The trustee of a bankrupt Idaho real estate investment company has filed suit against Hirschler Fleischer, accusing the Richmond-based law firm of helping the now defunct company carry out a “massive scheme of financial fraud.”
The lengthy suit is tied to the collapse of DBSI Companies, a Meridian, Idaho, firm that went belly-up in 2008 and has been accused of being a massive Ponzi scheme that lined the pockets of its insiders.
By representing and assisting DBSI in its business, Hirschler Fleischer allegedly had a hand in the scheme, the suit contends.
Dennis Quinn, an attorney with Washington-based Carr Maloney, which is representing Hirschler Fleischer, said his client denies all the allegations in the compliant and will defend itself vigorously.
Quinn also says the case, which was filed last week in federal court in Delaware, is a “cookie cutter lawsuit” that is part of the trustee’s broad attempt to recover funds for the bankruptcy estate.
“This is not an unusual lawsuit,” said Quinn. “Trustees routinely bring cases like this, and when they do, they sue all the professional firms” that were previously involved with a bankrupt entity.
DBSI sold investors into tenant-in-common (TIC) real estate investments, which allowed investors to pool their money for fractional ownership of commercial real estate. DBSI also used 1031 exchange tax shelters as a way of attracting investors.
Upon the collapse of the real estate market and the company’s bankruptcy, allegations surfaced that DBSI and its various entities were using the money collected from new investors to pay previous investors.
“Hirschler Fleischer knowingly aided and assisted the Insiders in unlawfully looting tens of millions of dollars from the DBSI Companies and their unwitting investors,” the suit claims.
The attorney acting as trustee over the bankruptcy estate is tasked with casting as wide a net as possible to recover money for creditors and investors.
Hirschler Fleischer has gotten caught in that net, Quinn says.
“Whenever one of these things goes down, they look for a deep pocket,” Quinn said.
Indeed, a similar lawsuit was filed against Idaho law firm Moffatt Thomas in late 2010. That suit made similar allegations and included numerous sections of identical language, including a dramatic scene-setting introduction.
“In 2004, the DBSI Companies presented to the world the illusion of a monolith of wealth, competence and power. Investors were told of substantial commercial real estate holdings throughout the country, of history of successful and sophisticated real estate ventures, of assets into nine figures, and that no investor had ever lost money on a DBSI investment,” as was stated in the suits against Moffatt and Hirschler.
“Four years later, the world learned that this monolith was rotten to the core.”
“It’s a shame,” Quinn said of such routine suits being filed. “Hirschler Fleischer is a good law firm. They have a good reputation.”
The suit against Hirschler Fleischer alleges 16 counts, including negligence, legal malpractice, aiding and abetting breaches of fiduciary duty, aiding and abetting fraud, civil conspiracy and various forms of racketeering.
The suit explains that Hirschler Fleischer allegedly helped draft the private placement memoranda that were used when soliciting investors. Almost $100 million was brought into DBSI from investors, more than $80 million of which was allegedly misused for the benefit of the company’s insiders.
The suit seeks to recover “preferential and fraudulent transfers” that Hirschler Fleischer received from DBSI.
Hirschler Fleischer had not yet been served with the suit, but has accessed a copy of it. The firm’s response to the suit is forthcoming.
Brian McMahon, an attorney with Gibbons, a law firm in New Jersey representing the trustee, said he would not comment on the case.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].
The trustee of a bankrupt Idaho real estate investment company has filed suit against Hirschler Fleischer, accusing the Richmond-based law firm of helping the now defunct company carry out a “massive scheme of financial fraud.”
The lengthy suit is tied to the collapse of DBSI Companies, a Meridian, Idaho, firm that went belly-up in 2008 and has been accused of being a massive Ponzi scheme that lined the pockets of its insiders.
By representing and assisting DBSI in its business, Hirschler Fleischer allegedly had a hand in the scheme, the suit contends.
Dennis Quinn, an attorney with Washington-based Carr Maloney, which is representing Hirschler Fleischer, said his client denies all the allegations in the compliant and will defend itself vigorously.
Quinn also says the case, which was filed last week in federal court in Delaware, is a “cookie cutter lawsuit” that is part of the trustee’s broad attempt to recover funds for the bankruptcy estate.
“This is not an unusual lawsuit,” said Quinn. “Trustees routinely bring cases like this, and when they do, they sue all the professional firms” that were previously involved with a bankrupt entity.
DBSI sold investors into tenant-in-common (TIC) real estate investments, which allowed investors to pool their money for fractional ownership of commercial real estate. DBSI also used 1031 exchange tax shelters as a way of attracting investors.
Upon the collapse of the real estate market and the company’s bankruptcy, allegations surfaced that DBSI and its various entities were using the money collected from new investors to pay previous investors.
“Hirschler Fleischer knowingly aided and assisted the Insiders in unlawfully looting tens of millions of dollars from the DBSI Companies and their unwitting investors,” the suit claims.
The attorney acting as trustee over the bankruptcy estate is tasked with casting as wide a net as possible to recover money for creditors and investors.
Hirschler Fleischer has gotten caught in that net, Quinn says.
“Whenever one of these things goes down, they look for a deep pocket,” Quinn said.
Indeed, a similar lawsuit was filed against Idaho law firm Moffatt Thomas in late 2010. That suit made similar allegations and included numerous sections of identical language, including a dramatic scene-setting introduction.
“In 2004, the DBSI Companies presented to the world the illusion of a monolith of wealth, competence and power. Investors were told of substantial commercial real estate holdings throughout the country, of history of successful and sophisticated real estate ventures, of assets into nine figures, and that no investor had ever lost money on a DBSI investment,” as was stated in the suits against Moffatt and Hirschler.
“Four years later, the world learned that this monolith was rotten to the core.”
“It’s a shame,” Quinn said of such routine suits being filed. “Hirschler Fleischer is a good law firm. They have a good reputation.”
The suit against Hirschler Fleischer alleges 16 counts, including negligence, legal malpractice, aiding and abetting breaches of fiduciary duty, aiding and abetting fraud, civil conspiracy and various forms of racketeering.
The suit explains that Hirschler Fleischer allegedly helped draft the private placement memoranda that were used when soliciting investors. Almost $100 million was brought into DBSI from investors, more than $80 million of which was allegedly misused for the benefit of the company’s insiders.
The suit seeks to recover “preferential and fraudulent transfers” that Hirschler Fleischer received from DBSI.
Hirschler Fleischer had not yet been served with the suit, but has accessed a copy of it. The firm’s response to the suit is forthcoming.
Brian McMahon, an attorney with Gibbons, a law firm in New Jersey representing the trustee, said he would not comment on the case.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].