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Five law firms are among more than a dozen parties that have agreed to pay $109 million to settle investment fraud suits pending in federal court in Portland, Ore. The settlement, which was mediated by 9th U.S. Circuit Court of Appeals Senior Judge Edward Leavy, was announced May 14 by the lead plaintiff’s firm, Portland-based Bullivant Houser Bailey. The case stems from alleged fraud committed by Capital Consultants LLC, a Portland investment management firm that was accused of losing nearly $500 million invested by employer pension and health benefit trusts, as well as individual investors. Under the settlement, three law firms that did legal work for Capital Consultants agreed to settle. Lane Powell Spears Lubersky of Seattle agreed to pay $25 million, O’Melveny & Myers agreed to pay $8 million and Portland’s Weiss Jensen Ellis & Howard (which merged into Holland & Knight in October 2001) agreed to pay $2 million, according to Stephen F. English, the lead counsel for Bullivant. Stoel Rives of Portland, which represented Wilshire Financial Services Group, agreed to pay $12.5 million, English said. English and his partner, Chrys Martin, explained that Wilshire and Capital Consultants were involved in what they called an illegal scheme, whereby Capital loaned its investors’ money to Wilshire. The investors believed their money was insured or collateralized, but in fact it was not insured and was significantly undercollateralized, causing the huge losses, English said. The other firm settling was Newark, N.J.’s McCarter & English, for $2.5 million. According to Bullivant’s English, McCarter represented a firm that was involved in the loss of the funds. Referring to the law firms, English said, “They aided and abetted the perpetration of a fraud on the pensioners.” The firms denied participating in any fraud. They said they made practical decisions to settle because of the risk of costly and time-consuming litigation against sympathetic pensioners under a strict Oregon securities law that shifts the burden to the defense. Under the circumstances, said Stoel Rives’ Barnes Ellis, the courts put a lot of pressure on all the parties to settle. Milo Petranovich, a partner with Lane Powell, said, “The risks of trying a case like this were immense,” with potential liability in the hundreds of millions of dollars. James W. Colbert, a partner at O’Melveny, said there was no evidence of intentional wrongdoing or negligence by his firm. A lawyer representing McCarter & English, Patricia Refo of Phoenix’s Snell & Wilmer, said the firm acted appropriately in all respects, including immediately notifying authorities once it realized fraud was being committed.

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