Appellate Division: Second Judicial Department

M110392

E/ct

A. GAIL PRUDENTI, P.J.

WILLIAM F. MASTRO

REINALDO E. RIVERA

PETER B. SKELOS

MARK C. DILLON, JJ.

2010-00084 In the Matter of Bruce S. Frank, an attorney and counselor-at-law. Grievance Committee for the Ninth Judicial District, petitioner; Bruce S. Frank, respondent. (Attorney Registration No. 2147528)

DECISION & ORDER ON MOTION

Motion by the Grievance Committee for the Ninth Judicial District for an order: (1) suspending the respondent, pursuant to 22 NYCRR 691.4(l)(1)(i), (ii), and (iii), upon a finding that he is guilty of professional misconduct immediately threatening the public in that he has failed to comply with multiple requests for information, made substantial admissions of misconduct under oath, and other uncontroverted evidence; (2) authorizing it to institute and prosecute a disciplinary proceeding against the respondent based on a petition dated June 7, 2010; (3) directing that a hearing be held before a Special Referee; and (4) directing the respondent to submit an answer within 20 days. The respondent was admitted to the Bar at a term of the Appellate Division of the Supreme Court in the First Judicial Department on July 27, 1987.

Upon the papers submitted in support of the motion and the papers submitted in opposition thereto, it is

ORDERED that the motion is granted; and it is further,

ORDERED that pursuant to 22 NYCRR 691.4(l)(1)(i), (ii) and (iii), the respondent, Bruce S. Frank, is immediately suspended from the practice of law in the State of New York, pending further order of the Court; and it is further,

ORDERED that the respondent, Bruce S. Frank, shall promptly comply with this Court's rules governing the conduct of disbarred, suspended, and resigned attorneys (see 22 NYCRR 691.10); and it is further,

ORDERED that pursuant to Judiciary Law § 90, during the period of suspension and until further order of this Court, the respondent, Bruce S. Frank, is commanded to desist and refrain from (1) practicing law in any form, either as principal or agent, clerk, or employee of another, (2) appearing as an attorney or counselor-at-law before any court, Judge, Justice, board, commission, or other public authority, (3) giving to another an opinion as to the law or its application or any advice in relation thereto, and (4) holding himself out in any way as an attorney and counselor-at-law; and it is further,

ORDERED that the Grievance Committee for the Ninth Judicial District is hereby authorized to institute and prosecute a disciplinary proceeding in this Court against Bruce S. Frank, based on the petition dated June 7, 2010; and it is further,

ORDERED that the Grievance Committee shall serve the petition upon the Special Referee and file the original petition in the office of the Clerk of this Court within 20 days after receipt of a copy of this order; and it is further,

ORDERED that Gary L. Casella, Chief Counsel, Grievance Committee for the Ninth Judicial District, 399 Knollwood Road, Suite 200, White Plains, N.Y. 10603, is hereby appointed as attorney for the petitioner in such proceeding; and it is further,

ORDERED that within 20 days after service upon him of a copy of this order, the respondent, Bruce S. Frank, shall serve an answer upon the petitioner and the Special Referee, and shall file the original answer with this Court; and it is further,

ORDERED that the issues raised by the petition and any answer thereto are referred to the Honorable Arthur J. Cooperman, a retired Justice of the Supreme Court, Queens County, 125-01 Queens Boulevard, Kew Gardens, N.Y. 11415, together with his finding on the issues, and to submit a report within 60 days after the conclusion of the hearing or the submission of post-hearing memoranda; and it is further,

ORDERED that if the respondent, Bruce S. Frank, has been issued a secure pass by the Office of Court Administration, it shall be returned forthwith to the issuing agency and the respondent shall certify to the same in his affidavit of compliance pursuant to 22 NYCRR 691.10(f).

We find, prima facie, that the respondent is guilty of professional misconduct immediately threatening the public interest based upon his failure to cooperate with an investigation by the Grievance Committee for the Ninth Judicial District, substantial admissions under oath, and uncontroverted evidence of professional misconduct.

The respondent began representing Novus Technologies, Ralph Thompson, and Duane Johnson in early 2007 to bring them into compliance with state regulatory standards. He also represented them in an action by the Securities and Exchange Commission (hereinafter SEC) alleging that Novus, together with other parties, engaged in fraud by operating a Ponzi scheme defrauding investors of millions of dollars. The SEC alleged that Novus and the others obtained investments of at least $4.8 million from the fraudulent unregistered sale of short-term promissory notes and joint venture agreements from at least 50 investors. Promissory notes provided for returns of 3% to 5% monthly, and 80% of investor funds were to have been placed in low risk investments, while 20% were to have been placed in high risk. Novus was not licensed to sell securities and did not invest the funds as promised.

In 2007, the respondent's clients were restrained from acting as unregistered brokers. On April 11, 2007, the United States District Court, District of Utah, entered an "Order Freezing Assets and Prohibiting Destruction of Documents" by Novus and related entities, which was continued indefinitely by a Stipulated Preliminary Injunction, agreed to by Novus and approved by the respondent, as Novus's Attorney. The respondent ceased representing Novus when a receiver was appointed.

Pursuant to a May 14, 2007, stipulation, the District Court entered a distribution order entitling the respondent to a $100,000 retainer from funds of the Novus Receivership Estate. After receiving that sum, the respondent failed to reply to e-mail, telephone, or mail contacts from the receiver.

Subsequently, Johnson moved to disqualify the respondent as counsel for failing to account for funds he claimed to have paid the respondent, in addition to the $100,000 retainer. The receiver filed a motion in the United States District Court of Utah to require the respondent to disgorge funds of the receivership estate. The respondent's failure to respond to communications from the receiver and his client resulted in the receiver's filing an order to show cause for an order demanding a response. The respondent failed to appear at a January 25, 2008, scheduled hearing.

The court directed the respondent to appear at a February 28, 2008, hearing to address Johnson's disqualification motion and the receiver's motion, and to provide an accounting of funds paid to him. The respondent failed to appear at the February 28, 2008, hearing.

The respondent was held in civil contempt by order of United States District Court, District of Utah, dated March 19, 2008. The court issued a Bench Warrant for the respondent's arrest on April 21, 2008. He was arrested in New York on October 16, 2008, at a deposition, released on a $30,000 bond, and ordered to return to Utah, where a hearing was held on October 30, 2008, before the District Court. Following the hearing, the District Court found that the respondent had failed to provide a reason for his failure to appear at court ordered proceedings and to comply with court orders. He was remanded to the custody of the United States Marshall until he: (1) deposited with the Receiver $100,000 for legal fees and $695,000 transferred to him from Johnson in June 2007, after entry of the order freezing assets; and (2) complied with the order to show cause by accounting for the $100,000 and other money received from his former clients. The respondent was ordered to pay a civil fine totaling $105,000, representing $500 per day for the period from March 19, 2008, through October 16, 2008.

In a declaration submitted to the District Court under penalty of perjury, he admitted that he had received approximately $695,000 from Johnson in 2007 but that he did not believe those funds were subject to the asset freeze order. By Memorandum Decision and Order dated May 8, 2009, the United States District Court, District of Utah, found that the respondent appeared to have failed to transfer funds to the receiver and had received additional funds from Novus affiliated clients which were not included in the accounting. The court granted the SEC's motion requiring the respondent to disgorge funds.

By Ruling and Order of the District Court dated August 4, 2009, the respondent was directed to disclose the identity of his putative clients and all bank accounts into which funds were transferred except those for which he invoked his Fifth Amendment rights. The SEC deposed the respondent several times during his incarceration. He initially refused to answer on the grounds of attorney/client privilege. Once the clients waived privilege, the respondent invoked his Fifth Amendment rights.

By order dated October 8, 2009, the respondent was released from custody and directed to pay within 90 days, or in monthly installments of $5,000, the following: $100,000 for legal fees, $695,000 transferred from client Johnson, $105,000 in civil fines, and costs and fees to the receiver in connection with the order to show cause. The respondent admitted that he has made no payments since his release from jail.

At an examination under oath before the Grievance Committee on April 5, 2010, the respondent refused to answer questions regarding the funds he received until he retained counsel. The respondent also refused to answer any questions regarding "Escrow Counsel Retainer Agreements," which he entered into with various investors in 2007, until he had the opportunity to retain counsel. These agreements were with investors in Novus who became lenders/investors in a transaction in which the respondent was considered escrow counsel. The Grievance Committee believes that the respondent deposited the investors' money, along with money received from Johnson, into an attorney escrow account and then transferred the money to accounts outside the country without complying with the Escrow Counsel Retainer Agreement.

Pursuant to the "Escrow Counsel Retainer Agreement," the respondent represented the investor as "Escrow Counsel" for money loaned to an unnamed borrower. The principal sum was to be fully secured by the respondent in his escrow account. The respondent would act as disbursement agent with respect to interest earned. The respondent pledged that his escrow account would remain a non-depletion account with a value equal to or greater than the principal sum for the duration of the secured loan. The respondent agreed to disburse interest to any bank coordinates provided by the client and to maintain disbursement accounts in both Zurich and New York. Most of the investors provided the respondent with $100,000 or more. The respondent refused to answer any questions concerning accounts until he retained counsel.

The respondent was to provide a receipt of deposit and an account statement once the principal sum was wired into escrow. He agreed to travel to Zurich to set up the non-depletion Receiving Account for funds from his HSBC escrow account. Upon receipt of notification that such account had been established, the client would send authorization to wire the principal funds from the New York escrow account to the Swiss Receiving Account. The respondent was to maintain the Receiving Account for the one year duration of the loan and return the principal to the New York account. The respondent was to take interest and earnings on the investment, pay it into the escrow account and wire it to the client. If the borrower failed to make interest payments, the respondent was to notify his client and demand payment from the borrower. All information disclosed by the client/investor would be covered by the attorney/client privilege and disputes would be arbitrated and settled in New York.

The SEC investigation revealed that the funds were not handled as per the Escrow Counsel Retainer Agreements and were not transferred from a New York account to a Swiss account.

The District Court in Utah found that no attorney/client privilege existed with respect to the respondent's acting as a party's escrow agent in a financial transaction. The court directed the respondent to disclose all bank accounts into which funds were transferred, except those for which he invoked his Fifth Amendment rights, and to turn over all client billing records or allow the SEC to obtain them from their present location. The respondent consented to a search of his home for documents and files.

Some deposits relating to the Escrow Counsel Retainer Agreements were deposited into a JP Morgan Chase Business Client Funds Account or a client sub-account which did not comply with DR 9-102 or Rule 1.15. These funds were transferred to DBS Bank Hong Kong and/or HSBC Bank of New York rather than to the Swiss account proposed by the agreements.

Numerous other deposits were deposited into the respondent's HSBC account which did not comply with DR 9-102 or Rule 1.15. Rather than being transferred from a New York attorney escrow account to a Swiss account as proposed by the agreements, funds were transferred to various other locations and personal disbursements were made.

The Grievance Committee made various oral and written attempts to obtain answers from the respondent. By letters dated October 26, 2009, and October 30, 2009, the Grievance Committee sent a sua sponte complaint to the respondent's address on file with the Office of Court Administration (hereinafter OCA). Those letters were returned undelivered. A letter sent via certified mail to another address in Monroe, New York, was signed for by the respondent's ex-wife. The respondent failed to reply. Accordingly, the Grievance Committee served the respondent with a judicial subpoena at his ex-wife's residence requiring his appearance on December 22, 2009.

The respondent appeared on that date and claimed that he had not received the sua sponte complaint dated October 30, 2009, and that he was not familiar with the signature of his ex-wife which appeared on the return receipt. The respondent was granted an adjournment until the end of January 2010 to allow him to retain counsel. He appeared on January 27, 2010, without counsel and without the records requested by the Grievance Committee. He alleged that he had experienced an extensive flood which ruined many of his records and represented that he expected to retain counsel within 30 days.

The respondent failed to comply with the Grievance Committee's request that he provide his bank account numbers. He admitted that he had a couple of client accounts outside the country but claimed that they contained no funds and that there were "no account statements to be gotten." The respondent testified that he is self-employed and does not currently maintain a law office. He expected to receive sufficient payment to retain counsel due to some financial transactions soon to close. The respondent failed to comply with a lengthy and detailed request by the Grievance Committee for accounts from 2007 which held money relating to Novus, Johnson, Thompson or various investors, and for documents relating to those investors.

By certified letter dated February 3, 2010, the Grievance Committee asked the respondent to provide additional information in affidavit form explaining how he came to represent over 21 investors and whether he was compensated. The Grievance Committee also asked the respondent to account for all funds paid to him by the investors/clients. In addition, the Grievance Committee requested a detailed accounting of how he utilized the $100,000 fee received from the receiver, to provide proof and explanations of deposits and disbursements relevant to the money received from Johnson and/or Thompson in June 2007, and to explain such disbursements from his attorney trust account as a $500,000 wire to Golden Union Worldwide on June 20, 2007, and a $600,000 wire to Sinotex Worldwide Limited on June 25, 2007. Although the return receipt reflects delivery to the respondent on February 8, 2010, he failed to respond.

On February 23, 2010, Grievance Counsel telephoned the respondent to confirm his appearance the following day. The respondent indicated that he had not yet retained counsel and would be appearing in a New Jersey matter that day. The respondent was granted an adjournment to March 12,2010. On March 11, 2010, Grievance Counsel called the respondent to confirm his scheduled appearance. The respondent revealed that he still did not have the means to retain counsel but expected to receive funds to do so in the upcoming weeks. The respondent was granted a final adjournment to April 5, 2010. By letter dated March 12, 2010, the Grievance Committee confirmed this arrangement and directed the respondent to appear on April 5, 2010, with or without counsel, to give sworn testimony. The respondent failed to provide an accounting of funds relating to various individuals specified in the Grievance Committee's letter dated February 3, 2010. He failed to provide any records of his escrow account at Chase, his attorney trust account at HSBC or similar accounts held at his banks in Zurich and London. The respondent failed to submit an answer to the complaint and has failed to comply with requests made by the Grievance Committee by letters dated October 30, 2009, February 3, 2010, March 12, 2010, and April 13, 2010, including the identification of his escrow account numbers. The respondent has admitted under oath to engaging in acts of professional misconduct, including being held in civil contempt by the United States District Court of Utah and being incarcerated for one year based upon his failures to comply with court directives and to account for funds.

In seeking the respondent's suspension, the Grievance Committee submits that the respondent's conduct is of the very type this Court has deemed unacceptable and for which it has promulgated 22 NYCRR 691.4(l)(1).

Accordingly, the Grievance Committee's motion is granted, the respondent is suspended pursuant to 22 NYCRR 691.4(l)(1)(i),(ii) and (iii) upon the ground that he constitutes an immediate threat to the public and the Grievance Committee is authorized to institute and prosecute a disciplinary proceeding against the respondent based on the petition dated June 7, 2010.

PRUDENTI, P.J., MASTRO, RIVERA, SKELOS and DILLON, JJ., concur.

ENTER:

Matthew G. Kiernan

Clerk of the Court