According to an article dated September 27, 2006, a federal appeals court has ruled that two prominent New York plaintiffs' firms are not liable to former clients for failing to sue accounting firm Arthur Andersen in a securities fraud suit stemming from the largest Ponzi scheme in U.S. history Kirby, McInerney & Squire and Bernstein Litowitz Berger & Grossman were co-lead counsel in a 1997 class action against the Bennett Funding Group (BFG), a Syracuse-based outfit that sold investors $570 million worth of fraudulent securities. Arthur Andersen, which served as BFG's auditor in 1989 and 1990, was not named as a defendant. BFG's insurer settled the suit in 1998 for $125 million, and Mahoney Cohen & Co., which succeeded Andersen as the group's auditor, paid another $14 million. But in 2002, Kirby McInerney and Bernstein Litowitz themselves became targets of a class action that charged the two firms committed legal malpractice by failing to sue Arthur Andersen. But the U.S. Court of Appeals for the Second Circuit ruled Monday in Achtman v. Kirby McInerney, 04-cv-5473, that the two firms 'acted reasonably in not suing Andersen.' In a decision by Judge Joseph M. McLaughlin on behalf of a unanimous panel that also included Judges Richard J. Cardamone and Rosemary S. Pooler, the appeals court said the firms had had legitimate reasons for not suing the accounting firm.
As summarized by the co-lead counsel’s website, this securities fraud class action, the largest Ponzi fraud in history, has been filed on behalf of all persons and entities who purchased or otherwise acquired hundreds of millions of dollars of unregistered securities from the Bennett Funding Group, Inc. in the form of equipment leases, promissory notes and certain other securities. Previous settlements of $125 million and $14 million with Generali Insurance and Mahoney Cohen (a Bennett auditor) respectively, have already been obtained and distributed by the Bennett bankruptcy estate.
In April, 1996 and thereafter, numerous class action complaints were filed in the United States District Courts against BFG, its employees and third parties, including FMS. Pursuant to an order dated August 1, 1996, those actions were consolidated into the Consolidated Action. A Consolidated Amended Complaint was filed on September 16, 1996. In the Consolidated Action, plaintiffs alleged, among other things, that FMS, by selling BFG Securities under circumstances that it knew of or should have known constituted an unlawful Ponzi scheme, engaged in and assisted BFG in perpetrating and maintaining the Ponzi scheme. On January 27, 1997, plaintiffs in the Consolidated Action (the “Class Plaintiffs”) filed a motion to certify it as a class action; the District Court granted that motion on April 29, 1997. Excluded from the Plaintiff Class are the defendants and members of their immediate families;
any subsidiary or affiliate of the defendants; BFG, and its affiliates, subsidiaries, present and former officers and directors; the Trustee; and the legal representatives, heirs, successors and assigns and affiliates of any such excluded person. Pursuant to order of the Court dated April 29, 1997 the Court approved certification of the Sub-Class against FMS.
The original Complaint charges that defendants violated state and federal law by, among other things, engaging in deceptive and wrongful practices and misrepresenting and/or omitting material information with respect to the business, financial condition and performance of BFG and its affiliates in connection with the sale of Bennett Securities to the public. Plaintiffs in this action seek to recover damages on behalf of persons who purchased Bennett Securities prior to March 28, 1996.