Accounting Firm Ordered to Pay $180,000 in Sanctions For Withholding Documents Relating to Seattle's 'Mini-Madoff'

 A federal judge ruled that an accounting firm should pay $180,000 in legal fees resulting from multiple failures to respond to a subpoena issued by the trustee overseeing a massive Seattle Ponzi scheme whose mastermind became known as Seattle's 'Mini-Madoff'. Moss Adams, the nation's 12th-largest accounting firm, had been asked to produce documents relating to its dealings with Darren Berg, who pled guilty in July 2011 to running a $150 million Ponzi scheme. Moss Adams, which counted Berg as a client for ten years, had been found in contempt in April for failing to timely produce thousands of documents.

The trustee in charge of recovering funds for Berg's investors served a subpoena on Moss Adams shortly after Berg was arrested in July 2010. While nearly 12,000 pages of documents were initially produced in response to the subpoena, Moss Adams would eventually make several additional supplemental productions of thousands of pages of additional responsive documents over the next two years. This included additional emails, billing records, voicemails, and Berg's tax returns. Finally, after the engagement of a third-party to assist in discovery efforts, Moss Adams made their last production in January 2013 of another 1,200 pages of documents.

The trustee's counsel sought sanctions against Moss Adams, arguing that their failure to fully comply with the subpoena had significantly hampered their efforts to gain a thorough understanding of Berg's scheme, especially since crucial documents such as Berg's tax records and other financial documents were not produced until much later after the deadline for compliance. Additionally, due to restrictions in place with Moss Adams file retention systems, the failure to timely respond to the subpoena meant that some documents had been lost forever. This was especially prejudicial, argued the trustee's attorneys, since they believed that those records may have bolstered their claim that a Moss Adams employee had an inappropriate relationship with Berg that may have helped to further Berg's scheme.

The federal judge overseeing the case, United States District Judge Karen A. Overstreet, agreed that these shortcomings significantly hampered the trustee's ability to accurately ascertain the financial status of Berg's financial empire. As Judge Overstreet concluded,

"Moss Adams' failure to fully comply with the Subpoena hampered the Trustee both with regard to his duties to marshal the estates' assets and his efforts to evaluate the estates' claims against Moss Adams."

While the trustee had sought up to $277,000 in legal fees, Judge Overstreet ruled that $180,000 was an appropriate amount in sanctions. Moss Adams' counsel has filed a motion asking the judge to reconsider her ruling.

For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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