Law360, New York (September 22, 2014, 7:13 PM ET) — A New Jersey state jury has awarded $33.5 million dollars to litigation funding business The Law Funder LLC, with the bulk of the judgment landing on an attorney and Law Funder co-founder currently serving time for defrauding the business with an elaborate kickback scheme.
According to a Monday press release, The Law Funder secured the $33.5 million judgment in late June following a three-week trial in which the company sued Mathew R. Sheldon, one of its four founders, and 19 others for their alleged involvement in a kickback scheme in which Sheldon and others were paid improper referral fees.
The award is comprised of judgments entered against Sheldon and two other defendants, with $22.9 million in compensatory damages assessed to Sheldon, another $2.2 million to co-defendant Gregory Krasovsky, a former attorney for The Law Funder who allegedly concealed Sheldon’s fraudulent activity, and $375,000 to a third, unnamed co-defendant. Sheldon was hit with an additional $8 million in punitive damages.
Sean Callagy of Callagy Law, The Law Funder’s attorney, touted the award in the statement, while conceding much of it won’t be recoverable from Sheldon, who is currently serving time after pleading guilty to conspiracy to commit wire fraud for his involvement in the scheme.
“This verdict is a victory for my clients,” said Callagy. “While this does not represent a complete recovery for them, we will continue to pursue the payment due for the rest of Sheldon’s life so that he may repay some of what my clients have lost.”
In October, U.S. District Judge Dennis M. Cavanaugh sentenced Sheldon, who was also underwriter and legal counsel for the New York company, to two and a half years in prison. Sheldon was also sentenced to three years of supervised release and was ordered to pay $869,492 in restitution and forfeit $869,492.
Prosecutors said The Law Funder, which extends loans to plaintiffs in pending civil litigation, did business with Montclair Funding Group LLC and its owner Rory Donadio. MFG was a broker between plaintiffs seeking advances against potential recoveries in pending litigation and private entities such as The Law Funder. In exchange for a broker’s fee, MFG would, among other things, gather necessary information and documents in support of funding opportunities so The Law Funder could evaluate whether to fund a case and for how much. Sheldon, indicted in May 2012, was a 25 percent owner in The Law Funder and supervised the underwriting process for the company.
Sheldon admitted that from February 2005 through July 2009, he conspired with Donadio to design and execute a secret kickback scheme in which Sheldon would offer certain The Law Funder investment opportunities to MFG in exchange for personally receiving a portion of each broker’s commission that The Law Funder paid MFG, according to the U.S. attorney’s office. Sheldon and Donadio agreed to conceal their fee-splitting arrangement from The Law Funder and Sheldon’s three other partners. The kickback scheme resulted in $869,492 in fraudulent payments to Sheldon, which were paid by wire transfer and other means, according to the U.S. Attorney’s Office.
Sheldon also admitted that he regularly communicated with Donadio to identify coded transactions and calculate the amount payable to Sheldon pursuant to the kickback scheme. Donadio also has pled guilty in connection with the scheme and awaits sentencing.
Sheldon and Donadio represented themselves in the matter.
The case is George Prussin v. Mathew Sheldon, case number L-010335-09, in the Superior Court of New Jersey, Bergen County.
–Additional reporting by Linda Chiem. Editing by Stephen Berg.