Two BigLaw Firms Sued Over Fees
They Collected From Alleged Ponzi Scammer

By Sheri Qualters
The National Law Journal
New York Lawyer
March 10, 2009

A court-appointed receiver tapped by a Utah federal judge to recover money for investors victimized by an alleged Ponzi scheme operator sued Fulbright & Jaworski and Paul, Hastings, Janofsky & Walker to get back money the alleged Ponzi perpetrator paid the law firms to defend him.

According to the March 5 complaint filed in U.S. District Court for the District of Utah, the firms represented Val E. Southwick and his company VesCor in criminal and other litigation stemming from Southwick's Ponzi scheme. The lawsuit filed by receiver Robert G. Wing of Salt Lake City-based Prince, Yeates & Geldzahler alleges that Southwick paid the firms with money fraudulently collected by VesCor during the Ponzi scheme and sent the law firms other money that it can't trace. Wing v. Fulbright & Jaworski, No. 2:09-cv-00200 (D. Utah).

The legal allegations against the firms include fraudulent transfers and unjust enrichment. The case also demands that the firms provide the receiver an accounting of funds or assets they received directly or indirectly from Southwick or VesCor and what the firms did with the funds.

According to the complaint, Southwick transferred nearly $3 million in VesCor funds to Fulbright's trust account. The lawsuit alleges that some of those funds were later transferred to Paul Hastings' trust account. Fulbright & Jaworski declined to comment.

Paul Hastings issued an e-mail statement that "the complaint demonstrates an inaccurate understanding of the facts, which we will address with the court in due course."

"Those payments constituted fraudulent transfers, and equity requires that defendants be required to pay back the amount of those transfers to the receivership," stated the lawsuit. "While some of those funds were used to pay for defendants' legal representation of Southwick, some of those funds were used for other unknown purposes at Southwick's direction."

In a telephone interview, Wing also said that VesCor's funds shouldn't have been used to pay Southwick's legal bills.

"This money comes from a VesCor, which is an entity, and appears to have been used at least in part of Mr. Southwick's personal legal defense," Wing said.

According to the lawsuit, Southwick pleaded guilty to nine counts of securities fraud in state court in Utah in March 2008 and was sentenced to nine consecutive one-to-15 year prison terms.

Southwick and five VesCor entities are also facing a fraud and securities law case filed by the U.S. Securities and Exchange Commission in February 2008. SEC v. VesCor Capital Corp., No. 1:08-cv-00012 (D. Utah)