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When Lawyers Aid and Abet Ponzi Schemers

When Lawyers Aid and Abet Ponzi Schemers

From Bernie Madoff to Sir Alan Stanford, too many innocent investors are losing their life savings to Ponzi schemes. Unfortunately, behind every “successful” Ponzi scheme is often a bank or lawyer. Our sister site blog, Due Diligence, discusses how investors can collect from banks that aid and abet to these frauds. In this post we look at the liability of lawyers.

To illustrate how lawyers often facilitate Ponzi schemes, we share the story of Ken Starr, financial advisor to the stars, and his lawyer Jonathan Bristol.

Starr was a New York City based accountant that quickly built a portfolio of wealthy clients. Included were  Al Pacino, Natalie Portman, Matt Lauer, Martin Scorsese, Carly Simon, Wesley Snipes, Sylvester Stallone, Caroline Kennedy, Barbara Walters and Uma Thurman. Starr's financial and legal problems began to surface in the late-1990s after he was sued by Sylvester Stallone in connection with the Planet Hollywood restaurant chain and Starr's alleged role in Stallone's $10 million loss.

In May of 2010 Starr was indicted. When agents came to arrest him, a wide-eyed doorman thought they might be looking for Andrew Madoff, son of Bernie Madoff. Madoff and Starr owned apartments in the same luxury New York City high rise.

The FBI found Starr hiding in a closet, his shoes sticking out like something you might see in a comedy movie. He was accused of running a $59 million Ponzi scheme. In September of that same year Starr would plead guilty and would later be sentenced to 7.5 years in prison.

Bizarrely Starr thought he should get leniency because the people he stole from were rich. Starr argued at sentencing that the stars he ripped off could afford it but one of his victims was a 100 year old woman whose money was wrongfully taken and laundered in Bristol's account. The judge wasn’t impressed.

Lawyer Aids Ken Starr’s Ponzi Scheme

Most of the media attention was focused on Starr but there was a lawyer assisting Starr’s crime, Jonathan Bristol.

In 2008, Bristol became a partner at Winston & Strawn, a prominent New York law firm.  Although guaranteed an annual income of $1.35 million per year, Bristol couldn’t deliver. When that happened, his partners cut his compensation draw in half and tied bonuses to his performance. Bristol wanted to maintain his lifestyle and that may have been what drew him into a life of crime.

After his pay was cut, Bristol brought in a new client, Ken Starr. By then (summer of 2009), the SEC was investigating Starr.

Bristol billed Starr over $1 million for legal work. Prosecutors say that Bristol knew by then that Starr was involved in illegal activity.  Representing a dirty client is not unethical. Our Constitution guarantees everyone the right to legal representation. Bristol took things too far, however.

Although lawyers can represent criminals, they are not allowed to conspire with clients to help them commit their crimes. According to prosecutors, Bristol did more than conspire, he helped Starr launder tens of millions of dollars stolen from Starr's clients and in some instances, lied to those clients.

How did the money laundering scheme work? The indictment claims that Starr would park his ill-gotten gains in Bristol’s attorney trust account. If Bristol didn’t know what Starr was doing, Bristol probably would never have been indicted himself. Prosecutors say that Bristol knew that his lawyer's trust accounts were being used for money laundering and to conceal the thefts from Starr's clients.

In 2010, the house of cards collapsed.

As the feds began to unwind Starr’s scheme, Bristol was indicted for his role. He also faced charges from the SEC. The SEC claimed among other things that Bristol was trying to represent both Starr and one of the people he stole from.

Both were equally greedy.

Ultimately Bristol was charged with laundering $20 million of Starr’s ill-gotten gains. Prosecutors say that over $25,000,000 moved through Bristol’s account. There was just $3000 left at the time of his arrest.

Much of Starr's money passed through Bristol’s law firm. (Remember, Bristol’s bonuses were tied to how much revenue he generated.) Starr laundered the money through Bristol's attorney trust account and used for his own luxury lifestyle. Prosecutors say $7.6 million of the money went to purchase Starr’s luxury Manhattan apartment. The same apartment complex where Starr and Madoff became neighbors.

In 2011, Bristol pled guilty to a money laundering conspiracy charge.

The Justice Department said at sentencing:

“Without Jonathan Bristol, Kenneth Starr’s massive fraud would not have been nearly so successful or as lengthy as it was. Starr was able to conceal his fraud from his clients precisely because Bristol agreed to funnel Starr’s fraud proceeds through his attorney escrow accounts, on dozens of occasions over the course of nearly a year. And Bristol’s participation in the money laundering was hardly passive. In some cases, Bristol affirmatively repeated the lies that Starr had told his clients about the money transferred to the escrow accounts, falsely representing to these same clients that the money was ultimately being put to legitimate investment ends, when in truth and in fact, the money was being used to promote Starr’s lavish lifestyle. Because Bristol, an attorney and an officer of the court, helped Starr conceal the proceeds of his massive wire fraud scheme, Bristol deserves to be held to account.”

Although facing five years, Bristol got a time served sentence. Then judge said he suffered from hero worship of Ken Starr. Bristol was also ordered to pay $30 million in restitution. There was no indication that Bristol’s law firm, Winston & Strawn, had knowledge of Bristol’s actions. That doesn’t prevent his victims from seeking damages from the law firm, however.

After the sentence, Manhattan's U.S. Attorney said, "Attorneys are supposed to promote respect for the rule of law. But Jonathan Bristol abused his position as a partner at a prominent New York City law firm to break the law over and over again. Bristol should have been a gatekeeper; instead, he was an enabler to Kenneth Starr and his multi-million dollar fraud."

The author attempted to uncover Starr as a fraud during the trial of actor Wesley Snipes in January of 2008. Starr failed to honor a subpoena for documents issued by the author during the Snipes trial. He subsequently lied to the court but was not charged by prosecutors or sanctioned by the court. His lies and criminal conduct would continue for another two years until early 2010.

Many of the losses to the victims in the Bristol case might have been prevented had the government acted on the warnings in the Snipes case.

We sought to sanction Starr for refusing to honor a subpoena. Quoting from the Order to Show Cause, Defendant respectfully moves the court

“for entry of an order to show cause why Ken Starr should not be held in contempt for (1) failing to comply with the subpoena issued by Snipes in this matter to Ken Starr, (2) failing to comply with the subpoena issued to Ken Starr as custodian of records for Starr & Co., Inc., and, (3) apparently perjuring himself when Ken Starr testified that he had not received a subpoena from Snipes in this matter…

“As shown by the Declaration of Brian H. Mahany, attached to this motion, Ken Starr was properly served with a subpoena duces tecum to Mr. Starr personally ordering Mr. Starr to bring several documents necessary for Snipes’ defense and to Mr. Starr as custodian of records for Starr and Co. During Mr. Starr’s testimony, Mr. Starr indicated that he had not received a subpoena from the defense. Ken Starr not only apparently committed perjury, but also failed to bring documents to trial necessary to Snipes’ defense when requested, denying knowledge of any such subpoena.”

A U.S. District Court Judge found no probable cause to sanction Ken Starr. We thought Starr was a crook then and sadly we were correct. (interesting side note, although this post is about Jonathan Bristol and whether lawyers can be held liable if they help a client steal or break the law, Ken Starr was also a lawyer. Starr was acting as an accountant and financial adviser but according to his resume, graduated Brooklyn Law School.)

What Happens When Lawyers Facilitate Ponzi Schemes?

(Can You Sue a Lawyer for Facilitating a Ponzi Scheme?)

As noted above, Bristol was ordered to pay $30 million in restitution to Starr’s victims. Although he was given a lesser jail sentence, the judge thought he was just as culpable as Starr.

Considering that Bristol surrendered his license to practice law (we think he would have lost it anyway), collecting $30 million from a convicted felon / disgraced lawyer isn’t likely. The deep pockets in this case is the law firm.

Shortly after Bristol’s arrest, his former law firm was named in a multimillion dollar lawsuit. The firm issued a statement saying it was cooperating with the feds and was unaware of Bristol’s illegal conduct.

Whether or not the firm was aware of Bristol's misconduct, we believe that a law firm can be held responsible for the actions of is partners.

To learn more about legal malpractice and how to sue a lawyer, visit our legal malpractice information page. Ready to see if you have a case? Contact us online, by email [hidden email] or by phone 877-858-8018. All inquiries kept strictly confidential.

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