Colorado Business Litigation Lawyer Blog

In a previous blog (Bernie Madoff: A Modern Day Ponzi), I discussed Bernie Madoff’s modern day Ponzi scheme. I would now like to look at the man who started this elaborate fraud system.

The scheme got its name from Charles Ponzi, born in Italy in 1882. Ponzi immigrated illegally to Boston when he was 21. He arrived in the United States virtually broke having gambled most of his savings during the voyage. He worked at menial jobs including dishwasher and waiter, but was fired for shortchanging customers and stealing from the restaurant that employed him.

In 1907 Ponzi traveled to Montreal to work in a bank that catered to Italian immigrants. The bank paid 6% on deposits rather than the normal 3%. Interest was paid from new deposits. The bank failed and the owner fled to Mexico with most of the bank’s assets. After spending three years in a Canadian prison for forgery, Ponzi returned to the United States in 1911. Once again he was arrested, this time for smuggling illegal Italian immigrants into the United States from Canada. He spent two years in an Atlanta prison.

Ponzi’s crime spree continued. He started a company in which his friends invested, after being guaranteed a 50% profit in 45 days. The demand was great. People couldn’t get their money to him quickly enough. By 1920 Ponzi was making $250,000 per day ($2.3 million in 2008 dollars). Old “investors” would be paid by money from new investors, but the business was not investing anything. Ultimately there was a run on the bank with not enough money to repay investors. He was arrested after defrauding 17,000 investors out of millions of dollars. Acting as his own attorney he was found not guilty of fraud and larceny in 1920. Later he was tried on additional charges and was convicted. He received jail time for being a “common and notorious thief”.

After his release, Ponzi moved to Florida where he started selling swamp land to gullible tourists. He was once again convicted and sent to prison. In 1934 Ponzi was released from jail and immediately deported to Italy. During World War II he was appointed by Mussolini to a financial division of the government, later fleeing to South America with stolen Italian treasury notes. He died in a charity hospital in Rio de Janiero in 1949, never having shown any remorse for his life of crime.

Sad but true.

~Jim Gilbert~

Sources: www.sec.gov/answers/ponzi.htm

Continue reading " Madoff’s Role Model: Charles Ponzi " »

The biggest financial fraud in American history was pulled off by a New York financier by the name of Bernie Madoff. Madoff (pronounced “made off”) made off with more than $50 billion of his clients’ money (for some, their life savings) by promising his clients higher returns on their investments than they could expect elsewhere. And he delivered on this promises with sixteen percent returns in years when the average investor was making less than half that. It seemed too good to be true – and it turns out it was.

None of Madoff’s investors were actually “investing” in anything. They were participants in an elaborately concealed Ponzi scheme. It worked this way: Investor A would give Madoff $100,000. Madoff would put it in his own bank account, not investing it in any securities. Then he would go out and collect $150,000 from Investor B. He would give $125,000 to Investor A which would represent a 25% return and Bernie would keep $25,000 to himself. Now he had Investor B to worry about. He would go out and get $200,000 from Investor C, giving $175,000 to Investor B and keeping $25,000 for himself. Now he had Investor C to worry about, and so on.

Madoff’s criminal enterprise is often referred to as a Ponzi’s scheme, named after Charles Ponzi, an Italian who immigrated to the United States in 1903. Also known as a pyramid scheme, the Ponzi scheme is a fraud whereby the schemer poses as a business financial advisor who promises investors high returns on their money. In reality this money is never invested at all. The schemer pays his investors with money obtained from later investor victims. The schemer's success is based on paying investors large returns in a short amount of time in order to attract more investors which in turn leads to more money. The scam ultimately falls apart when a schemer like Madoff is no longer able to feed the beast, i.e. pay off later investors, or legal authorities step in and shut down the operation.

In my next blog I will fill you in on some of the details of Charles Ponzi’s life.

~Jim Gilbert~

In addition to hiring a lawyer experienced in the courtroom (see previous post), there are other reasons a contingent fee lawyer can help assure a successful outcome of your Colorado business litigation.

Reason #3: You need a lawyer with special skills. The special skills of an injury lawyer will increase the likelihood of recovery of large sums of money for his/her corporate client:

The injury lawyer is trained to “humanize” or “personalize” his injured client. These same skills are transferrable to the “injured” corporation. Each has suffered a wrong at the hand of the defendant and each must be given full compensation. A jury is more likely to do so if the corporation has been “personalized”.

The injury lawyer is trained to simplify the case for ordinary jurors. He/she develops “themes” to make the case understandable. Some themes I have used over the years in commercial cases include telling the jury a contract is kind of like a “legal handshake”. Handshakes should be honored even where sophisticated corporate representatives of the defendant think they have found “loopholes”. The jurors know they deal with their neighbors fairly and do not look for loopholes. They honor their word.

The injury lawyer has conducted hundreds of focus groups without the help of a trial consultant. This represents a tremendous savings in litigation expenses. More importantly, it assures that good trial presentations are being developed from the very beginning.

The injury lawyer is skilled in the art of cross-examination of technical experts. He/she has cross-examined brain surgeons, automotive design experts, accountants and the like. Technical background is not nearly as important as the ability to “take command” of the courtroom during cross-examination.

The injury lawyer has selected hundreds of juries. He/she knows how to engage strangers in comfortable conversation. The injury lawyer can react quickly to “curveball” responses by jurors and can use these responses to the client’s advantage.

Reason #4: You need a lawyer who will maximize damages. The injury lawyer has spent a professional lifetime assuring that full and fair damages are recovered for injured clients. The same techniques can be effectively used for an “injured” corporation. A client will not be satisfied to simply “win” its lawsuit if it can’t recover what it truly lost. Techniques for maximizing damages to injured corporations begin during jury selection and carry all the way through to closing argument. If the trial story is dynamic, appealing and fits the jurors’ concepts of right and wrong, they will be generous in their award of damages to an injured corporation.

Continue reading " Why You Need a Contingent Fee Lawyer for your Colorado Business Litigation, Part II " »

In previous blog posts, Colorado Business Litigation Risks & Colorado Business Litigation Risks, Part II, I listed some of the risks for a corporation that hires an hourly fee lawyer to handle its “high risk/high reward” commercial litigation. I pointed out that prudent corporations understand the risk of losing the case and should not be saddled with huge attorneys fees on top of that loss. Smart corporations know that they need a contingent fee lawyer who becomes their “partner” and only gets paid if the corporation gets paid. Hiring a law firm by the hour puts the corporation at risk. The hourly fee lawyer will continue to bill – win, lose or draw.

However there are more important reasons for hiring an injury lawyer in high risk/high reward business litigation:

Reason #1: You need a risk-taker. The injury lawyer, unlike the traditional commercial lawyer, is a risk-taker by nature. His law practice is based upon a risk-taking business model. There is no conflict of interest between the client and the lawyer. If a fair settlement can be obtained, the lawyer wants to settle early so that he gets paid and the client wants to settle early to avoid additional expenses. If a fair settlement can’t be obtained, the contingency lawyer wants to push forward to get a fair recovery, as does the client.

Reason #2: You need a lawyer with courtroom experience. “Experience counts” and not just any experience. The law firm who bills by the hour may have a lot of experience in accounting, tax, corporate law and financing. This technical background will not be a difference-maker in high risk/high reward litigation, though. The skills required in high stakes litigation are the skills of a trial lawyer who has tried dozens, if not hundreds of lawsuits. The trial lawyer is comfortable in the stress of a courtroom fight. Being at ease in the courtroom allows him/her to react quickly. There are many commercial lawyers who rarely get in the courtroom.

In a later post we will consider the importance of hiring a lawyer who can simplify your business litigation and “humanize” your company.

~Jim Gilbert~

In a previous post about high risk and Colorado business litigation, I reminded companies who hire lawyers by the hour of the substantial expense of that arrangement as well as the potential conflict of interest between the business and its lawyers. Now, let’s look at a couple of other risks.

Risk #3: Lack of courtroom experience. The law firm who bills you hourly often has a bunch of junior associates who do most of the case preparation. The lawyer who will try the case, though, is rarely involved in the early stages. Why would you want lawyers preparing your important case when the lawyers may never have tried a lawsuit? Some of them have never been inside a courtroom. Hiring an injury lawyer who agrees not to be paid unless you recover money means that your lawyer will be involved from the very beginning. No more junior associates churning out huge monthly attorneys’ fees.

Risk #4: Case becomes too technical. You don’t need a lawyer who knows the nooks and crannies of arcane accounting practices and has memorized the footnotes to the rules of the SEC. When you sue a brain surgeon who has made a mistake, don’t look for a lawyer who has been to medical school. Look for a good injury lawyer. When your family has been injured because of a design defect in an automobile, don’t hire a lawyer who has been trained as a mechanical engineer. Hire an injury lawyer. Injury lawyers understand how to simplify the case and keep the jury focused on the trial story and not on accounting practices.

I would enjoy the opportunity to discuss with you or one of your customers how we can work with you on select high risk / high reward business litigation. We work on a contingent fee basis. Contingent fees are not just for injured people. They also work well for commercial/financial institutions who do not want to front large legal fees in a case where success is not assured. In those cases, we become your partner. We do not take a fee unless we recover money for you. Contact me.

~Jim Gilbert~

When one company sues another in a dispute involving lots of money with an uncertain outcome, what kind of law firm should the company hire? Some Colorado businesses think (unwisely) they always need a traditional business law firm. These traditional law firms bill by the hour, even by the minute! And in a complex case, those hours add up quickly, with no assurance of any recovery.

In a case where the recovery may be millions or may be nothing, there are risks in hiring a law firm that bills by the hour, rather than taking a fee only if he recovers money for the client – a contingency fee lawyer.

Risk #1: Out of pocket attorneys fees. Why should your company be on the hook for huge monthly legal fees in a case you might lose? The answer is simple: You shouldn’t be! Why add to a loss by being out tens of thousands of dollars in hourly fees? When you are paying hourly, your lawyer makes money whether you do or not. In high risk cases, you need a lawyer who will be your “partner” in the litigation. He wants to win as badly as you do, because he gets paid only when your company gets paid.

Risk #2: Conflict of interest. Hourly billing in high risk cases can create potential conflicts of interest. Your company wants the case settled quickly if it can be settled fairly. An hourly lawyer is paid more the longer the case goes on. With a contingency fee, the lawyer and client have the same incentives – maximize recovery, for the least time and costs.

But these aren’t the only risks when you hire a lawyer by the hour to handle your high risk business litigation. I will talk about the other risks in a later blog post.

~Jim Gilbert~