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With federal criminal investigators off the firm’s back, Dallas’ Gardere Wynne Sewell hopes that a U.S. district judge in Dallas will approve a new settlement with the Securities and Exchange Commission that also will end a dispute with the agency related to the firm’s representation of former clients. Lawyers for Gardere say they received a letter from the U.S. Attorney’s Office for the Northern District of Texas in early April in which prosecutors stated that they no longer consider Gardere’s representation of Sharp Capital Advisors Inc. and its former president, Mauricio A. Gutierrez, a criminal matter. The firm also has come to terms with the SEC, which alleged that the firm failed to comply with a court order in an SEC investigation of Sharp Capital and Gutierrez that required Gardere to release documents and financial information related to transactions with its former clients. U.S. District Judge Barbara M.G. Lynn will consider the proposed $2 million settlement between Gardere and the SEC at an Aug. 1 hearing. Gutierrez pleaded guilty to one count of investment adviser fraud and one count of wire fraud, says his attorney Gary Udashen, of Dallas’ Milner, Sorrels & Udashen, who handled Gutierrez’s plea. On April 25, U.S. District Judge Sidney Fitzwater sentenced Gutierrez to 88 months in prison. In Securities and Exchange Commission v. Sharp Capital Advisers Inc., et al., the SEC alleges the defendants, including Sharp Capital, lost as much as $80 million worth of client funds in highly leveraged investments in speculative securities of Eastern European and South American companies. The suit alleges the defendants made the investments without telling investors. Gardere’s legal advice to Sharp Capital and Gutierrez did not add up to criminal activity — a conclusion federal investigators finally realized after months of conversations between prosecutors and attorneys who represent Gardere, says Tom Mills, a partner in Dallas’ Mills & Williams, who represents Gardere. “They simply made a decision that this was a civil matter that … was being handled by the SEC and just wasn’t a criminal case,” says Mills. Len Senerote, an Assistant U.S. Attorney assigned to the Sharp Capital criminal investigation, declines to comment. But another government source close to the investigation who spoke on the condition of anonymity confirms that the criminal investigation of Gardere is off. “It was a relief, and it was expected,” says Stephen Good, Gardere’s managing partner. Bill Jeffress, a partner in the Washington, D.C., office of Baker Botts who also represents Gardere, declines to release a copy of the letter the firm received from the U.S. Attorney’s Office. On the civil side, SEC lawyers alleged that Gardere violated a court order that instructed the firm to turn over Sharp Capital documents to a special master in the SEC case. Good says the firm had produced 75 boxes to the SEC special master in late 1998, but withheld 27 boxes to be sure their release would not violate the attorney-client privilege. Gardere and the SEC subsequently agreed to a settlement in principle, so the firm dropped the review. In June 2001, Gardere turned over the remaining 27 boxes to the special master. In February, Lynn postponed considering a proposed $1.2 million settlement between the SEC and Gardere until SEC lawyers could conduct further investigations into other information the firm allegedly failed to release, says Spencer Barasch, an attorney and associate district administrator for the SEC in Fort Worth, Texas. “First, we learned that Mr. Gutierrez had moved some of his [investment] firm’s money offshore, and it was our contention that the [law] firm [Gardere] knew about that but didn’t disclose that to us,” Barasch alleges, “and second, we learned that Sharp Capital had funded some of Mr. Gutierrez’s legal expenses, which we viewed as inappropriate.” Specifically, Gardere failed to disclose that Gutierrez had paid the law firm a $158,000 retainer in investors’ money and that he had moved $450,000 of investors’ money into an offshore account, Barasch alleges. The SEC’s and Gardere’s lawyers agreed on a $2 million settlement — up from the previous proposed $1.2 million settlement — on March 31, which covered the cost of the retainer fee, the money moved to the offshore account and $200,000 in attorney fees for the SEC special master for examining the 27 boxes the firm previously did not produce, Barasch says. Ed Fernandes, a partner in the Austin office of Akin Gump Strauss Hauer & Feld who also represents Gardere, alleges Gutierrez was not forthcoming with the law firm about those transactions. “He gave us a check from his own account. We believed that they were funds from his own account,” Fernandes alleges. “And on the other transaction, he told us after the fact.” “It’s like a lot of things — you don’t find out about until later,” Good says. Milner, Sorrels & Udashen partner George Milner, who handled the majority of the work in Gutierrez’s criminal case, declines to comment on the SEC investigation. CLASS ACTION A decision on Gardere’s proposed settlement with the SEC could determine whether investors who filed a class action suit against Gardere in San Antonio’s 150th State District Court can recover from the law firm. At the Aug. 1 hearing, Lynn will decide whether Gardere’s settlement with the SEC will limit claims brought against the law firm in H.R. Baxter, et al. v. Gardere Wynne Sewell, et al. In Baxter, Gardere and Dallas’ Thompson & Knight, which represented Sharp Capital before Gardere, are being sued by investors under the Texas Securities Act, alleging that the firms aided and abetted violations of the act, breached their fiduciary duty, aided and abetted a conspiracy to commit fraud, and aided and abetted conspiracy to commit conversion. Fernandes says the claims in that case are meritless and any recovery from Gardere is barred by the proceedings in the SEC settlement. Pete Riley, managing partner of Thompson & Knight, also says the claims in Baxter are meritless. “We think this is just a misuse of process,” says Riley, whose firm was not involved in the SEC litigation. “We’re not in the settlement mode. We have a motion to dismiss pending and we’ll play it out.” Edward Snyder, an associate with San Antonio’s Martin, Drought & Torres who represents the plaintiffs in Baxter, says he believes his suit will be allowed to continue. Gardere’s proposed settlement with the SEC “doesn’t preclude our suit,” says Snyder. “Certain claims belong to investors. That’s the law.”

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