Judge Troubled by Firm Fee Requests in Ponzi Case

It’s been a tough month for law firms looking to be paid for their work on the receivership case connected to WexTrust Capital, a Chicago-based real estate investment firm that collapsed in 2008 after the Securities and Exchange Commission charged two of its executives with running a Ponzi scheme that defrauded 1,200 primarily Orthodox Jewish investors. According to the SEC, WexTrust Capital illegally diverted $100 million of the $255 million it raised to invest in commercial real estate, commodity funds, and South African diamond mines for other purposes.

In addition to raising concerns about the proposed hiring of Kasowitz Benson Torres & Friedman as insurance coverage counsel on the matter at an early August hearing, Judge Denny Chin of the U.S. Court of Appeals for the Second Circuit has also limited fee awards to several firms working on the case and rejected what he said was too lenient a settlement with a Chicago law firm accused of malpractice by the WexTrust estate. (Chin continues to oversee the case, filed in Manhattan federal district court, though he was elevated to the appellate bench last year.)