Please Take Subpoenas Seriously: A Recent Sanction Ruling in a Ponzi Scheme Case

Please Take Subpoenas Seriously: A Recent Sanction Ruling in a Ponzi Scheme Case

The Moss Adams accounting firm was sanctioned for not complying with a bankruptcy trustee's subpoena for documents related to Frederick Darren Berg's Meridian Mortgage $100 million real estate investment Ponzi scheme. The court ruled that Moss Adams did not fully comply with a 2010 subpoena and must compensate the trustee for the costs of the legal battle to get the information. A copy of the court's unpublished decision is here.

Moss Adams had audited some of the Meridian Mortgage funds and also did Berg's personal taxes. The trustee in the Meridian case served a subpoena on Moss Adams in his effort to reconstruct the debtor's records, most of which had been seized by the FBI.  Following service of the subpoena, the trustee commenced litigation against Moss Adams for negligence in the preparation of the audits of six Meridian funds between 2001 and 2007. For over two years, the trustee and Moss Adams have battled whether Moss Adams has produced all records responsive to the subpoena. Among other things, Moss Adams blamed a copying firm for not delivering some boxes of its documents. The court found that Moss Adams did not issue a litigation hold and failed to preserve emails on the company's Outlook server after receiving the subpoena, among other actions which the court found did not comply with the subpoena.

The amount of the sanctions is to be determined by separate motion, and the trustee has said that he believes the sanctions will be in excess of $250,000.

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Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes  (LexisNexis 2012), along with Hon. Steven Rhodes.  The Ponzi Book, recently reviewed by the ABI Journal and Commercial Crime International, is available for purchase at www.lexisnexis.com/ponzibook, and more information about the book can be found at www.theponzibook.com

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