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Three lawyers who represented defendants in a $117 million criminal insurance fraud and money laundering case on trial in West Palm Beach, Fla., federal court may end up having to repay as much as $2 million in fees. The attorneys: Thomas D. Sclafani of Fort Lauderdale, and Neil G. Taylor and Norman Malinski, both of Miami. In recent years, federal prosecutors have aggressively investigated attorneys suspected of accepting fees from tainted sources. The three lawyers’ stories illustrate the fine line attorneys must walk when accepting money the government later can claim flowed from criminal activity. In Sclafani’s case, the sheer size of the fee — $500,000 for 30 days of work — raises serious ethical concerns. All three have denied any wrongdoing. The trio’s headaches with federal prosecutors and with bankruptcy trustee John W. Kozyak of Miami arose in August after a federal grand jury handed up insurance fraud and money laundering indictments. The government charged Frederick C. Brandau and his company, Financial Federated Title & Trust Inc. of Lazy Lake, Fla., with selling bogus interests in discounted “viatical” life insurance policies purchased from terminally ill people. The dying, usually victims of AIDS, received a percentage of the cash value of their policies. Financial Federated, which would collect full payment upon the insured’s death, resold the policies to 5,000 investors, promising a 47 percent return. The company, however, bought only $6 million in life policies, while pocketing as much as $130 million from investors, according to court records. Brandau and other corporate officers bought their families and friends helicopters, 34 luxury cars, three motorcycles, Jet Skis, ski boats and 25 pieces of land in Florida and elsewhere, prosecutors claim. As part of a plan to provide restitution, Kozyak, the court-appointed bankruptcy trustee, entered a guilty plea on behalf of Financial Federated, arranging to forfeit the property to the government so it could be sold and the cash returned to investors. Prosecutors also charged Gary J. Pierce, a convicted bank robber, and his Bahamian company, CSI Ag. Ltd., with mail fraud and money laundering. The government alleges that CSI bought Financial Federated in May 1999. It was CSI that wired $1.35 million into Sclafani’s trust account last summer to pay him fees and expenses for defending Brandau and Pierce. Sclafani, in a January deposition, acknowledged the payment but denied knowing CSI took over Financial Federated. He also testified that he used $600,000 of the money to pay private investigators Frank Tarallo, formerly a Miami-based Drug Enforcement Administration agent, and Brian Moss of Texas for a month’s work. Kozyak attacked the CSI funds transfer as fraudulent, suing Sclafani in U.S. Bankruptcy Court in Fort Lauderdale, and demanded that Sclafani return all the money plus interest and legal fees. “There’s a lot of people who got money for doing nothing, and I have no qualms about going to a lawyer to get the dough back,” said Kozyak’s lawyer, Arthur H. Rice of Rice & Robinson in Miami. Sclafani says he’s getting a bad rap. It’s unfair after services are rendered to try to second-guess the source of funds when on their face they are appropriate,” said Sclafani’s attorney, Steven Mishan of Miami’s Mishan Sloto Greenberg & Hellinger. Sclafani also continues to draw fire on ethical grounds: was his $500,000 fee for a month’s work clearly excessive, violating the Florida Bar’s ethical prohibitions? Sclafani says he initially received $25,000 from Brandau’s personal account as a retainer to defend only Brandau during the grand jury investigation at a $350-an-hour rate. That changed, he said, on July 27 when he agreed to represent both Brandau and Pierce. But on Aug. 27, after Brandau and Pierce were both indicted, Sclafani withdrew from the case on grounds he could not represent two defendants in the same case. That Sclafani kept a $500,000 fee for 30 days’ work raises serious ethical concerns, according to experts. “It would take a very sophisticated client and a very specific fee contract before I would ever say that a lawyer could hold on to an upfront fee where the lawyer is discharged that early,” said Andrew L. Kaufman, ethics professor at Harvard Law School. NO ONE ASKED Sclafani testified in January that there were no written fee agreements and said he didn’t return any money to Brandau or Pierce because no one asked for a refund. Besides, he said, he had earned the money. But if Sclafani recognized that Brandau and Pierce probably would be indicted and still agreed to defend them both, there are plenty of court decisions in Florida saying Sclafani should get no fee at all, said Timothy Chinaris, associate dean and ethics professor at the Florida Coastal School of Law in Jacksonville. Did Sclafani anticipate his clients’ indictments? To blunt government plans to indict Brandau and Pierce, Sclafani on Aug. 6, wrote U.S. Attorney General Janet Reno and Thomas E. Scott, then U.S. attorney for the Southern District of Florida. It would be a “huge mistake,” Sclafani wrote, to indict Financial Federated, Brandau, Pierce and others, because it “will have the effect of seriously undermining the Government of Free Vietnam in its effort to carry out its long-planned objective to return a unified Vietnam to a democratic form of government.” CSI, he wrote, owned “considerable assets” to make investors whole, including six gold and silver mines in South America, the smallest of which had reserves of $96 million. CSI is the “primary funding agent” for the Los Angeles-based Vietnam government in exile, he added. Sclafani also told Reno and Scott that CSI was being audited. A report would soon be sent to Scott. But he could offer no proof that CSI had such assets during his deposition and conceded that there was no audit and no report. Taylor, by contrast, has a very different set of problems, resulting from his work defending Pierce for nearly a year after Sclafani left the case. He expects the federal government or Kozyak to chase him for the $140,000 he received, but argues that any money he kept came from third parties not on the prosecutor’s list of prohibited sources. GOOD FAITH Rice, Kozyak’s attorney, concedes that Taylor has a good-faith defense and praises the attorney for his solid, “workmanlike job” defending Pierce. But lead prosecutor Ellen L. Cohen already has tried to get Taylor bounced from the case on grounds he took laundered funds. U.S. Magistrate Linnea Johnson rejected the claim. Instead, Pierce discharged Taylor only after Cohen — in an apparently tactical move — threatened to call Taylor as a witness in the government’s case, putting him into a conflict of interest. That happened a month ago, forcing U.S. District Judge Daniel T.K. Hurley to grant a continuance in the government’s trial against Pierce, who earlier demanded a speedy trial since he remains jailed. Taylor said he was promised a $200,000 flat fee but was short by $60,000 because he returned two wire transfers he suspected came from tainted funds. After he got an additional $50,000 for expenses, Taylor said, he notified federal prosecutors, who told him to hold the money in escrow. “As a profit-making venture, I got killed,” says Taylor. “I put a tremendous amount of time in the case. Who needs the aggravation?” Yet, he praised Cohen as the kind of adversary who “doesn’t give ice away in winter.” Malinski was the first to represent Brandau but was fired. He is on vacation and was not available for comment. Court records show that Malinski later represented another defendant in the case and was paid his fee directly from another of the main defendants, Financial Federated Title & Trust Inc.

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