In the U.S. Court of Appeals for the Second Circuit, Judge Denny Chin has limited a number of legal fee awards related to the WexTrust Capital Ponzi scheme and has rejected a settlement agreement with Much Shelist Denenbert Ament & Rubenstein as being too lenient.
WexTrust Capital is a real estate investment firm based in Chicago. In 2008, two executives were charged by the SEC with running a Ponzi scheme illegally diverting $100 million of the $255 million raised for investment purposes, defrauding 1,200 Orthodox Jewish investors.
Since the commencement of the lawsuit, WexTrust estate has paid their law firms over $15.5 million but only $5 million to the victims of the scheme. Additionally, Timothy Coleman of Freshfields Brackhaus Deringer has proposed the hiring of yet another law firm, Kasowitz Benson Torres & Friedman, in connection with their malpractice suit against Mulch Shelist. Judge Chin raised concerns over this proposal for fear that Kasowitz’s fees would consume much of the money they would be hired to recover. The proposal was also objected to by the defrauded investors, one of whom said the hiring continued “the pattern of draining excessive fees from the estate for the benefit of the lawyers”.
Dewey & LeBoeuf received most of the $15.5 million before Coleman brought the case to Freshfields. In 2008, Dewey billed $2.2 million for 20 days of work, requiring explanation to the court. The bill was later reduced by 20 percent by the court and Dewey further reduced its fees because of a lack of returns for the defrauded victims. More recently, Judge Chin has denied Dewey’s 10th fee request of $666,605 but has approved Freshfield’s fee request of $155,479. However, Chin expressed concern with Freshfield’s rates, which range from $179 to $634 per hour. Chin did approve fee amounts of $35,133 for Arent Fox and $262,760 for Badger Real Estate.
Although Chin now sits on the appellate bench, he will continue to oversee the case filed in federal district court. Judge Chin will reconsider some of the fee requests, including those by Dewey and Freshfields, at the conclusion of the case.