NEW YORK, Dec 2 (Reuters) - Douglas Arntsen, the Crowell &
Moring lawyer accused in September of misusing client funds and
fleeing to Hong Kong to avoid arrest, has surfaced as a key
figure in a fifth lawsuit, the details of which suggest that
Crowell knew of concerns about Arntsen's behavior as early as
Arntsen is currently in the custody of Hong Kong
authorities and awaiting extradition on charges that he stole
$2.5 million in escrow funds from a client of Crowell's, Regal
Now Xun Energy, Inc, a small oil and gas firm based in
Oregon, has sued a purported investor, Lea Kennedy, for
reneging on a contract to take a $10 million stake in the
While the suit, filed Nov. 4 in the U.S. District Court for
the Southern District of Illinois, does not accuse Arntsen or
Crowell of any wrongdoing, the company's chief executive
alleges that Arntsen engaged in a questionable side deal
involving the escrow funds related to the deal.
According to the complaint, after Xun inked the deal with
Kennedy last May, it wired a $25,000 deposit into an escrow
account managed by Arntsen, who was working at Crowell at the
time. Arntsen served as the escrow agent at Kennedy's request,
Xun's chief executive, Jerry Mikolajczyk, told Reuters.
Kennedy had 45 days to purchase the stock, which she did
not do, according to the complaint.
After repeated attempts to complete the transaction, the
lawsuit alleges, Xun sent Kennedy a letter notifying her she
was in default of the agreement.
'HOW DID IT GET FROM A TO B?'
In a July 22 letter to Arntsen that was attached to the
complaint, Mikolajczyk asked that he return the escrow funds
and provide a copy of the bank records detailing how the funds
"We wish to verify that the funds were held per the
instructions ... and that there was no misappropriation of the
Escrowed Funds," Mikolajczyk wrote.
Arntsen did not immediately return the funds, Mikolajczyk
said. On July 27, Mikolajczyk said, he sent an email to
Arntsen, blind-copied to Crowell's executive committee,
demanding the funds' return.
The next morning Arntsen returned the money, Mikolajczyk
said, but the funds came from a different account than the one
he initially wired the money to.
"I am an accountant by profession so I asked him: how did
it get from A to B, and when?" Mikolajczyk said.
Mikolajczyk said neither Arntsen nor the firm gave him
information about the accounts, but that he subsequently
obtained an email indicating that Arntsen had a side agreement
with Kennedy to loan her the escrow funds.
Mikolajczyk's lawyer, Christopher Cobb, said, "My
understanding, and we are still very early on in the
investigation, is that there was some relationship between Lea
and Doug. We're still trying to figure out the relationship."
Cobb said that after the deal fell through, Kennedy
vanished. Her office address in Illinois turned out to have
been empty for the last three years, and a British fax number
she provided was inactive, Cobb said.
Kennedy did not respond to a voicemail message left at the
number listed on her contract.
A spokeswoman for Crowell & Moring declined to comment on
the recent lawsuit, but said the firm was "aware of it." The
firm has previously said that Arntsen resigned on Sept. 12.
MORE EMPLOYEES LEAVE CROWELL
Meanwhile, a partner and a secretary from Crowell have left
the firm in the midst of an internal investigation into
Arntsen's activities, said two sources who previously worked at
According to the sources, the partner had practiced at one
point in the same group as Arntsen, who joined Crowell & Moring
in 2007 as counsel with eight other finance and distressed-debt
attorneys from Buchanan Ingersoll.
A spokeswoman for the firm declined to comment on the
The new lawsuit is the fifth involving Arntsen since he
left for Hong Kong on Sept. 14, just as authorities planned to
After the failed arrest, the Manhattan District Attorney's
office charged Arntsen with first-degree grand larceny for
allegedly embezzling Regal Real Estate's escrow money.
On Sept. 21, five days after Arntsen's arrest in Hong Kong,
Regal sued him and Crowell & Moring for $6 million over the
On Oct. 10, another real-estate company, Aristone Realty,
filed an amended complaint in a $1 million state-court lawsuit
that it had brought in May against Crowell, Regal and others in
connection with an alleged kickback scheme involving Arntsen.
And on Nov. 16, real-estate company BCN 16th St. filed suit
claiming that Crowell & Moring owes it more than $1 million in
escrow money allegedly embezzled by Arntsen. The lawsuit stems
from the sale of property at issue in two of the other suits.
Arntsen is currently being represented by Ng Man Kin,
according to a spokesperson for the Hong Kong Department of
Justice. The department said in a statement that Arntsen
appeared in court Nov. 16 and "consented to surrender to the
Mr. Ng could not be reached for comment.
A spokeswoman at the District Attorney's office declined to
(Reporting by Aruna Viswanatha and Leigh Jones)
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