CHICAGO (CN) – A Chicago law firm claims that after a former client defrauded investors, tried to bribe witnesses in an SEC investigation, and was barred from the securities industry, the client filed a frivolous malpractice claim to “shake down” the law office and its insurance company.
Gardiner Koch Weisberg & Wrona and attorney James Koch sued their former clients Kenneth and Wendy Brown and their John and Jane Doe children, seeking more than $5 million in Cook County Court.
Koch claims the Browns ran Brown Investments, a broker-dealer day trader in Delray Beach, Fla., and together also owned 100 percent of 21st Century, which was registered with the SEC. Koch claims the Browns made $4.5 million in a “cherry picking scheme” at the expense of their clients.
“Defendants gained more than $4.5 million from the scheme and avoided millions of dollars worth of losses by pushing those losses onto advisory clients,” according to the complaint.
Koch claims the SEC investigated the Browns and their companies in 2004, whereupon the Browns contacted him, “to discuss with him representing the defendants in an SEC related matter, specifically relating to SEC investigations and SEC enforcement matters.”
Here the complaint takes a turn toward the peculiar: “Brown traveled to Chicago and introduced himself to Koch. At that meeting in Koch’s office, Brown said he was primarily a talk radio show host who ran a family securities firm. Brown said his wife stood to inherit $300,000,000 from her family but he couldn’t get his hands on the money.”
Koch says the Browns hired him and his office to represent them during the SEC investigation. During that investigation, Koch says, “Several of the Browns’ employees testified to the SEC that indeed, Wendy was incompetent, Ken was frequently absent playing baseball and that Ken was not competent or qualified to handle securities.”
Koch claims that Ken Brown admitted to him “that a conflict of interest and improper trading occurred” at his companies. “However, Brown said he knew little or nothing about portfolios, allocations of investments, or securities generally,” the complaint states. “Brown stated that he was a radio talk show host and that’s all, except he wanted to be a semi-pro baseball player.”
Koch says the SEC told him that it thought Brown was running “a fraudulent cherry picking scheme.”
Koch says he and his office “worked with Ken and Wendy Brown to resolve all of these matters, however, there were significant issues:
“A. Ken Brown, unbeknownst to Koch, was offering bribes to witnesses to change testimony, and was frequently unreachable.
“B. Wendy Brown was so [sic] frequently unavailable. She could not testify at depositions which had to be continued and even at trial she confused net assets of 5 billion with 50 million. …
“D. Ken had employed [nonparty] Mike Cimilluca to front run trades through the Browns proprietary account and if they were unprofitable move them into the customer accounts.”
To top it off, Koch says, he “later learned that Brown had been sanctioned and accused of fraudulent dealings in New York, Florida, and Alabama.”
The SEC sued the Browns and their companies in Miami Federal Court in 2005, Koch says. He advised them to settle. They refused, Koch says, despite the evidence against them, for instance: “The evidence at trial demonstrated that the Browns traded through their in house proprietary firm and reported 99.65 percent winners. The Brown trading for customers, however, resulted in 91 percent losers.”
Also, Koch says: “The Browns reported to NASD [National Association of Securities Dealers] that 21st Century Advisors had 5 billion dollars under management, which was off by four billion nine hundred million.”
Koch claims the Browns insisted on going to trial on the advice of their personal attorney, whom they later fired “due to his sheer incompetence.”
Koch says he represented the Browns through trial and the judge commended his firm’s work, though the court found against the Browns and permanently banned them from working with securities.
After this permanent bar, Koch says, the Browns contacted him “for advice on hiding assets in their children’s name.” He says he refused to do this, so “the Browns sought and obtained assistance from others.”
And, Koch says, “Defendants told Koch that they had filed suit against each and every law firm they had hired to as to shake down insurance companies.”
Sure enough, Brown says, the Browns sued his law firm in December 2009, “asserting a claim for legal malpractice.”
This lawsuit was frivolous, Koch says. He and his law firm seek more than $5 million in damages for breach of contract, fraud, breach of fiduciary duty, and conspiracy.
The law office is representing itself.