A federal judge overseeing the Deepwater Horizon litigation has found no evidence that conflicts of interest tainted the claims process in the $9.6 billion settlement, but ordered four lawyers to explain why they should not be disqualified from representing oil spill victims.

Additionally, a special master has referred those attorneys to federal authorities for potential criminal investigation.

U.S. District Judge Carl Barbier in New Orleans, citing the special master’s report, concluded on Friday that the settlement distribution process was fair, despite some "problematic" behavior by former employees and vendors working for claims administrator Patrick Juneau. The 93-page report, conducted by former FBI director Louis Freeh, was made public on Friday.

"The Court notes that the Special Master has not found any evidence that the Claims Administrator, Patrick Juneau, engaged in any conflict of interest, or unethical or improper conduct," Barbier wrote. "The Special Master also did not find any evidence that Claims Administrator Office officials or employees manipulated the valuation of claims, although a comprehensive examination of this issue was not part of the Special Master’s mandate."

But Barbier ordered Lionel "Tiger" Sutton III and his wife, Christine Reitano, both former senior attorneys for Juneau, to demonstrate within 14 days why they should not be disqualified from representing oil spill claimants because they accepted fees for a client that they referred to The Andry Law Firm in New Orleans.

He issued the same order against The Andry Law Firm regarding a $7.6 million claim for its own losses, and against Jonathan Andry, part owner of The Andry Law Firm and principal at another law firm, Andry Lerner, whose 489 oil spill clients had their claims payments frozen pending the investigation, as well as Glen Lerner, the other principal of Andry Lerner.

The judge did not expand on his order, but Freeh found that Sutton, Reitano, Lerner and Andry may "have violated the federal criminal statutes regarding fraud, money laundering, conspiracy or perjury." The report recommended that the findings pertaining to the four attorneys—all graduates of Tulane Law School—be referred to the U.S. Justice Department and the U.S. attorney’s office for the Eastern District of Louisiana for further investigation and to "the responsible professional bar committees in their licensing jurisdictions."

"In this matter, the conduct of The Andry Law Firm is particularly egregious," Freeh wrote. "In effect, Mr. Jon Andry’s Andry Lerner firm was making secret, improper payments to Mr. Sutton at the precise time Mr. Sutton was a senior … [claims administration] attorney, working in concert with Mr. Jon Andry to expedite payment of The Andry Law Firm claim. The undisclosed financial interest between Mr. Sutton and Mr. Jon Andry tainted and corrupted the integrity of the…[claims] process and payment of The Andry Law Firm claim should therefore be prohibited under the Unclean Hands Doctrine and well settled principles of equity, fairness and justice."

Such disqualification also should apply to Sutton, who helped expedite the payment to The Andry Law Firm while receiving referral fees from Andry Lerner, Andry and Lerner, Freeh said, and to Reitano, who denied any involvement despite helping arrange those payments.

Juneau praised the report’s findings in a written statement. "I found the Freeh report to validate the work that our team of 2,700 hard working professionals has been doing since June 4, 2012," he said. He called the actions of Reitano and Sutton isolated events.

A representative of Jonathan Andry referred a reporter to court document set to be filed on Tuesday in which Andry Lerner continues to advocate that the freeze on its clients’ claims be lifted. "While Andry Lerner strenuously denies the Special Master’s findings in all regards, it is concerned that its clients are being unnecessarily and improperly affected by the Courts continued hold on all of its claims," the document says.

A BP representative did not respond to a request for comment. Neither did Glen Lerner.

On July 2, Barbier ordered Freeh to investigate the claims process in light of the potential misconduct regarding Sutton and Reitano. Sutton resigned and Reitano was terminated.

Freeh found that Sutton and Reitano, who practiced together at Sutton & Reitano before joining Juneau’s staff last year, referred Casey Thonn, a shrimper with an oil spill claim, to Andry Lerner. The agreement, through which Sutton received three payments totaling $40,600 while working for Juneau, wasn’t in writing—a violation of the Louisiana Code of Professional Conduct.

Sutton, who continued to represent Thonn in an unrelated personal injury case, Lerner and Andry all failed to mention this referral agreement to Juneau, according to Freeh’s report.

Sutton also failed to mention that he and Lerner owned a water reclamation company, Crown LLC. The report found that Andry made the payments through Lerner’s Las Vegas law firm, Glen J. Lerner & Associates, which transferred the money to a Crown corporate account to which Sutton had access.

"Mr. Sutton set up an elaborate and circuitous channel through Mr. Jon Andry and Mr. Lerner, his Tulane Law School classmates, to receive the agreed upon Thonn referral fee payments, in effect ‘laundering’ these payments through Andry Lerner, Glen Lerner Associates and Crown bank accounts," according to the report.

The report also concluded that Sutton failed to disclose to Juneau, and then lied about, his partial ownership of another company with an oil spill claim.

The report also took Juneau and his vendors to task, finding that many key executives and senior attorneys engaged in "improper" or "unethical" conduct.

"The nature and seriousness of this type conduct varied in degree but was pervasive and, at its extreme, may have constituted criminal conduct," according to the report.

One vendor, BrownGreer, for instance, failed to scrutinize Thonn’s claim, which likely was fraudulent, Freeh concluded. For instance, it was one of two claims submitted by Thonn that were eligible for $1,550 in reimbursement but ended up with approved payments totaling $357,000. The report concluded that BrownGreer failed to inform Juneau that one of its former employees had given birth to Thonn’s son on May 9.

Among Juneau’s staff, the appeals coordinator had lunch twice with Andry while his firm had hundreds of claims pending and The Andry Law Firm had appealed its own claim. And Reitano tried to get her husband a job with one of Juneau’s vendors.

Furthermore, senior officials in claims administration submitted a proposal to a vendor that they were supervising in a bid for work in an unrelated case, it said.

Freeh, however, found no evidence that Sutton or Reitano, or any other of Juneau’s employees, manipulated the valuation of claims.

Although he found that "the conduct of certain Claims Administrator Office employees and vendors described in the Report is problematic," that should not prevent Juneau from "continuing to fairly and efficiently process and pay legitimate claims in a timely manner," Barbier wrote.

He ordered that Freeh, in conjunction with Juneau, design "internal compliance, anti-corruption, anti-fraud and conflicts of interest policies and procedures" and investigate any conflicts of interest involving past or pending claims and refer any suspicious conduct to the U.S. Department of Justice or "other appropriate authorities." He also ordered Freeh to take legal action against fraudulent claims and report back every 30 days on his progress.

"We welcome the recommendations from the Freeh report and we look forward to working with him to help improve all aspects of the claims process," Juneau said.

BP first raised the conflict issues surrounding Sutton, Reitano and the Andry attorneys as part of a demand to halt payments on the settlement. But Barbier denied that motion, citing a lack of evidence.

BP, which has appealed an earlier ruling in which Barbier refused a similar injunction request, moved a third time last month to halt claims in light of new allegations of potential fraud.

BP asserted that at least two members of the appeals panel were reviewing payments while their law firms were submitting claims, and that a claims administration employee in Mobile, Ala., encouraged family members to submit "fraudulent subsistence claims" in exchange for a share of the payments.

Barbier rejected that motion on August 28, and BP has appealed that ruling to the U.S. Court of Appeals for the Fifth Circuit.

Andry Lerner’s attempt to lift the freeze on claims payments to its oil spill clients isn’t new. On July 29, Barbier rejected a similar request made by the firm.

Editor's note: An attorney for Glen Lerner, Dominic Gentile, a shareholder at Gordon Silver in Las Vegas, later responded to the recent report with a statement: “Glen has cooperated with Special Master Freeh’s inquiry and does not agree with all of the Special Master’s Report. He strenuously denies any suggestion of misconduct on his part and looks forward to addressing the facts at the appropriate time in a fair and public proceeding.”

Contact Amanda Bronstad at abronstad@alm.com.