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In the wake of a life insurance scandal that cost investors millions of dollars, a South Florida law firm and a former partner have paid $6.1 million to settle a lawsuit brought on behalf of investors who claimed the firm and the attorney helped two companies defraud them. While he was a nonequity partner at Stephens Lynn & Klein, Norman Taplin represented Fort Lauderdale, Fla.-based Financial Federated and Lake Worth-based American Benefits Services, which marketed what U.S. prosecutors later alleged to be a fraudulent life insurance scheme. According to court filings, the law firm’s insurer, AIG, shelled out $6 million to cover its portion, and Taplin personally paid $125,000 to settle the lawsuit without admitting any wrongdoing. Last week, about 3,000 people who invested in the Ponzi scheme orchestrated by FinFed and ABS received their portion of the settlement. A year ago, several defrauded investors filed a class action lawsuit against the 40-attorney law firm in U.S. District Court in West Palm Beach, Fla., alleging that Taplin, who headed the firm’s insurance regulation practice, knowingly assisted in the fraud that cost unwitting investors $117 million. From 1996 until 1999, FinFed and ABS peddled an investment product where investors were asked to purchase shares in “viatical settlements.” A viatical settlement is an investment in which insurance policies from terminally ill people are purchased at a discounted rate. The terminally ill person is then able to receive an immediate cash payment, and the purchaser, who continues to pay the insurance premium, eventually receives the death benefit. According to the lawsuit filed by investors, $117 million in investor funds was collected by FinFed. Federal prosecutors who obtained an indictment against the companies and its leading principals said most of the money was used in a Ponzi scheme to pay other investors and to finance the lavish lifestyles of several top FinFed executives, many of whom are currently serving prison terms. In 1999, a Fort Lauderdale bankruptcy judge granted an involuntary Chapter 11 petition against FinFed and various alter ego firms, and named Miami lawyer John W. Kozyak of Kozyak Tropin & Throckmorton as trustee. According to the investors’ lawsuit, Stephens Lynn began representing FinFed and ABS in insurance regulatory matters in summer 1998. The complaint also alleges that Taplin’s wife received more than $500,000 in gifts from FinFed. Stephens Lynn was alleged to have been negligent in its supervision of Taplin and was sued under the theory of vicarious liability. The attorneys representing the investors and law firm agreed to settlement terms in November 2001, and on May 2, U.S. District Judge Daniel T.K. Hurley approved the agreement. According to court filings, from the $6.1 million settlement, attorneys representing the investors received $1.8 million in legal fees. Kozyak, the trustee who was also a plaintiff in the case, received $61,250. “We are pleased we were able to resolve this matter amicably without prolonged litigation,” said Michael A. Hanzman of Hanzman & Criden in Coral Gables, Fla., who is representing the investors. The lawsuit will continue against other defendants, such as Pensco Pension Services, Pensco Vice President Robert Heflin and attorney Jeffrey Paine, who was the escrow agent for FinFed and ABS. After pleading guilty in the criminal case, Paine is now serving six years in prison. Pensco is accused of receiving kickbacks for encouraging 401(k) investors to buy into the scheme. The case is scheduled to go to trial in October in federal court in West Palm Beach. The settlement, said Hanzman, is for both the bankruptcy estate and the class of defrauded investors because the creditors of the estate and the investors are largely the same people. Robert Klein, the managing partner of Stephens Lynn’s Miami office, expressed relief that the firm can now put the matter behind it. In an interview, he reiterated the firm’s defense, that its involvement arose from its employment of one attorney — Taplin — who acted on his own. “We are very disappointed we had to be involved at all,” said Klein. “It’s been a horrible distraction for the firm.” He said the firm’s insurance company, AIG, decided to settle the case rather than risk liability in a case that claims more than $100 million in damages. Stephens Lynn was represented in settlement discussions by Robert Josefsberg of Podhurst, Orseck, Josefsberg, Orseck, Eaton, Meadow, Olin & Perwin in Miami. Josefsberg declined comment. Taplin, who was traveling, did not return phone calls seeking comment. Telephone calls to his attorney, Anthony J. Carriuolo, a partner with Berger Singerman in Fort Lauderdale, also were not returned. In court filings, Taplin claimed he did nothing more than provide ordinary legal services to the two companies. Miami-based Stephens Lynn, which was founded in 1974, is primarily a litigation firm representing insurance companies and professionals in malpractice cases. But, according to Klein, the firm in 1995 decided to hire Taplin to start an insurance regulation practice. The decision, said Klein, made sense because the offering would complement legal services it was already providing to numerous insurance company clients. Klein said Taplin was not supervised, largely because he had a good reputation and because it was not an area of law where other members of the firm had any expertise. According to Klein, in January 2000, after the firm learned of the scandal and that Taplin had represented FinFed and ABS, it was decided that Taplin should leave the firm. Taplin now has a two-person law office in West Palm Beach called Taplin & Associates.

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