For suspension of Shamy 2 yrs to 7/31/73 and reprimand of Pincus -- Justices Jacobs, Francis, Proctor, Hall, Schettino and Mountain. Opposed -- None.
In March 1971 the respondents George J. Shamy and his law partner Jack Pincus were ordered to show cause why they should not be suspended from the practice of law pending the determination of disciplinary proceedings grounded on alleged violations by them of the canons of ethics and the rules of court. Thereafter Shamy was suspended effective July 31, 1971 and until further order of this Court, and the matter was referred to Superior Court Judge Gerofsky with plenary power to act as an Ethics Committee. Answers to the charges against them were filed by the respondents, hearings were held during which testimony was duly taken, and a full report containing detailed findings and conclusions was in due course filed by Judge Gerofsky.
The first charge dealt with in the report related to Shamy's use of trust funds in violation of Canon 11. This charge was admitted in Shamy's answer and during the hearings, though Shamy testified that no client was ever "denied, or delayed, or deprived in any way of one dollar." Shamy was a heavy gambler with gambling losses running into hundreds of thousands, and trust funds from his law firm's special account were indiscriminately transferred by him to its general account with later replacement by funds borrowed from banks and others. The shortages in the special account varied from day to day but on occasion were as high as $61,000. In his report Judge Gerofsky explicitly determined that Shamy "did in fact divert" trust funds; that his "addiction to gambling was the proximate cause of such invasion of trust funds"; that despite his invasion of trust funds "no client has yet been deprived of monies owed and due him"; and finally that Shamy "is now cognizant of his weakness" and "has not gambled for a period in excess of a year and a half."
The second charge against Shamy was that he encouraged the violation of the laws of this State by placing bets with bookmakers in violation of Canon 32. Though most of Shamy's gambling activities took place at legal race tracks within the State he admittedly placed some bets with bookmakers. He of course knew that violations of New Jersey law were involved and indeed he used a fictitious name. The report set forth that "while respondent Shamy had no conscious intention to encourage the violation of the laws of this State, he did in fact do so in violation of Canon 32. Cf. In Re Howell, 10 N.J. 139 (1952)."
The third charge was that both respondents Shamy and Pincus failed to maintain financial and business records as required by R. 1:21-6(a) and (b) for which R. 1:21-6(g) -- now R. 1:21-6(h) -- specifically provides an attorney shall be subject to disciplinary proceedings. Both of the respondents admitted that the rules were violated though Pincus asserts that the responsibility of maintaining suitable records for the law firm was assumed by Shamy. The firm maintained separate accounts in conformity with R. 1:21-6(a) but did not comply with R. 1:21-6(b). As set forth in the report, the indiscriminate practice of "shifting funds from one account to the other defeated the intended purpose of maintaining two separate accounts in the first instance," and the failure "to maintain a general ledger book" along with the "failure to make timely entries" were violative of the basic requirements in R. 1:21-6(b).
Shamy testified that the proper maintenance of the firm's books and records was up to him; as he put it "I assumed that responsibility and Jack Pincus permitted me to assume that responsibility." Pincus testified that, shortly after he went into partnership with Shamy, they had a disagreement as to the competence of their bookkeeper and that from then on Shamy took exclusive charge of the firm's books and records. He had complete confidence in Shamy's integrity and was not aware of any record-keeping inadequacies until the present proceedings were initiated. Judge Gerofsky in
his report concluded that both respondents had "failed to maintain financial and business records as required by R. 1:21-6(b)"; that Shamy had "assumed the responsibility of managing partner in respondents' law firm and that his active negligence was the proximate cause of the firm's failure to maintain proper records"; that although Pincus was "dominated by the personality of his partner his passive negligence was a contributing cause for the firm's failure to maintain proper records."
The fourth charge related to false financial statements which were submitted to lending institutions by the respondents. Shamy prepared the statements and admitted that they were false. He testified that he did not believe that any statement filed by him "in the last three years with any lending institution could possibly set forth all of my liabilities." The signature of Pincus appeared on financial statements which were false but, as the report found, "Pincus was dominated by his faithful friend and trusted partner" and "would immediately and without examination" sign statements prepared by Shamy and submitted to Pincus for signature. Shamy negotiated all of the partnership loans and, as the report states, "it was of course Shamy who needed to secure loans in order that he might have funds to satisfy his addiction to gambling."
Shamy asserts that the false financial statements were submitted after the loans were made and not for the purpose of inducing them. The report determined that "they were filed with the knowledge that they would be utilized, at least by bank examiners" and that "they were filed with the intention to deceive persons other than those who were privy to the loan negotiations." The record contains very disturbing testimony by bank officials with regard to their banking practices. Thus one bank president testified that, after a visit to his home by Shamy, a $100,000 loan was approved to help him pay his gambling debts. No collateral was furnished nor was any financial statement submitted at the time. Later the president "was expecting the examiners"
and made several calls to Shamy for a financial statement. A statement was then filed, as were additional statements thereafter, but the president asserted that he "never saw the ...