Saturday, May 21, 2011

Fort Lauderdale attorney pleads guilty in fraud that bilked $800 million from thousands of investors

Michael J. McNerney, a once-prominent Fort Lauderdale lawyer, let his love of money get the best of him, and played a central role in a Ponzi scheme that defrauded thousands of investors of more than $800 million, authorities said Thursday.

Federal prosecutors said they secured McNerney's cooperation in investigating the Mutual Benefits swindle, a significant development in an extraordinarily complex fraud case dating to 2008. With millions of documents involved in the case, the alleged ringleaders are not set to go to trial for another two years.

McNerney, 63, faces up to five years in prison at his Aug. 26 sentencing, after pleading guilty Wednesday to a single charge of conspiring to commit mail and wire fraud. Neither McNerney — a founding partner of the former law firm Brinkley, McNerney, Morgan, Solomon & Tatum — nor his defense attorneys could be reached Thursday for comment.

Mutual Benefits Corp. sold so-called viaticals to investors around the world, promising guaranteed returns on life insurance policies bought from the terminally ill and elderly, often patients suffering from HIV or AIDS, according to prosecutors.

In theory, when a person died within a set period of time, the investors would collect. But prosecutors allege that Mutual Benefits was a Ponzi scheme, and that it raised more than $1.25 billion from investors from 1994 to 2004 using fraudulent marketing claims.

U.S. Attorney Wifredo Ferrer said in a statement Thursday that McNerney, who acted as legal counsel for Mutual Benefits, betrayed his ethical responsibilities as a lawyer by not dealing honestly with investors.

"This attorney breached that duty and defrauded investors by providing 'legal cover' to what was essentially nothing more than a Ponzi scheme. McNerney abused his position of trust and used his law license to help commit this massive fraud," Ferrer said.

"This is another case about an attorney who instead of doing the right thing was motivated by his personal greed and defrauded thousands of investors out of hundreds of millions of dollars," John Gillies, the top FBI agent in South Florida, said in a statement.

After lawsuits and consumer complaints, the U.S. Securities and Exchange Commission shut down Mutual Benefits in 2004, and prosecutors unsealed a sweeping indictment of the firm's operators in December 2008.

Mutual Benefits, which had offices on Oakland Park Boulevard and then on Broward Boulevard, cheated its nearly 30,000 investors by manipulating projections of how long the insured people would live, according to the charges. In reality, the majority of the life insurance policies acquired by the company never matured and most investors made no profit, according to the indictment.

Nine other individuals have pleaded guilty in the fraud, including Peter Lombardi, the firm's nominal president, and Dr. Clark Mitchell, a physician who signed off on patients' life expectancies without examining them.

Still set to go trial are the firm's alleged top manager, Joel Steinger, his brother, Steven Steiner, and co-defendant Anthony Livoti Jr., another attorney who prosecutors say worked for the company. They have pleaded not guilty and are not scheduled for trial until early 2013, but prosecutors are seeking to move up that date.

Attorneys for Steinger could not be reached for comment Thursday. One of Steiner's attorneys, Richard Lubin, declined comment.

Livoti's attorney, Joel Hirschhorn, said McNerney's guilty plea will help his client.

"We are relieved that Michael McNerney, one of the most prominent lawyers in Broward County, has come forward and admitted he withheld material facts from his own lawyers. It affirms and validates Tony Livoti's belief that he was manipulated and used," Hirschhorn said. "We believe this will help us prove Tony Livoti's innocence."

However, Andrew Levi, who was lead federal prosecutor on the case until he joined international corporate investigations firm Nardello & Co. several months ago, said McNerney's agreement to aid the prosecution could undercut the defense, which has asserted that Steinger and others relied in good faith on McNerney's legal advice in operating Mutual Benefits.

"That defense is difficult if not impossible now that Michael McNerney has pleaded guilty and admitted he was a participant in the scheme," Levi said. "I think this case has significant implications for any attorney representing a client participating in criminal activity. I think it sends a message that attorneys have to be vigilant that they do not cross the line by assisting a client engaged in wrongdoing."

By Peter Franceschina, Sun Sentinel



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