Nathan Hardwick enters the U.S. Courthouse in Atlanta on day four of testimony in his trial on charges of embezzlement. (Photo: John Disney/ALM)

Atlanta lawyer Nathan Hardwick IV's former partner, Mark Wittstadt, took the stand Wednesday in Hardwick's federal embezzlement trial and described how Hardwick ignited a crisis in July 2014 when he told Wittstadt that money appeared to be missing from their law firm's escrow accounts.

Wittstadt ran the now-defunct residential real estate firm's default operation from Baltimore with his brother Gerard Wittstadt, while Hardwick ran the closing operation from the Atlanta headquarters of the firm, Morris Hardwick Schneider.

“I did not get involved in the closing operation until this giant mess” came to light, Wittstadt told the jury.

Within two weeks of Hardwick's phone call to Mark Wittstadt, forensic accountants had discovered that the closing side's escrow accounts were short $37 million—and the Wittstadts and MHS title-insurer Fidelity National Title ousted Hardwick from the firm.

At that point, after the retirements of founders Art Morris and Randy Schneider, Hardwick owned 55 percent of the firm, and the Wittstadts owned 22.2 percent apiece. MHS had acquired Wittstadt & Wittstadt in 2008 to add default capabilities, just as the housing market cratered in the wake of the financial crisis. Hardwick had merged his Atlanta-based closing firm with MHS in 2005.

Federal prosecutors indicted Hardwick in February 2016, alleging that he stole $26 million from client escrow accounts and spent almost $18 million on charter jets, casinos, bookies and women alone.

The government also indicted the former controller for MHS's closing side, Asha Maurya, as a co-conspirator, alleging that she helped Hardwick embezzle money from the firm from 2011 until the shortfalls came to light.

Maurya pleaded guilty to a single count of conspiracy to commit wire fraud last year and is cooperating with the government. Hardwick's defense team, led by Ed Garland of Garland Samuel & Loeb, has maintained that Maurya was the culprit, not Hardwick. Maurya has admitted to stealing $900,000 from MHS.

Sparring With Garland

Wittstadt's almost eight hours of testimony included three hours of cross-examination from Garland, with more set for Thursday.

Wittstadt had testified that he shared weekly financials on the default operation with Hardwick, but Hardwick did not reciprocate, and he was in the dark as to the closing side's financial operations. He said he did not learn until Aug. 1, 2014, that Hardwick received a daily email from Maurya on the firm's cash position. “I would have loved to have seen that,” he told prosecutor Lynsey Barron.

Garland's questions suggested that Hardwick had been just as duped by Maurya as the Wittstadts—and that the Wittstadts knew just as much or as little about the closing side's financial accounts and operations as his client did.

Garland asserted that the Wittstadts and Fidelity had a strong motive to blame Hardwick, because his ouster made the Wittstadts sole owners of MHS and gave Fidelity the title company, LandCastle.

Wittstadt pushed back, noting for instance that Fidelity ended up spending $30 million to prop up the escrow accounts by the beginning of 2015. The lively sparring between the two lawyers kept the jury's attention even as Garland delved into the minutiae of bank records and shareholder agreements.

'Overdisbursed'

Wittstadt told the jury that things happened fast after Hardwick informed him on July 30, 2014, that auditors had discovered a $670,000 falsified bank statement for the closing operation's accounts.

The altered bank statement had actually been discovered 11 days earlier, Hardwick told Wittstadt, and Maurya had admitted to it. Hardwick suspended her and then took a chartered jet with friends to the British Open.

But Hardwick told Wittstadt after returning from the golf tournament that money seemed to be missing from the closing side's escrow accounts, and the partners needed to come up with about $2.2 million to cover it. Hardwick said he'd put in $1.4 million and asked the Wittstadts for $450,000 apiece.

“I'm coming to Atlanta,” Wittstadt replied instead, and the next morning he hopped on a 6 a.m. Delta Air Lines flight. Wittstadt said he immediately engaged a forensic accounting firm and notified state bar associations in states where MHS had offices of the escrow shortfalls.

Hardwick texted Gerard Wittstadt on Aug. 1, blaming Maurya for the shortfalls: “She totally screwed me and told me we were making all this money and overdisbursed me … I'm so upset.”

“She duped me,” Hardwick subsequently texted.

Mark Wittstadt told the jury that Hardwick couldn't tell him how much money he'd received in excess distributions. “The number kept changing. First it was two [million], then five, then six.”

Asked by Barron if he'd heard the term ”overdisbursed” before, Wittstadt replied, “No. It's a new term of art to me.”

MHS's retired founder, Art Morris, had testified Tuesday that he too was unfamiliar with the term. “I've never heard it in my business before,” he'd said. “It's a made-up word.”

Wittstadt said his main concern at the time was finding how much money was missing and replacing it, not figuring out who did it.

Wire Account as Spigot

By the afternoon of Aug. 1, Wittstadt's controller for the default operation, Frank Rittermann, who had also come to Atlanta to sort things out, emailed Wittstadt to say he had learned how the escrow money had gotten out of the firm.

Rittermann had discovered a Georgia trust account, MHS IOLTA Incoming Wire Account, that served as a conduit for banks to wire client mortgage money to MHS. From that account, sums were distributed to escrow accounts.

It turned out that Maurya also used the wire account to disburse money from the firm, Wittstadt testified. He said he learned she had been paying MHS's payroll, totaling about $1.2 million every two weeks, out of the account. There were also records of a $400,000 wire transfer through the account to The Venetian casino in Las Vegas and $300,000 to the Beau Rivage Resort & Casino in Biloxi, Mississippi.

Wittstadt asked the firm's HR director to put Maurya back on the payroll, he said, “to help unwind the mess,” by showing the investigators how she'd run the bookkeeping.

After determining $37 million in shortfalls, the forensic accountant on Aug. 13 alerted Fidelity National Title, MHS's primary title insurer. Fidelity agreed to cover the escrow shortfalls in return for a 70 percent interest in MHS's sister title company, LandCastle Title—and on the condition that Hardwick resign and give up his shares in the firm.

In an Aug. 17 email to Wittstadt, Hardwick agreed to resign on 10 conditions. He would “control the message” [of his resignation] to MHS employees and the public, the email said. He would have no further obligation to MHS, and MHS would pay the $5 million in loans he'd secured from a client, professional golfer Dustin Johnson, and local businessman Jim Pritchard to cover the initially discovered shortfalls. Hardwick would also receive $120,000 a month from the firm.

Wittstadt told the jury he refused Hardwick's terms.

In a subsequent email, Hardwick reiterated that he thought the money he received was from his share of the profits, and he didn't know it came from the escrow funds. “I won't be a scapegoat to the firm. I will help save it,” he wrote. Hardwick resigned Aug. 18.

This story has been updated to correct the spelling of Frank Rittermann's last name.

READ MORE: 

Hardwick's Ex-Partner Recounts Big Debts, Expenses in Embezzlement Trial

'A Thief and a Liar': Jurors Hear Accusations, Accounting as Hardwick Trial Begins

Law Firm's Bankruptcy Looms Over Embezzlement Trial

Judge Delays Trial in Hardwick Law Firm Embezzlement Case

Jury Selected in Hardwick Trial

Embezzlement Trial Over Defunct Atlanta Firm Will Hinge on Intent