Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 30 years experience prosecuting and defending claims for high net worth clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases under standard fee and alternative fee arrangements. She also handles SEC and CFTC whistleblower claims. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring detailed knowledge about fraud or Ponzi schemes.

Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
Equity Receivers
Bankruptcy Trustees
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors

Monday, April 15, 2013

Please Take Subpoenas Seriously: A Recent Sanction Ruling in a Ponzi Scheme Case

Posted by Kathy Bazoian Phelps

   The Moss Adams accounting firm was sanctioned for not complying with a bankruptcy trustee’s subpoena for documents related to Frederick Darren Berg’s Meridian Mortgage $100 million real estate investment Ponzi scheme. The court ruled that Moss Adams did not fully comply with a 2010 subpoena and must compensate the trustee for the costs of the legal battle to get the information. A copy of the court’s unpublished decision is here.

   Moss Adams had audited some of the Meridian Mortgage funds and also did Berg’s personal taxes. The trustee in the Meridian case served a subpoena on Moss Adams in his effort to reconstruct the debtor’s records, most of which had been seized by the FBI. Following service of the subpoena, the trustee commenced litigation against Moss Adams for negligence in the preparation of the audits of six Meridian funds between 2001 and 2007. For over two years, the trustee and Moss Adams have battled whether Moss Adams has produced all records responsive to the subpoena. Among other things, Moss Adams blamed a copying firm for not delivering some boxes of its documents. The court found that Moss Adams did not issue a litigation hold and failed to preserve emails on the company’s Outlook server after receiving the subpoena, among other actions which the court found did not comply with the subpoena.

   The amount of the sanctions is to be determined by separate motion, and the trustee has said that he believes the sanctions will be in excess of $250,000.

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