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Dallas-based Strasburger & Price is embroiled in a class action suit in which the firm and one of its partners are accused of helping clients defraud hundreds of investors through what the plaintiffs allege was an “oil and gas Ponzi scheme.” And the Strasburger partner named as a defendant was a defendant in a similar suit before. The plaintiff class originally filed Downie, et al. v. Strasburger & Price and Lee Polson in Austin state district court on Aug. 10. But on Sept. 15, the defendants removed the suit to U.S. District Judge Sam Sparks’ court. In their 30-page original state court petition, the plaintiffs describe the suit as “yet another” example of lawyers accused of assisting clients to defraud investors. Specifically, in the petition the plaintiffs accuse Strasburger and Polson, a partner in the firm’s Austin office, of aiding and abetting the sale of unregistered securities through misrepresentation, conspiracy to commit securities fraud, conspiracy to violate the Texas Securities Act, attorney malpractice, breach of fiduciary duty and negligent misrepresentation among other things. In their suit � which centers on Polson’s representation of CKG Energy Inc. and CKG Pipeline (CKG) and the owner of both companies, Michael D. George � the plaintiffs allege the following: George had a history of securities troubles. Regulatory agencies in several states had ordered him to stop selling securities, yet from March 2002 until mid-2004, CKG accepted $11 million from investors and told them the money would be used to fund wells CKG was drilling in New Mexico. CKG told investors they could expect large returns on their investments. Instead, CKG placed their money into a general account without any assignment to specific drilling projects. George allegedly used that account as “his personal ATM machine, spending it, solely at his own discretion, for his living expenses and for generous gifts” for family and friends. When the investors threatened to sue George, he allegedly paid them off with new investor money. In 2002, after the Texas State Securities Board notified CKG and George that the agency was investigating them regarding the potentially fraudulent sale of unregistered securities, Polson agreed to represent CKG and George. Polson allegedly instructed George and CKG on how to respond to angry letters from investors. And Polson helped George and CKG with their responses to the securities board. Polson and Strasburger knew that George and CKG could not comply with Texas securities law and knew that investor money was used to pay for George’s “lavish” salary and living expenses, but they never instructed CKG or George to disclose that information to the securities board, the petition continues. The firm and Polson also did not inform investors or the securities board that their clients allegedly were committing fraud. “Because of their knowledge, Polson and Strasburger had a choice to make with regard to representing CKG and George: They could demand that CKG and George tell the investors the truth about their investments or Polson and Strasburger would resign; they could simply resign from the representation; or they could disclose the truth to their clients’ investors themselves,” the plaintiffs allege. “Instead, Polson and Strasburger set about delaying the State Securities Board investigation and helping CKG and George continue their fraudulent operation.” Polson and Dan Butcher, Strasburger’s managing partner, refer questions about the suit to Steve McConnico, a partner in Austin’s Scott, Douglass & McConnico who represents the firm and Polson. McConnico says his clients deny any wrongdoing. “We think they didn’t do anything wrong and they provided good legal work and didn’t breach any obligations to anyone,” McConnico says. “There are some people that were unhappy with the investments, but they are investors and sometimes investments don’t turn out the way we would like.” A Sept. 16, 2005, memorandum opinion by U.S. Bankruptcy Judge Frank R. Monroe of Austin denied George discharge under Chapter 11 bankruptcy. In that opinion, Monroe described George as “the proverbial hog feeding at the trough of investors’ money without any real regard for the investors’ rights. Mr. George is the ultimate smooth talker who should not be trusted with one single tiny nickel.” George says he has done nothing wrong and neither did Strasburger or Polson. “I can’t compete with what people want to say. And lawsuits are lawsuits. Lawyers try to make money,” George says. “I lost my eyesight five years ago. I may not have run a checking account the way other people do. But I did the best I could.” George also disputes the characterizations Monroe made of him in his bankruptcy memorandum opinion. “One thing about bankruptcy is you get blamed for everybody,” George says. “If I could have got the pipeline done, I would have been a genius.” Difficult to defend Downie is d�j� vu for Jim George, a partner in Austin’s George & Brothers who represents the plaintiff-investors in the suit. (Jim George is not related to Michael George.) Jim George has represented investors in two similar suits in which they accused Texas firms of helping clients defraud investors. In 2001, Jim George represented investors in Mortenson, et al. v. Locke Liddell & Sapp, et al., a state court class action in which the plaintiffs alleged Dallas-based Locke Liddell and a former lawyer with the firm helped Austin businessman and client Brian Russell Stearns defraud investors. The defendants, who denied any wrongdoing, settled the suit for $8.5 million. Stearns was sentenced to 30 years in federal prison for fraud. [See "Locke Liddell Agrees to Settle Suit Over Alleged Ponzi Scheme," Texas Lawyer, Aug. 6, 2001, page 1.] In 2000, Jim George also represented investors in a state court suit, in which the plaintiffs alleged the Austin office of Sheinfeld, Maley & Kay, a now defunct Houston-based firm, and Locke Liddell, among other defendants, assisted client Russell Erxleben with his alleged Ponzi scheme. Polson, then a Sheinfeld, Maley partner, was also a defendant in that suit, which he and the firm settled for $8.5 million. Locke Liddell settled the suit for $22 million. [See "Locke Liddell Settlement Serves as Warning to Other Firms," Texas Lawyer, April 24, 2000, page 14.] Both firms also denied any wrongdoing. Erxleben, a former University of Texas star kicker, pleaded guilty to federal conspiracy and securities fraud charges and was sentenced to seven years in prison. He has since been released. “There are special responsibilities of lawyers and special obligations not to help people do bad things,” George says. “And I think that’s what happened here.” One of the plaintiffs’ causes of action in their petition asserts that Strasburger and Polson violated the obligations of an attorney to persons who are not the attorney’s clients as set out in �51 of the Restatement (Third) of the Law Governing Lawyers. Attorneys owe a duty to nonclients if their work product is used to defraud, according to �51 of the Restatement, says Linda Eads, a professor at Southern Methodist University Dedman School of Law who teaches professional responsibility and evidence. “The law says that a lawyer is responsible for any fraudulent misrepresentations that occur by use of that work product,” Eads says. “In terms of ethical duties the lawyer can resign. That will fix his problems before an ethical board if he resigns. It may not fix his problems with the third parties if they come after him for fraud and misrepresentation.” A suit filed by a third party who claims he was harmed by a lawyer’s representation of a client is usually hard to defend, says William Cobb, a partner in Dallas’ Cowles & Thompson who defends firms in legal malpractice cases. “The reason they are difficult to defend is the lawyer is not in control of the conduct of the client. The lawyer has to live with whatever the client did,” Cobb says. “So the battleground for the suit is over whether the lawyer aided and abetted in a way that took him outside the customary role of a lawyer providing legal advice.” In the wake of litigation surrounding the downfall of Houston’s Enron Corp., it’s not much of a defense for lawyers to claim they didn’t know their clients may have been involved in fraud, says Michael Shaunessy of Austin’s Shaunessy Law Firm, who has filed suits against firms accused of helping clients defraud investors. “It’s very hard for the lawyer to say, “Investors, you should have known something was wrong,’ but turn around and say, “But I didn’t know anything was wrong,’ ” Shaunessy says. “ The lawyer spends more time with the [client] than the investors do. And he always has more knowledge than the investors do.

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