Law Firm Sued for Scam

by San Antonio Attorney

Industrial Enterprises of America, a Pittsburgh based chemical company filed for Chapter 11 bankruptcy last May of 2009 in the District of Delaware. The company is an affiliate of PittPenn Holdings Co. and has filed suit in the US Bankruptcy Court claiming the Baker and Mackenzie law firm instituted a scheme that lead to the collapse of the company.

In the complaint, IEAM alleged that the firm’s partner Martin Weisberg participated in the “looting of IEAM”. They further claim that the looting was undertaken using the firm’s legal expertise through the institution of a stock scheme which precipitated the company’s ruin. The adversarial suit highlighted the actions of Weisberg, mainly conspiracy to defraud investors totaling fifty seven (57) separate counts for indictment.

The company alleged that because of the activities of Weisberg and the firm Baker and Mackenzie, the company lost nearly $150 million. The company added that Weisberg became a partner of the prestigious law firm back in 2005 because of his close ties with then IEAM CEO John Mazzuto. This association was a cash cow for the firm, making him “a worthwhile risk” for the firm.

The described stock scheme was instituted in 2004 allowing for the issuance of restricted IEAM shares to its employees, directors and consultants. The whole program was drafted by Baker and Mackenzie and submitted to the Securities and Exchange Commission. IEAM claimed that there was no disclosure as to the close relationship between Mazutto and Weisberg. Also absent from the declaration was the personal bankruptcy of Mazutto since 2002. These two facts, if disclosed, would have lead the SEC to disapprove the stock scheme that lead to the fraud and plunder of the company.

In its review, IEAM claims that the stock scheme was designed to defraud the investing public and regulators as to its true financial standing. The scheme had the beneficiaries of the stock plan funnel the proceeds back into the company to keep its stock value high on the market. The complaint further stated that the law firm was aware of the inaccurate information and the fraud being done. There were even instances where funds from the scheme was used as funds to settle claims in litigation. All in all, the complaint said that the law firm turned a blind eye to the fraud and assisted in the plunder of the company. Upon inquiry about the said stock plan, the SEC and Nasdaq were given false information or were kept in the dark as to the true nature of the stock plan.

During the three years that the stock plan was in place, the firm received over $1.7 million in fees for activities such as reviewing untrue SEC and Nasdaq filings, illegal settlement of a former CEO’s claims and the suppression of the information regarding Mazutto’s bankruptcy. By 2009, IEAM had already lost $450 million leading it to file for Chapter 11 bankruptcy protection.

The complaint’s prayer includes claims for fraud, unjust enrichment, civil conspiracy, malpractice and aiding and abetting the breach of fiduciary duty. The company is seeking to award compensatory, punitive and consequential damages as well as restitution from the firm.

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