David Gialanella, New Jersey Law Journal
A Bergen County jury recently awarded more than $33 million to the operators of a now-defunct legal funding business based on allegations that its in-house counsel defrauded the business with the help of a host of co-conspirators.
The sum, which includes $8 million in punitive damages, was awarded to The Law Funder LLC, with most of it payable by Matthew Sheldon, who previously was convicted in a federal criminal case for his conduct.
Sheldon has been incarcerated and likely not in a position to pay, but Sean Callagy, who tried the case on behalf of Law Funder, said he’ll make the effort.
The verdict “doesn’t mean our clients are going to be made whole…but it’s certainly something we’ll continue to pursue for the rest of his life,” said Callagy, of Callagy Law in Paramus.
Sheldon, in pleading guilty to conspiracy to commit wire fraud two years ago, admitted to generating improper referral fees that were paid out by Law Funder and split between him and an outside broker.
Law Funder of New York was founded in 2004 by four people who previously were in litigation funding, including Sheldon—who served as the company’s attorney and chief underwriter, and had a 25 percent stake in the company and drew an annual salary that reached $250,000, according to the complaint.
The company, which had $83 million in assets at its height, provided up-front money for litigation and was paid back with interest only if the case was successful, the complaint said.
According to federal prosecutors, Sheldon, who was responsible for vetting cases and had final authority over which ones received funding, began defrauding Law Funder the year after its founding. He was charged with sending direct inquiries to a business associate: broker Rory Donadio of Montclair Funding Group, who in turn referred the cases back to Law Funder in exchange for referral fees that Sheldon and Donadio split. Prosecutors said Sheldon derived $870,000 in profit.
The misconduct was first discovered in early 2009, when a client alerted the other principals to a forged signature on a funding document, Callagy said.
Law Funder dismissed Sheldon and retained Callagy’s firm to investigate, which brought to light other fraud detailed in the complaint, Callagy said.
The complaint alleged wrongdoing beyond that for which Sheldon was criminally charged. Law Funder, and principal George Prussin, claimed Sheldon breached his fiduciary duty by overvaluing cases and approving funding for bad cases—all in an effort to generate commissions for himself and his co-conspirators.
For example, Sheldon allegedly facilitated funding for lawsuits over plane crashes involving a Russian airline, Siber Air, and a Greek airline, Helios Airways, even though the cases already had been dismissed.
The complaint also accused Sheldon of transferring $750,000 for fictitious cases to an individual in Houston posing as an attorney, Jessica Escobar.
The suit named 20 defendants. Among them was Gregory Krasovsky, an attorney who represented Law Funder and, according to the complaint, was aware of Sheldon’s fraud and didn’t inform the company.
The suit asserted fraud, theft, racketeering and other counts, and claimed tens of millions in monetary losses, incurred risk and loss of future business.
The firm referred the matter to the Federal Bureau of Investigation, and the civil case was stayed pending the outcome of the criminal case, Callagy said.
Sheldon was arrested in March 2011 by federal agents before boarding a flight from Miami to the Dominican Republic and pleaded guilty in May 2012 to conspiracy to commit wire fraud. Last October, U.S. District Judge Dennis Cavanaugh sentenced him to 30 months in prison. Donadio also pleaded guilty to the same charge.
Despite his admissions in the criminal case, Sheldon denied any wrongdoing in the civil matter, according to court documents.
Sheldon, in a February 2010 brief, claimed none of his actions were illegal or in secret, Prussin had similar arrangements with brokers, and he was shut out of Law Funder because he objected to Prussin’s actions, not because fraud was discovered.
The case proceeded to trial, which was conducted over three weeks before Bergen County Superior Court Judge John Langan Jr.
Donadio, his businesses and Catherine Donadio—his mother, also an attorney, and an alleged co-conspirator—settled during the trial on confidential terms, Callagy said.
The three remaining defendants—Sheldon, Krasovsky and Escobar—didn’t attend, and weren’t represented by counsel in the proceedings, Callagy said.
Callagy moved for a directed verdict on liability, which Langan granted.
On June 24, the jury awarded a total of $24.5 million in compensatory damages: $22.9 million against Sheldon, $2.2 million against Krasovsky, and $375,000 against Escobar. The next day, the panel awarded $8 million in punitive damages, all against Sheldon. The verdict totaled $33.5 million.
Michael Perle of Secaucus, who represented Sheldon long before trial, declined comment.
There was no counsel listed for Escobar in the judiciary’s Internet database.
Krasovsky could not be reached and there was no attorney listed for him in the database.
Alfred Gellene of Denville represented Rory Donadio in the civil case. Henry Klingeman of Krovatin Klingeman in Newark represented Catherine Donadio. Neither returned a call Tuesday.
Read more: http://www.njlawjournal.com/id=1202661606677/NJ-Litigation-Funding-Business-Wins-33M-Award-in-Fraud-Case#ixzz3D1jblkOI