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Victory was sweet for a New York businessman last June, when a Dallas jury leveled a $233 million securities fraud verdict against a group that he says had swindled him. But lawyers for Stewart Rahr say that, judging from what’s happened since the verdict, they’re facing a long, ugly battle to collect anything. The lesson: You can win millions — as our annual verdict survey shows — but collecting is sometimes another matter. So far, two defendants have been jailed; lawyers are vowing to depose parties involved for the next 20 years to reach assets; and suits are being filed in federal and state courts against accounting giant Grant Thornton and legal behemoth Holland & Knight for their roles in the defendants’ business deals. Rahr, the largest investor in Continental Investment Corp., was awarded $102.9 million. The company itself, a land development concern based in Georgia with a principal place of business in Texas, was awarded another $130.7 million. The defendants include Continental Investment’s former chairman, R. Dale Sterritt Jr., several other members of the Sterritt family and a number of professionals who, the plaintiffs alleged, helped the Sterritts to pull a number of scams. “In my closing statement, I called them the biggest crooks that ever walked into the courtrooms of Dallas,” Rahr’s lead counsel, William D. Sims of Houston’s Vinson & Elkins, said when the verdict was rendered. “These defendants did everything from faking financial assets to pump up the balance sheets of Continental’s assets, to manipulating stock prices, to initiating lawsuits of their own to obtain court-approved judgments in hopes of lending their fraudulent activities an air of legitimacy.” In his suit, Rahr alleged that he had originally invested in the company after Dale Sterritt represented to him, as well as in Securities Exchange Commission filings, that the company owned a piece of property in Atlanta that could be developed into one of the world’s largest municipal landfills. In fact, an initial engineer’s report had concluded that the site, which included a granite quarry, was ill-suited for use as a landfill. PUMP UP THE VALUE In addition, the defendants pumped up the value of Continental Investment by buying land and then selling it at inflated prices to related shell companies, the plaintiffs alleged. For example, a company owned by Dale Sterritt’s father, Richard D. Sterritt Sr., bought 74 acres in Georgia for $440,000. The Sterritt company then sold the land for $600,000 to Swan Financial Services, a company owned by a longtime family friend of the Sterritts, according Lawrence J. Fossi of Fossi & Crain in Houston, who also represents Rahr. For a monthly fee, Swan Financial’s nominal owner, an elderly woman, signed a letter acknowledging that Richard Sterritt actually owned all of the company’s stock, Fossi says. Eight days after Swan bought the lot, the company sold it to Continental for $3.4 million, he says. “The Sterritts repeated this scam in several other land transactions,” Fossi says. Rahr, who founded billion-dollar pharmaceutical supplier Kinray Inc., lost more than $12 million before realizing that Continental Investment was not as represented, he says. The fact that the company was audited by Grant Thornton and represented by Holland & Knight was a big part of the reason he invested in the first place, says Rahr. It was publicly traded but not listed on either the New York or Nasdaq stock exchanges. “I don’t believe Dale Sterritt could have ever created the illusion that Continental was a legitimate company without the help of these prestigious firms,” he says. Rahr has brought an action in Texas state court against Grant Thornton, and plans to add Holland & Knight. Continental — now being run by management not tied to the Sterritts — has filed for bankruptcy. But Rahr has agreed to finance Continental’s claims against both firms in exchange for a portion of any damages that it recovers. Continental has sued Grant Thornton and Holland & Knight in federal court in Dallas, alleging that in 1995, Holland & Knight acquired the Atlanta law firm Branch Pike & Ganz, and that both Holland & Knight and Branch, Pike & Ganz represented Continental Investment, the Sterritts and several Sterritt-controlled entities. A proposed amendment to the suit claims that firm lawyers failed to disclose numerous conflicts of interest, such as transactions being conducted by Dale Sterritt and other Continental officers, that weren’t at arm’s length. The firm had a fiduciary duty to reveal that Continental grossly overpaid for several parcels of land, the complaint says. And it says that firm lawyers helped the Sterritts conceal a fraudulent “stock-laundering” scheme that allowed them to sell insider stock without notifying the SEC. Holland & Knight’s lawyer, Robert H. Mow Jr. of Hughes & Luce in Dallas said, “The allegations, to us, don’t appear to have any substance,” and he noted that U.S. District Judge A. Joe Fish already has dismissed a number of federal securities claims from Rahr’s suit, leaving him to take his case to state court. The two Holland & Knight lawyers named in the suit, Barry G. Roberts and Jerry L. Sims, are no longer at the firm. Roberts echoed Mow’s comments, adding, “We’ll vigorously defend those allegations.” Sims declined to comment, saying that he had not been served with the amended complaint that contained allegations against him. Continental Investment’s complaint says that Grant Thornton was hired to represent the company because Dale Sterritt and a former chief financial officer were unhappy with the way the previous accounting firm had characterized a transaction. Grant Thornton agreed to recharacterize the transaction, allowing the Sterritts to overstate vastly Continental’s net worth, the complaint says. Grant Thornton did not perform background checks that would have revealed previous judgments against the Sterritts, it knew company officers were participating in transactions not conducted at arm’s length, and it allowed Richard Sterritt to conceal illicit insider stock trading, according to the complaint. Grant Thornton’s lawyer, Gary A. Orseck of Mayer, Brown & Platt in Washington, D.C., says his clients did not uncover any illegal activity. “I will categorically state that the claim is false that Grant Thornton was aware of any improper activity and failed to disclose it,” he says. Orseck also is fighting class action status being sought by New York lawyer Ralph M. Stone of Shalov Stone & Bonner, who is suing the accounting firm on behalf of Continental investors. In addition to going after the lawyers and accountants involved, Rahr has vowed to continue pursuing the original group of defendants. “I still hope to recover something from these characters,” he says. “They’ve attempted to make this litigation so expensive and so hard that I would just walk away [but] I’ve been blessed with being able to afford this litigation. They’ve cheated lots of little shareholders who can’t afford to go after them.” Discovery is under way to identify the defendants’ assets. Dale Sterritt has moved at least some of his operations to Florida, where he has attempted to close some land deals, Fossi says. But the chances of recovering from either of the Sterritts appear bleak, says another of Rahr’s lawyers, Mark E. Davidson of New York’s Proskauer Rose. “Whatever they have, they’ve either spent it or concealed it,” he says. Dale Sterritt’s attorney, Thomas C. Barron of Dallas, didn’t return calls. Richard Sterritt’s lawyer, Christopher M. Weil of Dallas, says the defendants have appealed the verdict to the U.S. Court of Appeals for the 5th Circuit. He wouldn’t comment on the grounds. A chief objection during the trial, he says, was that Judge Fish did not allow the defense case enough time. The plaintiffs’ recovery efforts have been hampered by the jailing of two defendants, lawyers say. Edward W. Roush Jr., an attorney for the Sterritts, was cited for contempt by Judge Fish for failing to appear at a contempt hearing after temporarily refusing to give a deposition. Roush was sent to a federal detention center in Fort Worth, Texas. William Sims says he’s prepared to depose Roush every 90 days for the next 20 years. “If you owe money, you can’t just give one deposition and go merrily on your way,” he says. Roush could not be located for comment; the number provided by directory assistance had been disconnected. Ironically, Rahr’s best chances of recovery may come from the man the Sterritts brought in to stave off litigation when their dealings began to unravel, attorneys say. Malcolm M. Kelso, a “crisis counselor” who is not a lawyer, is so well-known for mounting attacks with lawsuits, bankruptcy filings and other legal actions that the Wall Street Journal profiled him even before Continental Investment hired him, attorneys say. Fossi alleges that Kelso and Roush used court filings to undermine efforts to get to the bottom of the Sterritt’s dealings. Cases have been “pockmarked by bad-faith bankruptcy filings and collusive state court lawsuits…designed to undermine the orders and jurisdiction of the Court,” Fossi said in a federal court motion naming Kelso, Roush and Dale Sterritt as the instigators. Rahr says that Roush sent 500 of his customers a letter accusing him of being a mobster, and that Roush accused Judge Fish of being corrupt. ‘STAYING POWER’ “No one has had the staying power against the likes of Mr. Kelso and Mr. Roush — to endure the bankruptcies, to endure the bogus counterclaims, to go to the jury with the evidence,” Fossi says. “That’s what they bank on.” Kelso was arrested recently in the Dallas-Fort Worth airport by U.S. marshals after failing to testify or produce documents for a deposition in the Rahr case. Federal authorities handed Kelso over to officials in Dallas County, where he was jailed in a dispute over child support, Davidson says. “When he was picked up,” says Fossi, “he was carrying on his person a check for $25,000 from Stanford University… . Plainly he has access to a whole lot of money. Whether we’ll be able to reach it is a whole ‘nother question.” Kelso’s lawyer, Reed W. Prospere of Dallas, says he is too new to the case to comment. Kelso didn’t return a message passed through Prospere. Perhaps most disheartening about the case, Davidson says, is that federal authorities have not taken public action against the Sterritts and their associates. “That’s been one of the disappointing things to me,” he says. “These guys were caught dead to rights… . You’d think in a situation like this the regulators would step in and take action to prevent them from making these kinds” of deals. Harold Degenhardt, who heads the SEC office in Fort Worth, says that the agency will not confirm or deny the existence of ongoing investigations.

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