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Federal regulators say that investors nationwide who put $92 million into a bogus hedge fund based in Naples, Fla., are being ripped off again, this time by the lawyers and accountants who are supposed to be tracking down their lost money. The two firms involved in the receivership — Big Six accounting giant Deloitte & Touche and Wall Street law firm Weil, Gotshal & Manges — unnecessarily sent “an army” of lawyers, accountants and investigators to sift through the debris of the defunct Maricopa Investment Fund, the Securities and Exchange Commission told a federal judge. The SEC is demanding that the firms’ request of $1.8 million in fees, covering less than three months’ work, be slashed by one-third. The federal agency, along with the Commodity Futures Trading Commission, last month filed a rare objection to the bill submitted by Weil Gotshal, Deloitte, and private investigators Decision Strategies/Fairfax International. The SEC’s position was supported by lawyers for the allegedly defrauded investors. In a heated response to the objection, Weil Gotshal offered to trim $500 from the $1.8 million bill, saying the firms “faced at the outset absolute chaos in an ‘organization’ that never consistently maintained books and records, and intentionally falsified what books and records it had.” The firms were hired by Otto Obermaier, a New York partner with Weil Gotshal and the court-appointed receiver in the Maricopa case. The SEC shut the fund down in March, charging that its head, David Mobley Sr., took millions from investors and instead of investing in stocks, used the money to buy a cigar lounge, a country club and a championship golf course, and to support a lavish lifestyle. They charged that Mobley had defrauded 170 investors over seven years. “Of the estimated $92 million invested in defendant Mobley’s funds, it appears that only approximately $35 million of assets remain,” said SEC lawyer David Kornblau in court documents. “Left unchecked, the receiver’s staffing and billing practices threaten to consume an excessive amount of the remaining assets.” Obermaier, a former U.S. attorney, refused to comment on the fees, but Weil Gotshal responded in court documents that they were a fair price for sifting through more than 100 boxes of files and unraveling the tangled finances of Maricopa to find whatever money remains and return it to the victims. Obermaier turned down the SEC’s suggestion that the receiver take the money later, on a contingency basis. But the SEC railed that “an army” of 71 accountants, 27 attorneys, 16 paralegals, 13 investigators and four administrative assistants — 131 people — billed approximately 9,500 hours. Of greater concern is that these fee applications appear to be just the beginning. The SEC rarely objects to receiver fees, but “there is no way they can justify 131 people working on this in the first three months,” said Kornblau, assistant chief litigation counsel for the SEC. “We were quite surprised when we saw the fees they were charging.” Deloitte had asked U.S. District Judge Richard Conway Casey to approve $957,119, while Weil Gotshal requested $652,830, for work done between March 6 and May 27. That includes work by 75 people at the accounting firm and 42 people at the law firm, including 26 lawyers. The hourly rate of the lawyers, many of them based in Miami, was as high as $615. “They are charging the highest New York billing rates for work that is being done in Miami,” fumed Mark F. Raymond, with Miami’s Tew Cardenas Rebak Kellogg Lehman DeMaria & Tague, who represents 30 investors. “Their rates for junior lawyers in many instances exceed those of some of the best lawyers in Miami. They’re supposed to charge the prevailing rate, and they’re definitely not.” In court papers, the SEC criticized Weil Gotshal for “lumping” all the work done by a lawyer during a day into one entry. That’s frowned upon in bankruptcy courts because it allows billing for minor tasks which, if reported individually, would not be approved, and because it prevents the court from determining whether the work is done efficiently. The agency also said much of the work was duplicated, singling out Deloitte as “a glaring example of this inefficiency.” In one instance, the accounting firm ignored summaries prepared by the SEC and the Commodity Futures Trading Commission and spent 96 hours at rates of $125 to $485 an hour “reading and recreating digests of transcripts that had already been read and summarized by others.” To compensate for Deloitte’s “lumped-time records, overstaffing and general inefficiency,” the SEC asked the firm to cut its fee request by 35 percent. In a written response, Susan Tripp, a director with Deloitte’s Fort Lauderdale office, said the bill was a “fair and accurate depiction of the quality and quantity” of the firm’s services, and the SEC’s objections “indicate a general lack of understanding of the complexity of the matter.” Weil Gotshal also overstaffed the case, although not as egregiously, the SEC alleged. With six tax attorneys and seven bankruptcy attorneys working on the same matter, “inefficiency and redundancy are inevitable.” Because only about $1.5 million of the investors’ money has been located, the SEC and investors’ lawyers fear the fees could eat up all the funds that could be recovered. “Unchecked, the professional fees in this case will easily reach a range of $5 to $8 million per year,” cautioned James Pranger, an attorney with the Chicago firm of Chuhak & Tecson, in a letter to the judge. “In a receivership that will almost certainly be pending for four or five years, the total professional fees could easily exceed the total assets of the estate.”

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