WASHINGTON — A Dallas lawyer is at the center of a legal malpractice
dispute unfolding in a Houston courtroom this week. The jury trial
starts Monday in a $51 million suit that pits the former owners of
the Houston Galleria and its attached office towers against their
former lawyers, Andrews
Kurth LLP, a Houston-based firm with offices in Dallas and eight
A Harris County district court clerk said Friday the trial before
Judge Bill Burke is scheduled to last two to three weeks. In it,
lawyers for the former owners of the Houston Galleria will argue
Andrews Kurth should have warned the real estate company that
another of the law firm’s clients was under suspicion by the of SEC
of massive fraud.
Andrews Kurth represented both Walton Houston Galleria and R. Allen
Stanford’s company, Stanford Financial Group, while the two
companies were negotiating the long-term lease and possible purchase
of the Galleria office buildings.
Walton alleges that the law firm knew that its other client,
Stanford, was under heavy suspicion of fraud by the Securities and
Exchange Commission and should have warned the real estate firm that
its long-term negotiations were at risk.
To make its claim, the company has argued that the law firm knew of
the SEC’s suspicions because its senior partners had spent months
recruiting the chief of enforcement in the Fort Worth offices of the
SEC, an attorney named Spencer Barasch.
Andrews Kurth hired Barasch in 2005, just weeks before the SEC sent
Stanford an official inquiry that would later trigger an all-out
investigation. R. Allen Stanford would ultimately be convicted of
fraud and be sentenced to 110 years in prison. His firm was
responsible for one of the largest Ponzi schemes in U.S. history.
Questions about Stanford Financial Group were raised repeatedly over
the years, but the SEC under Barasch had declined to mount a formal
2010 Office of Inspector General’s report by
the SEC concluded that Barasch had been a key voice in scuttling
inquiries into the company’s operations, which included selling
certificates of deposit in a bank in Antigua.
A call to Barasch last week was not returned, but a spokeswoman for
the law firm later declined to comment on the case. In its legal
filings, the law firm has denied wrongdoing. It stated that
Stanford, not the lawyers, was responsible for any losses by Walton.
The malpractice suit is just one of many legal tussles playing out
in the wake of the more than $7 billion in investments that
collapsed when Stanford’s scheme collapsed. The question of why the
SEC was so slow in launching its investigation has plagued the SEC,
and especially its Fort Worth office for years. Barasch’s role has
also been scrutinized repeatedly, including in a multi-part
series by Vice.com, The Derailment of the SEC.
In Houston, Walton tried last week to convince a judge to require
Barasch to testify at the trial, but failed. A state judge’s
subpoena power for a civil case is typically good only for 150
miles, and Burke said Walton hadn’t provided a strong enough case to
make an exception this time. Barasch works in the firm’s Dallas
But Walton’s lead attorney, Tom Ajamie of New York, said he was
pleased with the judge’s ruling nonetheless, since Burke also ruled
that the plaintiffs can press their claims that the hiring of
Barasch shows that the Andrews Kurth knew about the problems with
report last week by
Law360.com quoted the judge as saying the plaintiffs could press
that case, and used Barasch’s video deposition, but would face his
skepticism if they tried to “make this all about Stanford.”
In its complaint, Walton alleges that Andrews Kurth spent months
recruiting Barasch to the firm. They assert that Barasch knew about
federal enforcement officials’ suspicions about Stanford and that
therefore so did his new law firm.
What’s certain is that soon after Barasch arrived at Andrews Kurth,
Stanford reached out to the new lawyer to ask for his help with the
In a sworn April 1 deposition, Barasch states that almost
immediately after he arrived at Andrews Kurth in April, 2005, he was
contacted by Stanford’s general counsel Mauricio Alvarado to work
for the company on its response to an inquiry just received by the
SEC. Allen Stanford himself signed off on approaching Barasch. “This
guy looks good and probably knows everyone at the Fort Worth office.
Good job,” Stanford wrote in an email when told of plans to approach
Barasch, according to a 2010 report by the SEC’s inspector general.
With Allen Stanford’s go-ahead, Alvarado called Andrews Kurth and on
Friday, June 17 he and Barasch spoke on the telephone about the
possibility of Barasch helping the company respond to the
preliminary inquiry from the SEC.
Barasch would later fly to Miami to meet with Alvarado, and discuss
additional work with the company’s compliance chief, according to
the deposition. In his deposition, Barasch said he believed he was
free to work “behind the scenes” for Stanford, just not directly
represent the company before the SEC. He ultimately billed just 12
hours for work for Stanford. He appears to have stopped all work for
the company after a third attempt to convince the ethics officials
to allow him to represent the company was unsuccessful.
The U.S. Department of Justice and the SEC would later conclude that
Barasch called his former colleagues on behalf of Stanford, despite
having been told by ethics officials in Washington that he could not
represent the company. Barasch agreed in 2012 to pay a $50,000 fine
to the Department of Justice, which concluded he had improperly
sought to influence his previous colleagues at the SEC. The SEC
itself, citing the DOJ fine, in 2012 banned Barasch from appearing
before the SEC.
That suspension was lifted last year, and at that time former
colleagues of Barasch spoke in his defense. Longtime Dallas lawyer
Edwin Tomko, senior counsel at Dykema law firm in Dallas, was one.
He told The News that since the issues never went to trial, nothing
was ever proven. “I think he got a pretty raw deal,” Tomko said.
Meanwhile, victims of Stanford’s Ponzi schemes continue to press for
compensation which many of them will likely never see. On Tuesday,
senators from Louisiana staged a protest over the confirmation of
Sharon Bowen, President Obama’s pick to a commissioner of the
Commodity Futures Trading Commission because they felt she has stood
in the way of compensation for some victims of the Stanford schemes.
Both Vitter and Mary Landrieu, a Democrat, voted against Bowen, who
was confirmed on a mostly party-line vote, 48-46. Vitter, a
Republican, said on the floor that the SEC failed to protect
investors and that the Securities Investor Protection Corporation,
where Bowen was acting chair, failed them again.
“Frankly, it amazes me that we are here today discussing basically
a possible promotion for Ms. Bowen. … I can say quite frankly that
she does not deserve any promotion because she has not
successfully safeguarded consumers, which is her job, her mission.
Instead, she has fought to safeguard Wall Street money from just
compensation to the legitimate victims of the Allen Stanford $7.2
billion Ponzi scheme.
“I have been involved in this Stanford issue for quite a while
because it affects a lot of folks in Louisiana, but it affects a
lot of folks in every State of the country as well. These folks
first and foremost were victims of Allen Stanford and his
completely fraudulent activity, his Ponzi scheme that literally
defrauded hard-working Americans of $7.2 billion. But they were
victimized again, quite frankly, by Federal agencies that didn’t
do their job–first by the SEC, which knew about this activity for
4 years before saying anything publicly, before warning anyone out
there, before taking any action, and then by SIPC … by refusing to
take appropriate action for the victims and instead acting as if
their job, their duty was to safeguard Wall Street money, not to
properly compensate victims under the law.”