Nov 2 (Reuters) - The trustee for a bankrupt real-estate
investment company has sued Foley & Lardner, claiming that the
law firm helped orchestrate a Ponzi scheme that cheated
investors out of hundreds of millions of dollars.
Filed Monday in Delaware federal court by James Zazzali,
the bankruptcy trustee for DBSI, the suit alleges that Foley &
Lardner assisted company "insiders" in luring investors into
schemes that were incapable of providing the promised returns.
The 53-page complaint accuses the firm of professional
malpractice, conspiracy, fraud, and breach of fiduciary
Zazzali, who is of counsel at the Newark, N.J., office of
Gibbons, was Chief Justice of the New Jersey Supreme Court from
October 2006 to June 2007, when he retired. He was New Jersey
Attorney General from 1981 to 1982.
Foley & Lardner did not respond to requests for
DBSI Companies, at one time a combination of about 140
real-estate and development firms, filed for Chapter 11
bankruptcy in 2008, claiming $100 million in assets and $500
million in liabilities. The basic investment strategy for DBSI,
which managed about 18.6 million square feet of space in 34
states. was a tenant-in-common arrangement, whereby investors
owned a fractional interest of the properties.
Zazzali's complaint alleges that Foley & Lardner helped
devise a flawed investment structure that enabled company
insiders to perpetrate fraud and that the law firm provided tax
opinion letters to support the deceit. The complaint identifies
former Foley & Lardner attorney Stephen Burr as one of the
lawyers who advised DBSI. Burr, who is not named as a
defendant, is now chairman of the real-estate group at Eckert
Seamans Cherin & Mellot. He did not return a phone call seeking
DOZENS OF LAWSUITS
Last year, Zazzali sued nearly 100 brokers and dealers
involved in DBSI transactions, alleging that the commissions
they earned were a result of fraudulent transfers. The lawsuit
against Foley alleges that about $49 million should go back to
the DBSI estate. Zazzali has filed dozens of other lawsuits as
trustee seeking to recoup losses for the estate.
Zazzali did not return a phone call seeking comment, and
directed inquiries to Brian McMahon, a partner at Gibbons, who
is representing him as trustee.
Foley & Lardner has about 1,000 attorneys, with its largest
office in Milwaukee. It has about 50 attorneys in New York.
The case is Zazzali v. Foley & Lardner, 1:11-cv-01058, U.S.
District Court for the District of Delaware.
(Reporting by Leigh Jones)
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