Rory Jurman, with Hinshaw & Culbertson. Courtesy photo

A Fort Lauderdale law partner was able to negotiate a multimillion-dollar settlement and insulate his client from further fallout in the wake of a $330 million Ponzi scheme.

U.S. Bankruptcy Judge Raymond B. Ray approved a $3.2 million settlement in September between the bankruptcy estate for shuttered lending firm 1 Global Capital LLC, the Kopelowitz Ostrow law firm, the firm's insurer American Alternative Insurance Corp., as well as securities attorneys Jan Douglas Atlas and Andrew Dale Ledbetter. Hinshaw & Culbertson partner Rory Jurman served as AAIC's coverage counsel in the matter and assisted the parties in finding a mutually agreeable outcome in the dispute.

The conflict stemmed from the alleged Ponzi scheme committed by 1 Global and the lender's subsequent 2018 bankruptcy. As documented in the complaint accusing Atlas of securities fraud, 1 Global purportedly collaborated with him and Ledbetter to mislead would-be investors and perpetrate a fraudulent scheme totaling $330 million across 42 states. The company's business model was to offer short-term loans with high interest rates to entrepreneurial borrowers.

Jurman said Ruderman was accused by federal prosecutors and the SEC of being "the mastermind behind this Ponzi scheme," and funneled money out of the company into personal trusts for the benefit of himself and his family.

"These investments were being marketed as safe and they were anything but that," he said.

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The federal charges against Atlas said the prominent South Florida securities attorney served as outside counsel to 1 Global and knowingly authored incorrect opinions letters for the company. The complaint contends 1 Global paid Atlas $627,000 for his services, which included asserting that the lender's services did not qualify as securities and did not have to be registered with the U.S. Securities and Exchange Commission.

Jurman said 1 Global was alleged to have used Atlas' letters to assuage anyone who expressed skepticism about the company's operations.

"[The Ponzi scheme] was being orchestrated through the use of Mr. Atlas' letter on KL letterhead," he said, echoing prosecutor's claims. Jurman said Atlas and Ledbetter were accused of becoming deeply involved with 1 Global's fraud by the time the Hallandale Beach-based company went bankrupt.

Atlas and Ledbetter had been employed by Kopelowitz Ostrow. After claimants began pressing charges against the attorneys and the firm for their alleged culpability in 1 Global's scheme, the defendants sought coverage under the Lawyers Professional Liability Insurance policies offered by AAIC.

Jurman, arguing on behalf of AAIC, contended in part that Atlas and Ledbetter's actions were not covered under the policy as they had occurred prior to the policy's inception. He added that "fraud actions are never covered for moral hazard reasons."

"There was no coverage because a Ponzi scheme is not a professional legal service," Jurman said, citing Florida law. He subsequently collaborated with Paul J. Battista, the Genovese Joblove & Battista partner representing the debtors, to draft a bar order that inoculated Atlas, Ledbetter and Kopelowitz Ostrow from future claims.

Jurman said the settlement was only made possible by the protection offered by the bar order.

"They were never going to do that if they had liability," he said, noting the firm and its attorneys were facing claims by aggrieved investors as well as 1 Global and Ruderman themselves.

"This looked like a mess of exposure," Jurman said, adding his client's insurance policy was not nearly large enough to cover the millions of dollars at stake. "It's not a policy of anything near that level."

The joint motion for the settlement's approval noted "while the debtors believe that they have a good probability of success on the merits, the claims will be vigorously contested" by the law firm and attorneys through the appellate process, in turn prompting the need for a settlement.

The motion also noted litigation would prove prolonged and costly with little promise of being able to actually collect.

"Based on information provided during the case, the Debtors believe that any effort to collect on a judgment of any significance against the KO parties will prove to be difficult," the motion said. "Mr. Ledbetter and Mr. Atlas are both in their mid-70s and are retired from the practice of law. While KO is an operating law firm, like all law firms, its assets consist mainly of the ability of its lawyers to generate future legal fees. If the debtors obtained a sizable judgment against KO, then it is more likely than not that KO will be forced to liquidate and its lawyers leave for other law firms."

The motion also alluded to the coverage issues presented by AAIC's policies, noting it would not cover the damages at hand.

The settlement agreement's terms outlined for 1 Global's bankruptcy estate to receive $3.2 million. AAIC contributed the bulk of the sum with $2.7 million, along with $100,000 from Kopelowitz Ostrow, $150,000 from Atlas, and $604,000 from Ledbetter and his family.

Jurman said the case's disparate parties and varied moving parts made it one of the most complex matters he's ever handled.

"This was probably one of the most challenging cases I've been involved in professionally, not only because of the scope of the potential damages and the insurance coverage issues, but the number of claimants and parties involved," he said.  Jurman said his strategy for getting everyone to sit down for negotiations involved convincing the parties there was no way to satisfy and end the litigation without the use of the bankruptcy court.

"You could tell that there was perhaps some animosity between all of the parties involved," he said, adding he called upon a variety of skills to reach an amenable outcome. "It's sort of being a peacemaker and a deal-maker at the same time."

Walter Mathews, the Miami attorney who represented Atlas, said his client "acted responsibly" in entering the settlement agreement.

Mathews said, "He's interested in moving on."

 

Case: Securities and Exchange Commission v. 1 Global Capital LLC and Carl Ruderman et al.

Case No.: 0:18-cv-91991-BB / 0:18-19121-RBR

Description: Securities Fraud/Bankruptcy

Filing date: July 27, 2018

Verdict/Settlement date: Aug. 29, 2019

Judge: U.S. District Court Southern District of Florida Judge Beth Bloom / U.S. Bankruptcy Court Southern District of Florida Judge Raymond B. Ray

Insurers' attorneys: Rory Eric Jurman, Alfred Buchanan, Thomas Lester, Hinshaw & Culbertson, Fort Lauderdale, Chicago, and Rockford

Insureds' attorneys: James Kaplan, Kaplan Zeena, Miami; Walter Mathews, Mathews Giberson, Fort Lauderdale; Edward R. Curtis and Charles M. Tatelbaum, Tripp Scott, Fort Lauderdale

Debtors' attorneys: Paul J. Battista, Genovese Joblove & Battista, Miami

Verdict/settlement amount: $3.2 million

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