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$900M lawsuit filed against Mortgages Ltd., Radical Bunny executives, Greenberg Traurig, Quarles & Brady law firms

August 10, 2010

Investors have filed a $900 million federal lawsuit against two Phoenix law firms alleging their attorneys helped real estate investment firms Mortgages Ltd. and Radical Bunny mislead and defraud investors and operate a Ponzi scheme.

Former executives from Mortgages Ltd. and Radical Bunny also are named as defendants in the class-action suit, along with law firms Greenberg Traurig LLP and Quarles & Brady LLP.

Greenberg represented commercial real estate lender Mortgages Ltd., while Quarles provided legal counsel for Phoenix-based investment group Radical Bunny. The lawsuit, filed Tuesday in U.S. District Court in Phoenix, also names accounting firm Mayer Hoffman McCann PC as a defendant. Mayer provided accounting services for Mortgages Ltd.

Rich Himelrick, an attorney at Tiffany & Bosco PA representing investors in Mortgages Ltd., said plaintiffs in the two ventures want their money back, which totals $900 million. He said charges include fraud, negligent misrepresentation, breach of fiduciary and professional duties and aiding and abetting a Ponzi scheme.

Mortgages Ltd. was a Phoenix-based commercial real estate lender that financed some high-profile developments in Tempe, Glendale and Phoenix. The firm ran into financial troubles starting in 2008. Company CEO Scott Coles committed suicide in June 2008 at his Paradise Valley home. Mortgages Ltd. filed for protection under Chapter 11 of the U.S. Bankruptcy Code after Coles’ suicide. The company emerged from Chapter 11 in 2009 and has been selling off assets under the name ML Manager LLC.

The federal suit claims Greenberg attorneys helped Mortgages prepare false and misleading securities documents, cover up fraudulent activities and terminate a whistle-blowing employee.

Greenberg spokeswoman Jill Perry said the investor suit against the Miami-based firm’s Phoenix office lacks merit.

“These claims are without merit. We believe our representation was appropriate in all respects. The firm is prepared to vigorously defend against these unfounded claims,” Perry said.

The suit claims Radical Bunny also misled investors and that Quarles assisted Radical in the sale of “unlawful” securities.

Radical Bunny attorney Matthew K. LaVelle said the charges are unfounded.

“The members Radical Bunny loaned substantial sums of their own money to Mortgages Ltd. and continued to loan it money right along with Radical Bunny’s participants until Mr. Coles’ death,” said LaVelle, a partner LaVelle & LaVelle PLC. “It is ludicrous to suggest that they knew or suspected that Mortgages, Ltd. and/or Scott Coles was running any sort of Ponzi Scheme. They will strenuously defend themselves from these spurious allegations.”

Jon Pettibone, Quarles & Brady’s managing partner in Phoenix, in a statement said his firm never represented Mortgages Ltd.

“During 2007, Quarles & Brady represented Radical Bunny. At no time have we represented Mortgages Ltd.,” Pettibone said. “Both federal and state enforcement authorities have thoroughly investigated the dealings between Mortgages Ltd. and Radical Bunny and brought enforcement actions against Radical Bunny and its principals. Quarles cooperated fully with both investigations. No enforcement action has been brought against our firm or any of its lawyers and we do not expect any such action will be filed. Our conduct was at all times lawful and ethical.”

His statement to the Phoenix Business Journal went on to say, “The lawsuit filed by a group of investors in Mortgages Ltd. and Radical Bunny has been brought against professional firms, including ours, that had provided advice to one of those now bankrupt entities. We will defend ourselves against any claim that we acted improperly in any way.”

Mayer Hoffman did not responded to requests for comment Thursday afternoon. The lawsuit calls for a jury trial.

The federal lawsuit claims Coles and investment group Radical Bunny principal Tom Hirsch created a Ponzi scheme to raise funds and establish a revolving credit line. Defendants in the suit include Hirsch; his wife, Diane Rose Hirsch; as well as former executives with Mortgages Ltd. and principals with Radical Bunny.

Hirsch is Phoenix accountant. He did not respond to a request for comment Thursday.

Himelrick, who is representing Mortgages Ltd. investors, said as many as 2,000 investors could join the class-action suit.

Andrew Friedman, an attorney with Bennett, Fairbourn, Friedman & Balint PC, is representing Radical Bunny investors. Friedman was traveling and not available for comment Thursday.

Greenberg is based in Miami but has a substantial office in Phoenix. Quarles is based in Milwaukee but also has a large office in Phoenix.

The lawsuit will not impact the disposition or liquidation of the Mortgages Ltd. loan portfolio, according to Mark Winkleman, chief operating officer of ML Managers LLC. That entity was created by the U.S. Bankruptcy Court in 2009 to handle the business of Mortgages Ltd. when it emerged from bankruptcy.

Winkleman has sold one partially finished property funded by Mortgages Ltd. money, Chateaux on Central, to a Wisconsin food company. He is in negotiations with numerous other borrowers or potential buyers. ML Managers also has filed notices of trustee sale on loans that are in default and no settlements could be reached.

News of the lawsuit was first reported in the American Lawyer.

Read more: $900M lawsuit filed against Mortgages Ltd., Radical Bunny executives, Greenberg Traurig, Quarles & Brady law firms – Phoenix Business Journal

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