Kids’ Charity Says Attorneys Abetted Fraud

Ninetten paragraphs later, the 24-page complaint states that Zakarin and Pryor Cashman learned of and substantially assisted Bloom's fraud: "Zakarin and Pryor Cashman represented Bloom in a suit against his previous employer, BDO Seidman, in 2004 and early 2005. In the first days of July 2005, after the fraud at PAAF was publicly disclosed, Bloom confessed his own fraud to Zakarin. Bloom told Zakarin not only about the money he stole from North Hills investors through kickbacks he had received from PAAMCO (which might now be discovered through investigations into PAAMCO's activities), but also about the millions of dollars he stole from North Hills investors through the 'notes receivable' and other accounting entries. Zakarin was so concerned about Bloom's fraudulent activities that he promptly recommended that Bloom retain criminal counsel (which Bloom did)." (Parentheses in complaint.)

At that point, the complaint states, Zakarin and Pryor Cashman created a "sham demand note."

According to the complaint: "At about the same time, Zucker - the accountant who kept the financial records of North Hills and NHM and who prepared the annual tax returns and K-1s for North Hills - was voicing concern to Bloom about the amount of money that Bloom had taken from North Hills. Zucker asked Bloom to provide him with a written note, which Zucker would then use to rationalize continuing to book Bloom's theft from North Hills as if it were a legitimate loan to Bloom.

"It was crucial to Bloom's scheme that he appease Zucker, because Bloom's other accounting firm, DGPW [Davis, Graber, Plotzker & Ward], was at the same time withdrawing its representation as North Hills' auditor in light of its knowledge of Bloom's fraud. (Notwithstanding its actual knowledge of the fraud and despite its special relationship with ADF, ADI, and the Borinis, however, DGPW failed to warn plaintiffs or any of North Hills' other investors of the fraud. Indeed, DGPW never even notified plaintiffs of their withdrawal as North Hills' auditor; aggravating this failing, DGPW continued to prepare the Borinis' personal tax returns through 2008 and in doing so relied upon Schedule K-1s for their North Hills investments that DGPW knew misreported the

returns of North Hills investors.) Bloom thus asked Zakarin to prepare a note that would make it appear that Bloom had legitimately borrowed the money from North Hills in the ordinary course of business.

"Zakarin knew from the outset that the proposed transaction would be improper even if the loan had been legitimate - indeed, Zakarin had sent Bloom an e-mail specifically informing him that it was not permissible for Bloom to borrow funds from North Hills for his personal use, even if the loan were documented in a note carrying a substantial interest rate. But of course, Zakarin also knew that the note would not document a legitimate loan because Bloom had already stolen the funds from North Hills that the note purportedly allowed him to borrow.

"Zakarin thus had a choice. He at least could have refused to draft for Bloom the fraudulent note that was going to help hide Bloom's theft. He also could have advised Bloom to come clean to North Hills' investors about his theft. He simply could have withdrawn from representing Bloom so as to extricate himself from Bloom's ongoing fraud. But he did none of those things.

"To the contrary, Zakarin made himself complicit by drafting the demand note in an effort to conceal the fact that Bloom had stolen funds outright from North Hills. The note, signed by Bloom, purported to obligate NHM to repay the amount of money that Bloom had misappropriated from North Hills as of December 31, 2004 - a total of $13.23 million. ...

"Given that the purpose of the demand note was simply to mask Bloom's wrongdoing - and that North Hills was not represented - it is no surprise that the note lacked any safeguards that might ensure repayment of the purported loan or that any other benefits actually accrued to North Hills. For example, the promissory note would at least theoretically have provided some legal benefit to North Hills if it had provided a due date for payment of principal and interest. It did not. Instead, the note provided that principal and interest were only payable on demand by North Hills. Of course, because Bloom controlled North Hills, Bloom (through NHM) would only have to repay North Hills if and when he demanded payment of himself. The note might also have provided a benefit to North Hills if it had been secured by, for example, some of the millions of dollars of real estate, art, or jewelry Bloom had acquired. But again, it was not. Finally, that the demand note was a pure fabrication intended to provide cover for Bloom's fraud is evidenced by the fact that when Pryor Cashman created the note in late July 2005, the note was backdated roughly seven months, to the end of 2004. Having drafted or having directed other attorneys within Pryor Cashman to draft the demand note, Zakarin was fully aware of its deficiencies and that the note was not what it posed to be - a debt instrument prepared in the ordinary course of business." (Citation to document omitted.)

The plaintiffs seek punitive damages for aiding and abetting fraud, and aiding and abetting breach of fiduciary duty. They are represented by Thomas Wiegand with Molo Lamken and Barry Margolis with Abrams Garfinkel Margolis Bergson.

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