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Franklin Thomas Investments in Georgia had a strong selling point for its potential clients. The firm’s own lawyer was an investor, the company boasted. Lawyer Grier G. Newlin lost $40,000 of the $50,000 he invested. Now the investment company’s former law firm is being sued by those who were defrauded. For its profits the investment firm relied on Donald E. James, a Dunwoody, Ga., man masquerading as a commodities broker. He swindled a network of friends, parishioners and family out of more than $5 million in a Ponzi scheme before he was caught and jailed, court records say. Now, four losing investors are suing three of James’ friends who partnered with him and, according to court records, also profited from the scheme. Tanzler v. Schnader, Harrison, No. 1:00-cv-1747 (N.D. Ga. July 12, 2000) and Crook v. Schnader, Harrison, No. 1:00-cv-1746, July 12, 2000). The four investors — Hans G. Tanzler III and Deborah H. Tanzler of Florida and Tyrone and Irma Crook of South Africa — also are suing Newlin’s former Atlanta law firm, Schnader, Harrison, Segal & Lewis, for structuring the commodities trading partnership and allowing it to recruit investors without investigating James’ checkered personal and professional history. “We’re not alleging in the lawsuit at this point in time that they knew Donald James was a fraud,” Atlanta attorney Robert C. Lamar of Lamar, Archer & Cofrin says of the defendants. “Our allegations are that they buried their heads in the sand and failed to do any due diligence. . . . Once they went out and solicited other investors, they had a duty to investigate Don James.” James’ friends and fellow church members at the Calvary Assembly of God in Dunwoody — among them Alpharetta, Ga., accountant Michael A. McCracken, his wife Terri, and McCracken’s sister, Lynne M. Clark of Altamonte Springs, Fla. — made a “a substantial amount of money” before the investment scheme collapsed last year, Lamar says. According to a court-appointed receiver’s report, McCracken invested $344,400 with James and made $1.26 million, a profit of $915,600. Clark invested $47,891 and made $129,700, a profit of $81,809, the receiver’s report states. MOST LOST EVERYTHING Most of James’ 60 investors, some of whom invested $300,000 or more, lost everything, the report says. Profits the McCrackens and Clark realized were “false profits,” according to federal prosecutors, that James acquired by soliciting new investors, paying those funds to early investors, and thereby creating an appearance of generous returns. James pleaded guilty in U.S. District Court last January to one count of mail fraud. He was sentenced to 51 months in prison and three years probation. In a separate agreement with the Commodities Futures Trading Commission he has agreed to repay more than $3.5 million of the funds. James, 37, persuaded investors that he was a trader in commodities futures who had never lost a dime, according to court affidavits from his victims. He promised them returns on their investments of as much as 18 percent a month, saying that God directed his trades, which he executed after prayer. He told his clients that he worked without a fee, making all his profits from his personal trades. But James was not a registered commodity trade adviser and made few, if any trades, according to court records. Instead, he deposited the investments into his personal bank accounts that fueled his lavish lifestyle, including expensive cars, furs, jewelry and a $1.7 million Alpharetta estate. INVESTORS SOLICITED Before the Commodities Futures Trading Commission launched an investigation of James a year ago and froze his few remaining assets, the McCrackens and Clark solicited investors for James through Franklin Thomas Investments and Franklin Thomas Administration Inc., according to the Crook and Tanzler complaints. Through the investment partnership with James, the McCrackens and Clark solicited investors, whom they intended to charge a percentage of the profits each investor was supposed to earn, the complaints claim. The Tanzlers invested $300,000, and lost all but $10,000. The Crooks invested $283,885, and lost all but $20,000. McCracken admits he invested with James but says he was not involved in Franklin Thomas Investments or the firm’s limited partners. He referred questions to his lawyer. James H. Rollins of Holland & Knight, who is defending the McCrackens and Clark say the Alpharetta couple “were among [James'] church members who got caught up in the scam. . . . They were not the ones who were at fault.” Rollins says that if Schnader, Harrison — the law firm the McCrackens and Clark hired — had done what it was supposed to do, the whole thing would have ended sooner. “The McCrackens went to the law firm to get the thing set up,” Rollins continued. “Had the proper registration been done, the background and due diligence for the commodities trading venture, I don’t think anybody thinks that Don James would have survived the checks that were required for setting up that kind of venture.” Newlin, the lawyer who structured the partnership, is out of the office until next week and was not available for comment. He no longer works for Schnader, Harrison. The law firm’s managing partner, John C. Porter Jr., is vacationing until Monday and could not be reached for comment. RECEIVED MONTHLY STATEMENTS In sworn affidavits, McCracken says that while investing with James from 1996 through 1998, he and his wife received monthly profit statements that ultimately reflected more than $1 million in earnings. But the McCrackens also made regular withdrawals from their investment account “without complication until mid-summer 1998″ when checks for withdrawn funds began arriving late or not at all, McCracken said in his affidavit. By then, Clark, who was a corporate officer of Franklin Thomas Administration, had stopped received monthly statements from James. According to her affidavit, “I frequently told James by phone or e-mail that the partnership required full accounting of its investments and profits or losses.” James responded with a litany of lies, according to Clark’s affidavit, until Clark discovered in March 1999 that James’ account with a Chicago commodities broker “contained no money and the account had not been traded for about two years.” The Tanzler and Crook suits claim neither the McCrackens, Clark nor their attorney investigated James’ professional background. JAMES FIRED TWICE? They would have learned through public records, according to the suit, that James had been fired from two brokerage firms. He also had been sued several times in connection with securities fraud, including one suit that resulted in a $1.3 million judgment, the suit states. He was stripped of his securities brokerage license in 1995. “For whatever reason, they [the McCrackens and Clark] had leverage to get money out when nobody else did,” Lamar says. “It happens that they took out a substantial amount of money after our clients invested. They’ve been unjustly enriched by getting our clients to invest with Franklin Thomas Investments.”

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