Busted Broker Blames Demise on Lawyers

CHICAGO (CN) - A Florida gold broker nailed on CFTC charges and ordered to pay over $100 million blames its lawyers Winston & Strawn LLP for bad legal advice.

Melanie Damian, as receiver for Hunter Wise Commodities, sued Timothy Carey and Winston & Strawn LLP in Federal Court.

In 2014, a federal judge found Miami broker Hunter Wise Commodities liable for fraudulently selling gold and other precious metals it did not actually own.

Hunter Wise's customers believed they were purchasing title to precious metals, but instead the broker used their money to make trades on the open market.

U.S. District Judge Donald Middlebrooks concluded that Hunter Wise's margin-trading accounts held with their suppliers never resulted in the transfer or delivery of any commodities, and that "defendants [Fred] Jager and [Harold] Martin failed to show how they could transfer title to the metals to the retail customers when the Hunter Wise defendants neither had possession nor title to the metals."

The law firm Winston & Strawn represented Hunter Wise during the Commodity Futures Trading Commission's investigation and enforcement action.

Now in receivership, Hunter Wise claims in an action filed on May 15 that Winston & Strawn "knew or should have known that the HW entities' business model was illegal, and they negligently failed to warn the HW entities that they should make changes or stop operating."

The defunct brokerage claims the firm owed a duty to explain the implications of Hunter Wise's violations of the Commodity Exchange Act, and of the legal risks of continuing to do business once the government began its investigation.

"On May 16, 2014, the U.S. District Court for the Southern District of Florida made a final determination contrary to all advice the defendants had provided and imposed a damages award against the HW entities in excess of $100 million. Defendants' breaches of their duties as attorneys caused this substantial monetary injury to the HW entities," the complaint states.

Hunter Wise seeks the return of more than $500,000 in attorneys' fees it paid for legal representation, and damages for legal malpractice, breach of fiduciary duty, and breach of contract.

The broker is represented by Drew Peel with Rachlis, Duff, Adler, Peel & Kaplan.

Defendant Carey did not immediately return a request for comment.

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