Burger King Fraud Leads To Proposed Disbarment

An Illinois Hearing Board has proposed disbarment

The Administrator filed a two-count Complaint against Respondent alleging that he was involved in a scheme to defraud professional athletes by misrepresenting the terms of a property investment. Count I charged that he assisted a client in conduct he knew was fraudulent, made false statements to third persons, failed to disclose a material fact when disclosure was necessary to avoid assisting a criminal or fraudulent act, and engaged in dishonest conduct. In Count II Respondent was charged with engaging in a criminal act which reflected adversely on his honesty, trustworthiness or fitness as a lawyer.

The Hearing Board found that the Administrator proved the misconduct charged in both counts. After considering aggravating and mitigating factors, the Hearing Board recommended that Respondent be disbarred.

The attorney

Respondent has been licensed to practice law in Illinois since 2006 and is also licensed to practice in Michigan. In 2007 he became a licensed contract advisor for the National Football League (NFL) and in that capacity negotiates contracts on behalf of NFL athletes. In 2013 and 2014 he was of counsel to Bryant Legal Services. Currently, Respondent is a sole practitioner who divides his time between practicing law, with a focus on civil litigation and contract matters, and working as a sports agent. (Tr. 28-33, 177-78).

The setting

Around 2012 Respondent met and became friends with Joseph Vaccaro, a business manager for athletes. Respondent denied that Vaccaro, who at the time resided in New York and Pennsylvania, was his client or that they ever had a fee agreement. (Tr. 40, 51, 186-87).

FBI Operation and Recordings

Marc Pennebaker, a special agent with the FBI in San Diego, testified he has spent approximately fourteen years investigating financial crimes. In 2014 the FBI learned from a confidential informant that Joseph Vaccaro had indicated an interest in possibly defrauding clients in financial transactions. The informant, Billy Crafton, was a financial advisor to athletes and had previously pled guilty to wire fraud. As part of a plea agreement, Crafton agreed to cooperate with the government in exchange for a reduction in his sentence. Pennebaker believed Crafton knew Vaccaro prior to June 2014 but had not met Respondent before that time. Pennebaker had never heard Respondent’s name prior to Crafton becoming involved in the investigation of Vaccaro. (Tr. 108-11, 143-47; Resp. Ex. 2, 3).

Pennebaker and his partner authorized Crafton to record all conversations and interactions with Vaccaro for the purpose of collecting evidence of potential crimes. Crafton was instructed to never suggest any illegal activity, but to ask relevant follow-up questions on topics of interest to the FBI. Between June and October 2014 Pennebaker and his partner provided recording equipment to Crafton for in-person meetings and gave him instructions on how to use the devices. Crafton wore a wire to his first meeting with Respondent and Vaccaro, which Pennebaker understood occurred on June 5, 2014. With respect to Crafton’s telephone calls with Vaccaro or Respondent, the FBI recorded the calls and retrieved information from the recordings. (Tr. 112-18, 120-21, 146-47).

Pennebaker, in an undercover role, eventually spoke to both Respondent and Vaccaro on the telephone, at which time they identified themselves, and he also met them in person. In reviewing the recordings, he recognized their voices. Pennebaker later assisted in preparing, and attested to, a statement of facts which described his investigation, the financial transaction at issue, and the recorded conversations. (Tr. 123-25, 140; Adm. Ex. 2).

The fraud

The Administrator charged Respondent with violating Rule 1.2(d) by conduct including:

• participating in discussions with Vaccaro and the informant about offering an investment deal to their professional athlete clients which concealed the true terms of the purchase of the Burger King franchises (including the ownership and purchase price of the franchises) from their clients;

• agreeing to do the legal work to effectuate the scheme;

• telling the informant to misrepresent the purchase price and ownership of the franchises to investors;

• telling Pennebaker that the purchase price of the franchises was $37 million, and Respondent did not have an interest in the deal; and

• telling Pennebaker and the other FBI agent that another investor group would own the remaining 50% of the franchises.

We find Respondent engaged in each of the foregoing acts and by doing so, assisted clients Vaccaro and Crafton in furthering a fraudulent scheme. Fraud encompasses a broad range of human behavior, including “anything calculated to deceive . . . whether it be by direct falsehood or by innuendo, by speech or by silence, by word of mouth or by look or gesture.” In re Armentrout, 99 Ill. 2d 242, 251, 457 N.E.2d 1262 (1983).

Pennebaker’s testimony, as well as the recordings that were presented to us, showed that the three individuals plotted, as a group, to present a financial transaction in a way that would conceal the benefit they would personally realize from the transaction. That benefit was twofold. First, they intended to collect $20 million for the purchase of a group of properties that cost only $16 million, and then divide the remaining $4 million between themselves. Second, they planned to take a 50% ownership stake in the properties without making any financial investment whatsoever. Their financial benefit and interest in the transaction would not be disclosed to the investors. As we saw from Respondent’s September 19th telephone call with Pennebaker, Respondent represented that the purchase price was $37 million, which was more than twice the price he had discussed with Vaccaro and Crafton. Further, he falsely stated that a New York group was investing funds for the other one-half ownership, and he would have no ownership interest in the properties. In reality, the second group would be Respondent, Vaccaro and Porter, but their identities would be concealed by layers of LLCs. Respondent’s representations to Pennebaker were contrary to the facts set forth in Respondent’s discussions with Vaccaro and Crafton.

We recognize the investors were not misinformed as to their rate of return, and because the deal was never consummated, no one suffered a financial loss. The absence of an actual loss, however, does not erase the misconduct that occurred. By participating in crafting a deal with secret terms, presenting the deal to a potential investor without disclosing those terms, advising Crafton to misrepresent information, and making affirmative false statements regarding the investment, Respondent assisted in perpetrating a fraud.

We reject Respondent’s claim that he did not knowingly commit any misconduct. Pennebaker’s testimony, as well as the recordings, show that Respondent knew the actual terms of the proposed transaction and yet misrepresented those terms and advised Crafton to do the same. Further, Respondent’s claim that he was merely repeating information given to him by Vaccaro carries little weight in light of his role as the attorney structuring the deal. If the valuations for the properties were constantly changing, as he maintained, he had an obligation to ferret out the truth before passing information to potential investors. Further, we view Respondent’s lack of recall of key conversations, his vague testimony, and his portrayal of himself as a victim as nothing more than attempts to disguise his own involvement in the scheme. All in all, we did not find him to be a credible witness. By contrast, we regarded Mark Pennebaker as a reliable and objective witness who testified with precision and clarity.

Respondent had many opportunities to disagree with proposals made by Vaccaro and Crafton, to advise them to take a different course, or at least withdraw from representation and from the deal, but he did not do so. Instead, he became an active participant and took actions in furtherance of the scheme. Therefore we find that he engaged in misconduct in violation of Rule 1.2(d).

He accepted a federal deferred prosecution agreement but

The evidence in this case showed, and Respondent admitted in the deferred prosecution agreement, that he knew of the scheme to misrepresent parts of the Burger King transaction, he failed to report it to a judge or other proper authority, and therefore he helped to conceal a felony. With respect to concealment, we find Respondent took affirmative steps to cover up the illegal scheme by directing Crafton not to disclose relevant information to investors and by making false statements to Pennebaker. The foregoing facts establish the elements of misprision.

Sanction

We conclude that Respondent’s fraudulent conduct was more serious than that in cases where a lengthy suspension was imposed. Indeed, this is one of the most egregious abuses of the position of an attorney as a trusted advisor that we have seen. In consideration of the misconduct, the aggravating factors and the fact the public needs to be protected from an attorney who preys on unsuspecting and trusting investors and is willing to misrepresent any fact to enrich himself, we conclude that disbarment is the appropriate sanction. The mitigating circumstances in this case are not strong enough to dissuade us from that view.

(Mike Frisch)