Welcome, Guest. Please login or register.

Author Topic: Dallas securities fraud investigation targets former SEC lawyer  (Read 8049 times)

0 Members and 1 Guest are viewing this topic.

The Web Team

  • Hero Member
  • *****
  • Posts: 8755
  • Karma: 14
    • View Profile
    • Qwoter
Dallas securities fraud investigation targets former SEC lawyer
« on: January 15, 2008, 09:13:24 AM »
'I have interesting clients with interesting problems,' he says

 The securities case that brought Dallas lawyer Phillip Offill to court last week is the kind he has worked for decades: Investors are alleging fraud, large sums of money are moving around mysteriously, and the government has stepped in.

This time, though, Mr. Offill is not the accuser, but the accused.

In a contempt-of-court hearing in federal court, Mr. Offill, who litigated fraud cases for nearly 15 years in the Fort Worth office of the federal Securities and Exchange Commission, took the stand and defended himself against accusations that he helped violate a court-ordered asset freeze for a client charged by the SEC with securities fraud.

Mr. Offill argued that the assets in question came from companies that weren't part of the original court order. The judge has yet to rule on the contempt motion.

But the case is just the start of Mr. Offill's troubles. Last year, he was named as a defendant in two lawsuits by his former employer, the SEC, which accused him of participating in the same kind of stock scams he once fought.

Former colleagues have been trying to understand his change of roles from defender of the nation's securities laws to defendant.

Interviews paint a picture of a brilliant lawyer, personable and sharply dressed.

"He's a bright guy," said David Newsome, who was Mr. Offill's boss at the Oklahoma Department of Securities in the 1980s. "He was effective at what he did as a securities enforcement lawyer, which is why you're scratching your head."

But several people who have worked with him say he seemed always to want more for himself and didn't mind walking close to the legal and ethical edge to get it.

It's common for former government lawyers to "switch sides" to far-more-lucrative private practice. But some of Mr. Offill's former SEC colleagues say his quick transition, while not in violation of SEC restrictions, was unseemly. They point in particular to Mr. Offill's taking on a client who was being investigated by the SEC.

Regarding one of the SEC suits against him, Mr. Offill told Texas Lawyer in June that he was only representing his clients, legally and legitimately. "There are probably some I should have turned away that I didn't," he said. He denied wrongdoing and said, "I intend to vigorously defend myself."

He declined an interview for this article but said by e-mail: "I have interesting clients with interesting problems – none of which I can or will discuss – and I have been successful in representing them. In other words, I don't have a 'side' other than my client's, and don't have anything to explain."

Climbing SEC's ladder

Phillip Windom Offill Jr. was born in 1958 in Big Spring, a West Texas oil town between Midland and Abilene. He graduated from Georgetown University and received a law degree at the University of Oklahoma.

In 1985, he joined the SEC and worked his way up from staff lawyer to supervising lawyer, branch chief, trial counsel and finally senior trial counsel in Fort Worth.

He left the SEC in late 1999 to go into private practice, apparently a good financial move.

He and his wife soon sold a $150,000 house in Arlington and in 2000 bought a $400,000 home in Allen, according to property records. He said in a 2005 lawsuit deposition that his net worth is more than $1 million.

Several former colleagues who asked not to be identified suggested money was a motivation. Some lawyers call it "affluenza" – public servants' envy of the higher salaries in the private sector.

"I suspect Phil Offill's motivation in large part was money," said Randy Johnston, who defended someone Mr. Offill targeted while at the SEC, and who more recently represented someone suing Mr. Offill and others. "When he was at the SEC, he spent an awful lot of time going after people who were making lots of money. Seeing their lifestyles, maybe he got infected by that, and maybe that's why he became one of them."

At the SEC, Mr. Offill was skilled at getting cases resolved, former colleagues said. But they also said he seemed to get close to some of the agency's targets.

One of Mr. Offill's first cases in private practice was representing Irving brokerage RichMark Capital in a lawsuit against another company. At the time, RichMark and its vice president, Doyle Mark White, were involved in an SEC administrative investigation conducted by the Fort Worth office, launched while Mr. Offill worked there as senior trial counsel.

"All of a sudden he's on the other side representing Mark White," complained a former colleague of Mr. Offill's at the SEC.

In addition to defending Mr. White, Mr. Offill sometimes recommended him for business deals with others, deals that would later get Mr. Offill into trouble.

For example, when an Addison sports video producer came to Mr. Offill to raise capital in 2004, Mr. Offill suggested they use a shell company tied to Mr. White to take the Addison company public, according to business and court records. Mr. Offill also suggested the production company hire Mr. White to distribute news releases.

But in a move that's typical of the penny stock scams Mr. Offill is accused of being involved with, Mr. White helped send out a junk fax about the stock, court records show. The fax fooled investors into buying the stock as the share price soared and then tanked.

The company, Consolidated Sports Media Group, sued Mr. Offill, accusing him of orchestrating a scheme to manipulate the company's stock for profit. Mr. Offill and his law firm, Godwin Gruber LLP, paid a $4.8 million settlement without admitting wrongdoing, court records show.

High-profile client

Mr. Offill was hired by Godwin Gruber in 2002 to represent one of the firm's high-profile clients, Halliburton. Mr. Offill's salary ranged from $300,000 to $400,000 a year.

The Sarbanes-Oxley Act was passed that year in response to the Enron and WorldCom scandals, and accountants and lawyers were grappling with the new disclosure requirements on big companies like Halliburton.

But what got Mr. Offill into trouble were penny stocks, whose share prices usually hover below $1 and revenues are in the low millions or less, rather than billions.

Officials at the law firm, known now as Godwin Pappas Ronquillo, declined to comment for this article. But they expressed their views on Mr. Offill in depositions for Consolidated Sports' lawsuit.

"Phil is a very talented lawyer," Donald E. Godwin, the firm's chairman, testified. "I had a client that loved him, Halliburton, one of the largest companies in the world. They loved him. They thought he did a great job."

But concern arose when firm officials discovered some unsettling things about Mr. Offill's work unrelated to Halliburton.

•Mr. Godwin and others said the firm noticed that large sums of money were being moved into and out of the firm's trust account for Mr. Offill's clients. Such accounts are typically used to deposit client payments, hire expert witnesses and disburse settlement funds.

"The last thing we're ever going to want to do is be involved in anything with a trust account that's not handled properly," Mr. Godwin said. "It's not a pass-through where people can park money for any reason."

•Mr. Godwin said he was concerned by Mr. Offill's clients' unpaid legal bills of over $1 million.

"He took in far too much business that ended up having to be written off ... because it was uncollectible," he said. "The receivables were much too high for someone with his volume of business."

•Mr. Godwin said it wasn't until Consolidated Sports filed its lawsuit in August 2005 that he learned Mr. Offill had taken on a practice area for which he wasn't hired – helping small companies go public as penny stocks.

"He wasn't hired to do transactional work," he said. "He was hired to do SEC investigations."

Mr. Offill blamed Consolidated Sports executives for the troubles.

"If there was a mistake made," he said in his deposition for the lawsuit, "it was made at the outset, and that mistake was that I believed ... [those involved with Consolidated Sports] to be responsible, competent and ethical businessmen. I later found that to be untrue."

However, Mr. Godwin said the firm's managers approached Mr. Offill about their concerns and told him: "We don't think this is working. ... What do you suggest?"

Mr. Offill said he had been thinking about starting his own firm anyway and decided to leave. His last day was Jan. 19 of last year.

SEC suit

In June, the SEC sued Mr. Offill and another lawyer in Detroit federal court, accusing them of scheming to pump up the stock of a Global Positioning System company called AVL Global that said its tracking devices were being tested by the Botswana Department of Defense.

The commission said Mr. Offill played a key role in setting up bogus investment firms that funneled hundreds of thousands of dollars in stock sales back to AVL Global's executives.

The firms got around securities law by pretending to be longtime investors. But after getting a false legal opinion from the other lawyer, they sold their shares within days, the SEC said.

Mr. Offill has denied wrongdoing and requested a change of venue in the case.

One of the investment firms Mr. Offill set up listed Mr. White, of now-defunct RichMark Capital, as sole director.

Mr. White said in an interview this month that he was surprised to learn his name was on the corporate documents. He said he believes somebody forged his name but declined to speculate who.

Mr. White praised Mr. Offill as a knowledgeable attorney and said he didn't think Mr. Offill had broken any laws.

"Just remember what the Dalai Lama said," Mr. White said. " 'Know what the rules are so you can break them correctly.' ... 'Know what the rules are so you can abide by what you should and shouldn't do.' Offill didn't set out to break the rules. I don't think he was going over 55 mph."

Second suit

In September, the SEC filed a second lawsuit against Mr. Offill, accusing him and others of evading the SEC's registration requirements to allow six penny stocks to be sold to the public with few of the disclosures normally required.

Securities law allows companies to avoid registering with the SEC as long as stock sales don't exceed $1 million and are made only to accredited investors. Under Texas law, investors must be state residents and hold their shares for more than a year before selling.

Mr. Offill created the Texas companies that would be listed as accredited investors and then signed false agreements claiming the shares would be held as a long-term investment, the SEC said.

The companies were only intended to hide the participation of others from outside Texas, the SEC said, and the stock was sold almost immediately to unsuspecting investors.

Mr. Offill made about $250,000 for his services, according to the SEC, while others involved made millions.

Mr. Offill is due to formally respond to the suit today.

Last week's case

In the case that brought Mr. Offill to court last week, the SEC has accused Amerifirst Funding executives Jeffrey C. Bruteyn and Dennis Bowden of making false statements about the safety of so-called secured debt offerings and then misappropriating millions of dollars raised from investors.

In July, the SEC won a court order freezing the assets of Mr. Bruteyn, Mr. Bowden and their related companies.

Mr. Offill was giving legal advice to Amerifirst and its officers months before the SEC suit, according to testimony last week, and he incorporated a penny stock company called InterFinancial Holdings Corp. that is at the center of the civil contempt motion related to the asset freeze.

Last month, Gerald Kingston of Dallas admitted manipulating shares of InterFinancial Holdings. His plea deal says the government will urge a reduced sentence if Mr. Kingston provides "substantial assistance in the investigation or prosecution of others."

At the contempt hearing last week, Mr. Kingston testified that Mr. Offill hatched a scheme with Mr. Bruteyn to circumvent the court's freeze order.

In order to pay Mr. Offill's legal fees and give Mr. Bruteyn living expenses, Mr. Kingston said, he agreed to use InterFinancial shares to buy a Picasso painting owned by Mr. Bruteyn's mother for $431,000. The Picasso, called Hands with Bouquet, is actually a print worth about $100, an art expert testified.

According to the contempt-of-court motion, the cash was used to benefit Mr. Bruteyn, in violation of the asset freeze.

"The fact remains that you endorsed it, and you should have known better," Mr. Kingston told Mr. Offill in the hearing.

InterFinancial wasn't part of the original asset freeze, a point Mr. Offill made in court last week. Mr. Offill, who was representing himself, also said the case against Amerifirst is flawed because investors were getting paid and the company was profitable.

But the case could expand beyond civil charges; Mr. Kingston testified that he had met with officials from the Department of Justice and the FBI to talk about Amerifirst and Mr. Offill.

Under cross-examination by an SEC lawyer, Mr. Offill said, "I figured you pretty much knew that the U.S. attorney's office was involved" in the ongoing investigation.

Where the money went

Of the proceeds from the Picasso, $150,000 went to a criminal lawyer for Mr. Bruteyn, $50,000 went to Mr. Offill and the most of the rest went to pay down the mortgage of Mr. Bruteyn's mother's home, according to the receiver for Amerifirst.

The court-appointed receiver wants all the money back to distribute to Amerifirst investors; the judge's decision is pending.

That may not be the last legal proceeding to hit Mr. Offill in the pocketbook. In the two SEC lawsuits, the commission is seeking civil penalties against him.

The commission also wants to stop Mr. Offill from participating in any future penny stock offerings, a substantial part of his legal business. He has dropped out as Mr. Bruteyn's attorney.

And the Pink Sheets, the New York-based over-the-counter exchange where penny stocks trade, recently barred Mr. Offill from writing letters and opinions for listed companies. He is one of nine attorneys banned by the exchange, its Web site shows.

Lawyers don't usually face such regulatory action, but in the case of the SEC suits, regulators seem to be making a statement.

"The public markets rely on the integrity of attorneys and other gatekeepers," SEC enforcement director Linda Chatman Thomsen said in announcing the June lawsuit. "This case shows that the commission will pursue not only those who perpetrate penny stock fraud but also those who facilitate such schemes."

 Securities regulators have been showing an interest in Dallas lawyer Phillip Offill for nearly three years.

• In June 2005, the Securities and Exchange Commission issued a subpoena requesting financial records on dozens of companies in which Mr. Offill was corporate counsel or registered agent or had helped set up a company listed as a major shareholder. The subpoena was related to an investigation into a Dallas-based "shell creation group," suspected of manipulating stock prices by making false or misleading statements to the public. No accusations have been leveled against Mr. Offill in relation to the "shell creation group" companies.

• In March 2007, as part of a crackdown on e-mail stock fraud called Operation Spamalot, the SEC suspended trading in 35 stocks, eight of which had ties to Mr. Offill, either as corporate counsel or as someone who had helped set up or controlled a company that was a major shareholder. The SEC action did not name Mr. Offill.

• In June, the SEC accused him in a civil complaint of having devised a scheme to pump up the stock price of a defunct company, sell the shares to unsuspecting investors and funnel the profit back to company executives through a series of bogus investment firms. Mr. Offill has denied wrongdoing.

• In September, the SEC accused him in a second civil complaint of violating federal securities laws by participating in a scheme to sell unregistered shares of six penny stocks. Mr. Offill is due to formally respond to the accusations today.

• Also in September, Mr. Offill was accused of defying a judge's order to freeze the assets of a client facing SEC fraud allegations. The judge is considering a contempt citation, which Mr. Offill opposed in court last week.

• Officials with the New York-based Pink Sheets, the primary over-the-counter stock exchange, decided recently to bar Mr. Offill from writing letters and opinions for Pink Sheet-listed companies.
The Web Team


Related Topics

  Subject / Started by Replies Last post
0 Replies
Last post September 18, 2007, 11:34:13 AM
by The Web Team
0 Replies
Last post October 03, 2007, 07:09:16 AM
by The Web Team
0 Replies
Last post November 20, 2007, 02:22:53 PM
by The Web Team
0 Replies
Last post November 29, 2007, 11:00:44 AM
by The Web Team
0 Replies
Last post February 20, 2008, 12:01:00 PM
by The Web Team
0 Replies
Last post February 26, 2008, 12:00:36 PM
by The Web Team
0 Replies
Last post March 31, 2008, 11:00:33 AM
by The Web Team
0 Replies
Last post September 22, 2008, 11:17:06 AM
by The Web Team
0 Replies
Last post July 22, 2009, 09:12:05 AM
by godoftrading
0 Replies
Last post April 01, 2014, 05:18:34 PM
by MTnews