A former Sidley Austin partner now with DLA Piper has admitted to submitting $120,000 in improper expenses while with his former firm, but claims he didn't do so to benefit himself.
Chicago real estate lawyer Lee Smolen is currently the target of an inquiry launched by the Illinois Attorney Registration and Disciplinary Commission, which is investigating him for allegedly filing false expense reports at Sidley between 2007 and 2012.
In an answer filed Tuesday in response to the discipline board's June 14 complaint, Smolen acknowledges fabricating approximately $69,000 in taxi receipts and requesting reimbursement for an additional $50,000 in restaurant gift cards, sporting event tickets, and meals, including some that he enjoyed at his country club on Mother's Day and Thanksgiving. The commission's complaint notes that the expenses were deducted from fees Sidley received from a "major financial institution, one of the firm's largest clients."
His admission notwithstanding, Smolen insists he never intended to use the money for "purposes not related to the firm." The submission of the false taxi receipts, his response says, "was a poorly conceived shortcut around the firm's expense reporting procedures in order to secure more time to address his substantial and demanding commitments to the firm." The meal and entertainment expenses, according to the response, were partially used for firm purposes and partially "the result of inadvertent error or his occasional failure to pay sufficiently close attention to detail."
Smolen's attorney, Robert Merrick, did not respond to a request for comment Wednesday. In the response, Smolen denies the discipline board's accusations of ethical wrongdoing, including conversion; breach of fiduciary duty; and conduct involving dishonesty, fraud, deceit, or misrepresentation. He also argues that while his actions were "wrong," his "conduct was not the result of any intent to profit personally."
In his response, which was first reported by the Legal Profession Blog, Smolen says he has repaid Sidley the approximately $120,000 at issue. William Conlon, a partner in Sidley's Chicago office, said the firm had no comment on the matter.
Smolen joined Sidley's Chicago office directly out of law school in 1985 and became a partner eight years later. At various times, he served on the firm's nearly 50-lawyer executive committee and as the global coordinator of the real estate practice.
Smolen left Sidley last fall and joined DLA Piper in February. In a statement, a DLA spokesman said the firm was aware of Smolen's actions at Sidley when it hired him, and that "after our own due diligence and a thorough review of the facts, the firm decided to give great weight to the total body of Lee's work over his 25-plus years as a lawyer and to extend to him the opportunity to continue his career at DLA Piper."
Smolen isn't the only lawyer with Am Law 100 ties coping with the fallout of his admitted misdeeds this week.
Theodore Freedman, a former senior partner at Kirkland & Ellis who resigned from the firm in 2010, was barred from practicing law Tuesday by a New York court following his admission earlier this year that he had committed tax fraud, sibling publication New York Law Journal reports.
Freedman, a bankruptcy lawyer, pleaded guilty in March to four counts of tax fraud for underreporting his income by more than $2 million between 2001 and 2004. He is scheduled to be sentenced in September and faces up to 12 years in prison.
The suspension from law practice will be in place until a final disciplinary recommendation is made by New York's Appellate Division, First Department. According to the Tuesday decision, Freedman has not practiced law since 2010 and has no plans to do so.
Meanwhile, former Am Law associate Matthew Kluger suffered a setback of his own Tuesday, when the U.S. Court of Appeals for the Third Circuit affirmed a federal district court judge's decision to sentence him to 12 years in prison for his role in a massive insider-trading scheme that played out during Kluger's stints at several large law firms, including Cravath, Swaine & Moore; Skadden, Arps, Slate, Meagher & Flom; and Wilson Sonsini Goodrich & Rosati.
As The Am Law Daily has previously reported, Kluger fed two coconspirators details about transactional work involving clients for nearly two decades. All told, the scheme netted the trio $37 million, though Kluger received—and was later forced to forfeit—just $516,000 of that sum. At his sentencing last June in U.S. district court in Newark, Kluger, 52, expressed remorse, saying "I will do anything I can to try and regain a modicum of the trust that I destroyed [with] so many people and so many institutions."
In the Third Circuit's 48-page decision, first reported by The Wall Street Journal's Law Blog, Judge Morton Greenberg explains why Kluger is responsible for all of the illicit gains generated by the scheme despite getting only a fraction for himself. "By punishing the conspirator who is the source of the information for all gains made by his coconspirators, we are reinforcing the deterrence message sent to would-be tippers by many courts," he wrote.
The sentence is believed to be the longest ever imposed on someone convicted of insider trading, according to the appeals court's decision. Kluger coconspirator Garrett Bauer, a former stock trader who forfeited $31.6 million he reaped from the scheme, was sentenced to nine years in prison, and the third member of the insider ring, mortgage broker Kenneth Robinson, received a 27-month sentence.
Kluger's lawyer on the appeal, Harvey Weissbard, said Wednesday that he is disappointed with the ruling and had hoped the court would take Kluger's cut of the profits into consideration. "Kluger’s sentence could have, in the judge’s discretion, been adjusted downward, but [U.S. District Judge Katharine Hayden] chose not to do so, which we think was unfortunate and unfair," Weissbard says. "He’s a man with a family and with serious health problems of his own. Bauer was a single guy living the high life and making millions."
Kluger, who has three children, has been incarcerated in a federal prison in Butner, North Carolina, since being sentenced, according to Weissbard.