May 20, 2009 By: John Pacenti
or decades, attorneys have conducted a dance of pretrial discovery. Sometimes one partner gets sick of getting its toes stepped on.
Take the U.S. Pension Trust case. The Securities and Exchange Commission is seeking sanctions against the company and four attorneys for allegedly failing to produce numerous documents in its civil fraud case.
“Defense counsel should be sanctioned because many of the violations are the result of defendants’ legal tactics and maneuvers concerning discovery,” according to a 16-page motion by SEC senior trial counsel Amie Riggle Berlin and Scott Masel.
The SEC is targeting three Akerman Senterfitt attorneys: Leonard Bloom, Brian Miller and Ryan Roman. The agency is also asking for sanctions against Miami solo practitioner Robert Dunlap.
The matter appears far from closed with Bloom, a Miami shareholder with Akerman, saying the client, U.S. Pension Trust, complied with all requests following an April 20 hearing before U.S. Magistrate Stephen Brown in Miami that centered on a database containing thousands of client files.
“We’ve responded to the discovery dispute, which was resolved by the magistrate,” Bloom said. A defense reply to the SEC motion for contempt said more than 7,200 pages of documents and detailed answers have been turned over to the SEC.
“The commission’s request for an order to show cause and for severe monetary sanctions are unsupported by the facts of this case or applicable law,” reads the April 3 response filed by Roman, an Akerman Senterfitt associate in the case.
Dunlap, who represents U.S. Pension Trust owners Iliana Maceiras, Leonardo Maceiras and Nildo Verdeja, did not return a call for comment.
Berlin maintains there are still numerous discovery issues and the “matter is still pending.”
The SEC accuses the attorneys of dragging out the discovery process by erroneously arguing documents sent by U.S. Pension Trust to regional directors and sales agents are outside the company’s control when it clearly had a legal right to them. The SEC also accused the attorneys of refusing for nearly a year to provide access to electronic documents in a usable format.
The dispute spilled out at an April 20 hearing — the third on the discovery issue in about a month — when Brown found himself parenting the two sides, warning the attorneys that he was tired of wasting time in the case.
“It’s not like you are paying rent for this courtroom,” the magistrate said.
He said he had little sympathy for the defendants, but “I’m not throwing them to the wolves here either.” He also pointedly criticized the government, saying, “I think the SEC is far more interested in discovery than they are in bringing this case to a conclusion.”
The SEC asked U.S. District Court Judge Jose E. Martinez to hold all defendants and their attorneys in contempt of court and fine them on a sliding scale starting with $5,000 for the first five days and increasing to $20,000 a day after four weeks if they didn’t comply. The SEC also asked the court to order the defendants to pay any fees and court costs related to the alleged procrastination.
The contempt motion said the company did not comply with Brown’s March 12 discovery order to supplement responses nearly a year after they were due and 10 months after the close of discovery. Trial is set for Aug. 3.
The SEC claimed the follow-up response had 50 deficiencies.
Web Extra:
Plaintiff's show cause order
Defendant's response
The SEC filed a complaint in September 2007 against Coral Gables-based U.S. Pension Trust, U.S. College Trust and the funds’ owners, claiming 14,000 mostly Latin American investors were taken for $178 million. The companies ostensibly offered mutual funds through a series of investment plans.
“Defendants have failed to disclose that they are siphoning off as much as 85 percent of investors’ funds paid in the annual contribution plans to pay exorbitant commissions to sales agents, administrative fees and other fees,” the complaint said.
The company denied 49 of the 53 fact allegations laid out by the SEC and raised a number of affirmative defenses, such as the defendants marketed trust relationships and not mutual funds. The SEC attorneys asked for proof but claimed they were given incomplete answers.
For example, the SEC requested software that would allow it access to U.S. Pension’s electronic documents. Rather than comply, the defense attorneys told the SEC to contact a software expert who could help them, but investigators could get only remote access, according to the agency’s motion.
“This is a problem for a number of reasons,” the sanctions motion reads. “First, it is not the same access the defendants enjoy. Second, the remote access the defendants offer would show and create a record of exactly what documents the commission reviews and prints.”
Brown held yet another hearing on the matter April 20 in which the SEC got some cooperation, including access to the database.
Bloom said defense attorneys never had the capability to see what documents the SEC was viewing and the agency has had access to those documents for a year.
Berlin said at the April 20 hearing that defense attorneys dumped the whole database — in Spanish — on the SEC without any indication of pertinent files. She accused Miller, an Akerman shareholder, of “confusing fact with fiction” and rewriting the history of the case.
The database, which by the defense’s own admission is akin to a load from a dump truck, is key to the SEC’s case, containing financial records as well as customer and agent files. It also is supposed to bear out U.S. Pension Trust’s affirmative defenses.
“I understand your problem. I don’t understand your solution,” Magistrate Brown told the SEC’s Berlin, according to a transcript of the hearing.
Miller said the defendants have been more than cooperative.
“This is the SEC saying whatever you’ve been given isn’t enough. We need more. We need more. We need more,” he said.
Akerman Senterfitt attorneys say the database conundrum has been worked out. “The commission cannot even establish the violation of a single order, let alone the pattern of violative behavior that would result in such severe sanctions,” a filing by the firm said.
Bloom said the contempt request is before Martinez, who has not indicated whether he will hold a hearing. Brown said he hasn’t been given direction by the trial judge.
Berlin, though, was adamant Monday that the SEC is not yet satisfied with the cooperation of U.S Pension Trust or its attorneys.
John Pacenti can be reached at (305) 347-6638.
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