a report by the SEC’s inspector general criticized the conduct of current Andrews Kurth corporate governance head Spencer Barasch, a former assistant director of the regulator’s regional office in Fort Worth that investigated Stanford for fraud. The report recommended Barasch face possible sanctions and disbarment for his role making decisions to “quash investigations” of Stanford’s alleged crimes and then representing the accused Ponzi schemer just months after leaving the SEC. Walton’s complaint against Andrews Kurth claims Barasch told colleagues the law firm should represent Stanford in the SEC’s inquiry in June 2005. That is allegedly when Andrews Kurth became aware of the Ponzi scheme, money laundering and other illegal activities at SFG. The firm continued to depict SFG as a legitimate entity to Walton, according to the complaint. Andrews Kurth represented Walton from 2004 until January 2008. Walton is seeking damages of at least $10 million for malpractice and other professional negligence as a result of allegedly concealing information about Stanford and SFG. Thomas Ajamie, managing partner of Houston firm Ajamie, is representing Walton in the case, along with partner Dona Szak. Ajamie declined to comment on the suit. A spokeswoman for Andrews Kurth declined to comment on the Walton suit, citing the firm’s policy of not discussing pending litigation. Murray Fogler, a partner at Houston’s Beck Redden & Secrest, is representing the firm in the litigation. Andrews Kurth has publicly defended Barasch, who remains with the firm despite the possibility of criminal charges being filed against him. Last month, eight Stanford investors sued the SEC, citing the “negligent supervision of Barasch by his SEC supervisors,” according to the complaint filed in that case. “Spencer Barasch served the SEC with honor, integrity and distinction,” Andrews Kurth managing partner Robert Jewell said in a statement at the time. “We disagree with the characterization of Mr. Barasch’s involvement put forth by the inspector general in his report last year.” Barasch’s supporters claim he’s been made a scapegoat by federal regulators under fire for not catching Stanford sooner. But he’s not the only lawyer to face scrutiny following the fallout from SFG’s collapse. Adams and Reese and Louisiana firm Breazeale Sachse & Wilson were named as defendants in February in one of several suits filed by an investors committee working with the court-appointed receiver for SFG. Brian Baxter reports for the American Lawyer, an ALM affiliate of the Daily Business Review.

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