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
"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
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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