Trifecta Disbarment For Phony Investment Scheme Misappropriation

An attorney who was disbarred on consent in the District of Columbia and Maryland was reciprcally disbarred by the New Jersey Supreme Court.

From the Disciplinary Review Board report

We glean the facts in this case from both the August 26, 2013 opinion of the United States District Court for the District of Columbia (DCO), filed in connection with a United States Securities and Exchange Commission (SEC) lawsuit against respondent and others, and the June 5, 2015 Joint Petition for Disbarment By  Consent filed with Maryland disciplinary authorities.

In spring 2010, respondent was introduced to a man calling himself “Frank Lorenzo,” who was the managing director of the Milan Group, Inc. (Milan), which purported to be a financial investment corporation. “Frank Lorenzo” was actually Frank Pavlico (Pavlico), a felon who had been convicted, in federal court, of laundering the profits of a marijuana-trafficking enterprise. In May 2010, respondent began representing both Pavlico and Milan, and agreed to act as their escrow agent for certain investment transactions. From August 2010 through September 2011, between $1.9 and $2.665 million was deposited into respondent’s attorney trust account on behalf of Milan’s “investors.”

On or about November 15, 2011, respondent terminated her representation of both Pavlico and Milan. On November 30, 2011, approximately two weeks later, the SEC filed a civil action against Pavlico, Milan, respondent, her law firm, and others, in connection with the investment transactions for which respondent had represented Pavlico/Milan and had served as escrow agent.

Specifically, the SEC had determined that all of the investment transactions were part of a “Prime Bank” scheme that had defrauded at least thirteen investors of $2.665 million.I The SEC concluded that Pavlico and respondent had “lured investors into the scheme by offering extraordinary returns ranging from 180% to 2400% per year at little or no risk.” Respondent claimed that she had no knowledge of “Prime Bank” schemes prior to the SEC’s commencement of the civil action. The SEC countered, however, that respondent was an active participant who, leveraging her status as an attorney, made material misrepresentations to investors regarding the fake investment opportunity, to provide “an aura of legitimacy” to the ruse. Specifically, respondent repeatedly offered validation of the transactions to potential “investors,” claiming that she had personally “verified” them, despite never having seen Milan complete a single financial transaction in which “investors” received the promised return on their funds, or even recouped their initial investment. Additionally, respondent misrepresented to potential “investors” that she had known Pavlico for years and had seen him make successful investments, that all investors’ funds would remain, inviolate, in escrow in her attorney trust account, and that she and Pavlico were “working in the best interests of the investors.

The DRB summarized the evidence

The SEC’s investigation concluded that the investments that Pavlico and respondent marketed were wholly fictitious, and that the “investor” funds that respondent escrowed were systematically misappropriated for Pavlico’sand respondent’s personal use. In the joint petition forher consent to disbarment, respondent admitted that her law firm received approximately $416,500 from these funds.

Disbarment here

the record clearly establishes that respondent, in order to aid and abet Pavlico/Milan in duping potential “investors” to participate in the bogus “Prime Bank” scheme, engaged in a pattern of blatant misrepresentation, leveraging her status as an attorney with a trust account to lend authenticity to the ruse. She executed escrow agreements with each investor, whereby they retained her firm as their counsel, thus, creating an attorney-client relationship with each one. Once “investor” funds were received into trust, she immediately and systematically misappropriated those funds, without the authorization of her clients, resulting in the theft of $1.9 to $2.665 million. Whether the funds were technically client funds, under Wilson, or escrow funds, under Hollendonner, is of no moment; under either characterization, she knowingly misappropriated them. For this misconduct, she must be disbarred. In light of our recommendation, we need not address the appropriate discipline for respondent’s additional ethics violations.

The Washington Post had the story of her connection with Real Housewives of Potomac (Maryland). 

Baylor, a mother of four from Potomac, isn’t an official cast member of the Bravo show, but she had a recurring role as a pal of the Potomac clique in the show’s first season. But now she might have to trade in the standard “Real Housewife”-issue Herve Leger for something a little orange-er: The securities-fraud count alone carries a 20-year maximum prison term.

Baylor said she had no comment on the indictment, but earlier this year she described her legal woes as “a nightmare.” Of the SEC’s claims that she used investors’ money for luxury items such as Jimmy Choos? “I’m sorry, I’ve always had nice shoes,” she told us.

(Mike Frisch)