A federal judge on Wednesday endorsed a proposed settlement in which Holland & Knight and one of its partners will pay $25 million to settle claims filed by hedge-fund investors duped by Sarasota Ponzi schemer Arthur Nadel.
U.S. District Judge Richard Lazzara in Tampa signed off on the proposal a day after the law firm and Burton Wiand, the court-appointed receiver for the hedge funds, announced the deal, which contains no admission of wrongdoing by the firm.
Investors and others will have until Oct. 1 to object to the settlement, said Wiand of Wiand Guerra King in Tampa. The settlement would resolve a lawsuit pending in Sarasota Circuit Court for more than three years, Wiand said.
Wiand was appointed receiver in 2009 in a civil case brought by the Securities and Exchange Commission against Nadel and his related Scoop, Valhalla, Victory and Viking companies. Wiand originally sought more than $160 million from Holland & Knight after alleging in the state court suit that the firm committed malpractice and aided Nadel’s activities.
“H&K has not admitted any wrongdoing,” Wiand noted in an affidavit filed in federal court. He said he accepted the settlement partly because the hedge funds paid Holland & Knight “less than $500,000″ for legal services.
“The settlement represents a compromise by the firm that reflects its consideration of various factors, including the substantial costs and investment of firm resources required to continue the litigation involving the funds,” Holland & Knight general counsel and partner Michael Chapman said in a statement.
About $18.2 million of the settlement will be distributed to investors. The rest will go to Johnson Pope Bokor Ruppel & Burns, the Tampa firm Wiand hired on a contingency basis to pursue claims against the law firm and the partner, Scott MacLeod.
The settlement contains a bar order which would prevent other lawsuits against the firm for its Nadel-related work.
Wiand said a nearly $26 million distribution of recovered assets in May equaled 20 percent of an investor’s allowed amount. That would make the proposed settlement roughly 14 percent of allowed claims.
Nadel, who admitted defrauding investors, died in a North Carolina federal prison in April at age 79. Holland & Knight represented him from 2002 until his business collapsed amid fraud allegations in 2009.
The state court suit accused Holland of preparing disclosure documents for investors that failed to mention Nadel was a disbarred New York attorney who had drained a client’s escrow account. The suit also accused Holland of a conflict of interest for representing Nadel and his investment funds simultaneously.
“Holland & Knight either knew, should have known or was reckless in not knowing of Nadel’s past conduct in illegally and improperly using money of third parties entrusted to him,” said the complaint filed by Guy Burns of Johnson Pope.
In addition to the malpractice claim, the receivership alleged breach of fiduciary duty, aiding and abetting breach of fiduciary duty and aiding and abetting fraud.