Monica Gilroy, The Gilroy Firm (Courtesy photo) Monica Gilroy, The Gilroy Firm (Courtesy photo)

Atlanta residential closing attorneys expressed satisfaction this week after a federal jury found Nathan Hardwick IV guilty in his federal embezzlement trial on Friday.

The government charged Hardwick with stealing $26 million from his now-defunct residential real estate firm, Morris Hardwick Schneider—including almost $20 million from the closing operation’s escrow accounts.

“I think there’s real relief among closing attorneys that the jury did understand that these were client funds,” said Gayle Camp, a past chair of the Real Property Law Section of the state bar and of counsel at Morris Manning & Martin. “There’s no excuse for a firm’s managing partner not having oversight over the escrow accounts. He’s absolutely responsible under our rules of professional conduct.”

Hardwick, who was MHS’s majority owner, held 55 percent of the shares until he was ousted four years ago by his minority partners, Mark and Gerard Wittstadt, and Fidelity National Finance, which stepped in to cover almost $30 million in escrow shortfalls.

National Interest

Atlanta attorneys, mortgage brokers and title insurers followed the trial closely, as did their counterparts around the country, because it was so “egregious,” said Monica Gilroy, a title-insurance litigator at The Gilroy Firm who is also a past chair of the real property section.

“This case in particular caught all our attention, due to the amounts in controversy plus the details—the salacious nature of some of the accusations and the fact that Fidelity had to become involved,” Gilroy said.

“That’s why this got national attention [in 2014] when the escrow shortfalls came to light, first from the lawsuits and then Nat’s indictment,” Gilroy said. “Even though so egregious, it’s isolated.”

“It’s just so sensational,” said Cate Hoskins, a partner at Georgia closing firm O’Kelley & Sorohan.

“The general consensus is we’re saddened by it, too. People lost their reputations and their jobs over one or two bad actors,” said Hoskins, a past president of the Georgia Real Estate Closing Attorneys Association. “To me, it’s a very sad story that someone could have such sick greed to go to such lengths,” she added.

Unconvincing Defense

The trial was “an active topic of conversation” at the American Land Title Association’s annual meeting in Los Angeles last week, Gilroy said. “People were freaking out on Friday, as it got closer to 5 p.m., whether it would be a ‘not guilty.’”

The jury returned the unanimous guilty verdict after nine hours of deliberation and 12 days of sometimes confusing testimony from witnesses—including an expert forensic accountant for the defense—as well as voluminous financial and legal documents from both sides.

Closing attorneys said they did not buy Hardwick’s defense that he thought he was taking money that was due him from available cash in MHS’s operating accounts when he asked the controller, Asha Maurya, to wire $100,000 to $500,000 at a time to casinos, private jet companies and his personal holding company, Divot Holdings, which he used to pay women, creditors and other expenses.

“That sounds crazy to anyone who is a partner at a law firm and knows how it operates,” Hoskins said. “It would never wash with anybody that you take any money by just telling your controller to write a check.”

“Those arguments were preposterous,” said Vanessa Goggans, who heads Morris Manning & Martin’s residential real estate practice, “as if he were going to the ATM to see how much money he had in the account today to spend.”

“Every lawyer is clothed with responsibility for the escrow accounts,” Goggans added. “While we do delegate responsibility, it was Nat at the top—and Nat who was required to make sure adequate protections were in place.”

Defense Confusion

The case was “very straightforward,” Gilroy said. “My hope was that the jury would see through some of the items raised by the defense, especially the forensic accountant.”

She was referring to expert witness J.P. Gingras, who testified that there actually were no escrow account shortfalls, based on MHS’s 2014 tax return—and that MHS still owed Hardwick $470,000.

As deliberations wore on Friday afternoon, Gilroy said, her concern was that the jury would have “some sort of reasonable doubt, not from the forensic accountant’s testimony, which seemed far-fetched, but from the volume of information presented.”

Lawyers following the trial also said they couldn’t swallow Hardwick’s argument that Maurya operated alone and paid out almost $20 million from the escrow accounts to Hardwick without him realizing it.

The defense’s assertion that Marya was the sole culprit was “hard to believe,” Goggans said, because he gained a lot more from the conduct than she did.

Camp called it “very distressing” that a lawyer “would try to throw all the blame on a staff member. It’s the professional who has the responsibility”

Maurya has admitted to stealing almost $900,000 from MHS and pleaded guilty to one count of wire fraud conspiracy last year. She cooperated with the government but did not testify in Hardwick’s trial.

‘Wake-Up Call’

Gilroy called the case a “wake-up call.” When the problems at MHS were first reported in August 2014, she said, it sparked an industry discussion that “we all are responsible for knowing what our partners are doing.”

“This case is not just about the escrow shortages—but what Nat did to his partners,” Gilroy said.

“Just because you are not the partner that deals with the day-to-day operations, you still need to know what is going on,” Gilroy said. “Until something like this happens to your brothers and sisters in the bar, it never occurs to you that it could happen to you.”

Attorneys at firms with large closing practices said Hardwick could not have gotten away with the escrow embezzlement at their firms, because of checks and balances in place.

Morris Manning’s Camp said the title insurer, Fidelity, did not maintain proper oversight. “Something went wrong in that process, but it wasn’t addressed in this trial.”

MHS passed numerous audits from Fidelity and its other title insurers until a Fidelity audit uncovered an altered bank statement in July 2014 and the escrow shortfalls came to light.

“You never let the person who is writing the checks do the reconciliation,” said Goggans, a GRECAA past president, adding that Morris Manning uses an outside vendor, AgencySecure, through Stewart Title Insurance to perform daily, third-party reconciliation of its escrow accounts.

The vendor has access to Morris Manning’s escrow accounts so it can monitor cleared checks and wires—and it gets the bank statements directly from the banks, not a firm employee, Goggans said. “It prevents them from getting bogus information.”

“Fidelity Title may have missed the problems earlier, but they stepped up to protect consumers whose money was in the escrow accounts,” she added, and Hardwick’s partners “did the right thing,” by quickly notifying state bar associations and “shutting down the people believed to be at fault.”

“My heart goes out to those lawyers and staff people who lost their jobs,” Goggans said. “Morris Hardwick was a good firm, and one person managed to taint that legacy. Nat did so much damage.”