A Matter Of No Records

An Ad Hoc District of Columbia Hearing Committee has recommended a suspension of 18 months and fitness of a former SEC attorney who is engaged in private practice.

For the last 20 years, Respondent has practiced law as a sole practitioner, in a practice he described as “securities law.” Respondent writes opinion letters and assists clients with public offerings and reporting financial transactions. Respondent generally charges a flat fee for an opinion letter, receiving the fee first and then providing the requested opinion letter to the client within a day or two. Some clients have compensated Respondent for his services by issuing him stock in their companies.

Respondent also assists clients by permitting them to pass funds associated with their transactions through his attorney trust account, for which they pay Respondent a fee. (record cites omitted)

He does not keep any records of his financial dealings  and uses the “mental” checklist approach to vetting conflicts of interest.

I may be wrong but I’d wager that malpractice insurers do not favor the “mental checklist” approach.

The absence of records defined the case.

He used his attorney escrow account as a “pass-through”

Respondent admitted that he received the funds to disburse to [San Diego law firm] Carrillo Huettel from or on behalf of his client, but could not explain why he deposited the funds in his operating or business account before disbursing them. Tr. 64 (“You’re asking me to explain my crazy business practices. I can’t explain why I did what I did. I know it’s wrong, and I’m not doing it anymore, but I can’t tell you why I did it.”).

That also has a nice ring to it.

He engaged in a pattern and practice of commingling but not a provable misappropriation.

On his personal  taxes

From at least 2004 until the time of the hearing, Respondent has not paid the taxes due on the income he reported to the IRS. In 2008, the IRS filed federal tax liens against Respondent for his failure to pay $24,436.03 in assessments for tax years 2004 and 2005. BX 17 at 2. Between 2008 and 2013, the IRS filed additional federal tax liens against Respondent for tax years 2007-11, for unpaid assessments of more than $93,000. BX 18 (these assessments were in addition to the $24,436.03 Respondent owed for 2004 and 2005). Respondent knew about the tax liens and his outstanding debt to the IRS. Tr. 74.

There was a regular practice of commingling

An exhaustive or complete list of all the dates when Respondent held both entrusted funds and his own funds in the 1409 Trust Account could be compiled only if Respondent kept records of the source of funds going in his trust account and what he did with them. He did not keep or produce such records. See FF 70-80. Pursuant to the Hearing Committee’s order of February 23, 2015, Disciplinary Counsel prepared a list of other instances when Respondent was simultaneously holding personal and/or business funds as well as entrusted funds in the same account, with citations to the record evidence. The list, which was attached to Disciplinary Counsel’s Brief, and is attached hereto and incorporated by reference herein, is not exhaustive because of the gaps in Respondent’s records.

 And dishonesty

On April 15, 2013, when Respondent produced the 314 pages of e-mails in response to Disciplinary Counsel’s request for complete records, he submitted a further response to Disciplinary Counsel. BX 10. In that response, Respondent represented that he had been in “constant contact” with the IRS. BX 10 at 1; Tr. 74. He further represented that he would be making an offer in compromise to the IRS “within a month.” BX 10 at 1; Tr. 77. Even assuming that he did not knowingly make a false statement about the offer in compromise at the time, Respondent knew it was untrue by May 2013, but never sought to correct it. Respondent had an obligation to be truthful to Disciplinary Counsel in this regard, but he was not. In addition, we find that Respondent’s testimony at the hearing regarding his purported negotiations with the IRS regarding a potential offer in compromise was deliberately false. See Tr. 74-80.

And in structuring cash deposits

Respondent, or those acting at his direction, broke down $25,000 into smaller cash deposits in amounts less than $10,000 into his 1409 Trust Account and thus avoided a Currency Transaction Report to the IRS. FF 56. Specifically, the record evidence demonstrates that between February 13 and 15, 2012, the first two deposits of $7,000 and $8,000 were made at the same branch of Bank America (Lincoln-Manchester), on consecutive days, February 13 and 14, 2012. FF 56. On February 15, 2012, an additional $10,000 in cash was deposited into Respondent’s 1409 Trust Account, but in two $5,000 installments, one at the same Lincoln-Manchester branch, and the second at the Marina Del Ray branch less than two miles away and less than 15 minutes after the initial $5,000 deposit. FF 56. Similarly, at least $15,000 of the $16,500 in cash deposited in Respondent’s 1409 Trust Account in March 2012 was intentionally broken down into smaller amounts before being deposited. FF 57. On March 13, 2012, the first installment of $1,500 was deposited at the Tatem and Shea branch of Bank of America branch in Phoenix. FF 57. The $15,000 deposited on March 15, 2012, was broken down into three separate $5,000 deposits made on the same day, but at three different bank branches — one at Marina Del Ray, another at Lincoln-Manchester, and another at Westchester. FF 57. The $5,000 deposits made at the Marina Del Ray and Lincoln-Manchester branches were within 25 minutes of the other and the branches are less than two miles apart. FF 57. There is no legible or visible time stamp for the third $5,000 deposit at the Westchester branch on March 15, 2012, but this branch is only 1.7 miles away from the Lincoln-Manchester branch. FF 57.

Proof of fitness should be required for reinstatement

Disciplinary Counsel has demonstrated by clear and convincing evidence that there is serious doubt concerning Respondent’s fitness to practice law. Respondent intentionally and knowingly commingled entrusted funds that were in his attorney trust account with his and his wife’s personal funds; he failed to keep and maintain sufficient and complete client and financial records for his attorney trust account, and he committed multiple acts of deceit, and dishonesty in order to avoid his tax obligations to the IRS. Lastly, Respondent continued to engage in this misconduct after Disciplinary Counsel advised him of its investigation. The Hearing Committee finds that Respondent testified falsely regarding his handling of funds and negotiations with the IRS. As a result, these factors cast doubt upon Respondent’s present qualifications to practice law. Respondent has not acknowledged his misconduct or expressed remorse.

In re William Haseltine can be found at this link. (Mike Frisch)