Securities Investigation Leads To Consent Disbarment

An attorney consented to disbarment in Maryland while facing ethics charges arising from actions taken by the Securities & Exchange Commission.

Law 360 reported on the civil action

The U.S. Securities and Exchange Commission won a judgment against Washington attorney Brynee Baylor and the other accused perpetrators of a scheme that defrauded investors of nearly $3 million when a D.C. federal judge ordered Monday that the funds be returned. 

U.S. District Judge Rosemary M. Collyer found Baylor liable for the fraud perpetrated by a late client, then ordered her and two people who had received money from the scheme without participating in it to pay the SEC so it might return some funds to the scammed investors, according to Monday’s ruling. A third defendant successfully argued that he wasn’t liable for the fraud and was allowed to keep the money he had earned from it, according to the decision.

Baylor is the only remaining principal defendant in the case, with the investment firm and her business partner having already settled with the SEC. Baylor argues that she had no knowledge of the scam itself and was only acting as an attorney for her client. The nearly $750,000 she collected from the scam was payment of fees, she contended.

But Judge Collyer was unmoved, noting that Baylor, at best, had acted recklessly when she represented to potential clients and law enforcement officers that she endorsed the investments her client was making.

“It ill behooves her now to declare that she represented the Milan Group for more than a year, from mid-2010 to November 2011, but that she had no relevant experience, knew nothing about securities laws, and did only what [her client] directed her to do, without ever exercising a modicum of lawyerly interest in the legal implications of their activities,” Judge Collyer wrote in Friday’s decision.

The SEC filed suit against Baylor, her law firm, and client Frank Pavlico, who ran a so-called prime bank scheme that defrauded 13 investors of nearly $3 million beginning in August 2010, according to a complaint filed in Washington federal court in December 2011.

Prime bank schemes lure investors into believing they are getting an exclusive chance to take part in an investment program involving complex financial instruments that produce huge profits. Perpetrators of such a scheme often emphasize the trading program’s secrecy as a key to its success and say the financial instruments are too complicated for laymen to understand, the commission says.

Baylor and Pavlico made up excuses to explain delays in the promised returns, faking illnesses and telling investors that the European bankers purportedly involved in the deals were on extended vacations, the SEC alleges.

Throughout the scheme, Baylor provided “attorney attestation letters” telling investors that their money was legitimately invested, as well as contracts that said the profits from the program would be shared with Milan, Baylor’s law firm and the investor, the suit says.

Pavlico committed suicide in December 2012, the day before he was to appear in court on fraud charges in South Carolina, according to Monday’s decision. His estate settled with the SEC.

Baylor was ordered to be disgorged of her gains from the scam, according to Monday’s ruling.

Also included in the ruling were three so-called relief defendants, who didn’t advance the scam but received ill-gotten gains. Mia Baldassari and Patrick Lewis were ordered to disgorge their gains in Monday’s ruling, while a third relief defendant, Brett Cooper, was not.

Cooper argued that he was merely an employee of a firm that had already disgorged its gains. The court had no legal reason to pierce the corporate veil and come after him as an employee, Cooper argued. The judge agreed, releasing him of liability in the suit.

Baylor was represented by Alan I. Baron, Rhett E. Petcher and Christopher F. Robertson of Seyfarth Shaw LLP. Baldassari was represented by Christopher Allan Glasser of Jackson & Campbell PC, and Cooper and Lewis each represented himself.

The case is Securities and Exchange Commission v. Milan Group et al., case number1:11-cv-02132, in the U.S. District Court for the District of Columbia.

Judge Collyer’s judgment in favor of the SEC is linked here. 

Ms. Baylor’s attempt to use her role as an attorney as a shield is particularly pernicious because, as an attorney, she was in the position to lead investors to believe that their money was safe. Investors retained Baylor & Jackson to use the firm’s trust account to “escrow” investor money. Each escrow agreement identified the investor(s) as a “client” of Baylor & Jackson. In every instance, investor funds were immediately disbursed from the IOLTA account to Milan and Baylor & Jackson for personal use, or, to a lesser extent, to Relief Defendants. While Ms. Baylor protests that the “fees” she received were paid only on authority of Frank Pavlico at Milan, she does not argue that she did not know that her firm’s trust account was used as a revolving door to receive investors’ money and pay it out to Milan/Pavlico and thence to her, despite her assurances to investors that their money was safe.

The Legal Times had this account of the appeal to the United States Court of Appeals for the District of Columbia Circuit.

Citizensvoice.com had the story of the client’s suicide. (Mike Frisch)