On an order to show cause why respondent should not be disbarred or otherwise disciplined.
For disbarment -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. Opposed -- None.
[108 NJ Page 48] This disciplinary proceeding arises out of two presentments filed by the District VIII Ethics Committee. Respondent is charged with fraudulent and deceptive conduct regarding certain business transactions with his clients, failing adequately to protect his clients' investments, and commingling personal monies with client trust funds. The Disciplinary Review Board
(DRB or Board) concluded that respondent was guilty of unethical conduct, and recommended that he be disbarred. Upon an independent review of the record, we find the Board's conclusions to be amply supported by the evidence, and therefore order respondent's disbarment.
The facts of this case, as found by the DRB, are as follows:
In 1979, following the sale of her home, Mrs. Roseann Whitesell had planned to invest the proceeds [$20,000] in a savings account. Respondent, who represented her on the closing and other matters, suggested she make a short term investment with Equities Holding Company (Equities) at 10% interest per month. * * * According to Mrs. Whitesell, respondent did not tell her he had an interest in Equities, nor did he explain the risks of this investment to her. Since she trusted respondent, she gave him money to invest. Respondent testified he informed her she could seek independent counsel but she had declined to do so.
Respondent maintained he had not solicited the investment but had told Mrs. Whitesell he had some personal investments with Equities which were paying a substantially high rate of interest but that there was a risk involved. He informed her he believed Equities would be a successful investment.
In September and October 1979 respondent received on Mrs. Whitesell's behalf a check for $2,000 which represented the interest earned for those months. At Mrs. Whitesell's request, respondent sent her a letter on October 17, 1979 stating he had invested her $20,000 as a loan to Equities and further stated the loan
When respondent had received the $20,000 from Mrs. Whitesell $5,000 of it was paid to Repsco, Inc., a company respondent formed in 1978. He was its principal officer and stockholder.
Equities confirmed by letter dated July 30, 1979 that respondent had "loaned" $40,000 to it. The confirmation consisted of a $16,000 demand note dated July 23, 1979 made payable to respondent at no interest and a $24,000 seven-day note dated July 30, 1979 made payable to respondent's trust account at no
interest. There was no indication that Mrs. Whitesell was the beneficiary of the note, nor that the loan reflected her investment. At the ethics hearing, respondent explained that the $16,000 note represented his personal investment and the $24,000 note represented Mrs. Whitesell's investment. This amount reflected her investment of $20,000 and interest for the first two months.
When no check was received for November 1979, Mrs. Whitesell contacted respondent who explained that Equities had a cash flow problem but assured her that the money would be forthcoming. She telephoned respondent in February 1980. He arranged a conference call between them and the president of Equities. Mrs. Whitesell was reassured that she would receive her money shortly. * * * Mrs. Whitesell [subsequently] * * * retained another attorney to obtain a refund of her investment. When that proved unsuccessful, a civil action was filed against respondent on October 31, 1980. A default judgment was entered January 7, 1981 for $15,000 plus interest. As of November 22, 1982 when Mrs. Whitesell testified before the ethics committee, she had not received the return of any of her money.
At the ethics hearing, respondent stated he had invested his own money in Equities had lost over $30,000. The ethics committee concluded that respondent's actions were deceptive and fraudulent. It further concluded respondent's record keeping was improper and he had failed to properly protect Mrs. Whitesell's interests.*fn2
Clark and Gramache matter
Respondent represented Jane Clark and her brother Roger Gramache in various legal matters and handled some investments for them. In the fall of 1977 Mrs. Clark and her grandparents agreed to purchase a house so they could reside with her. The purchase would be financed by cashing in each grandparent's $50,000 annuity. Mrs. Clark's grandfather died before the proceeds of the policy were received. Respondent was named the trustee of the grandfather's insurance proceeds which exceeded $50,000. However, Mrs. Clark testified at the ethics hearing that when she signed the August 2, 1979 agreement she thought respondent would be the trustee for her grandmother's policy, not her grandfather's. She had not read the agreement but thought she was authorizing respondent to invest her grandmother's funds.
Beginning in April 1978 Mrs. Clark invested money in Repsco Corp. Respondent had explained to her that this company obtained funds from small investors and made large corporate loans. She knew respondent was a corporate officer and believed there were other officers as well. Respondent did not tell her he was the only officer and stockholder. Respondent had informed her that the investments would be for six-month periods and investors would receive $2,000 a month in interest. In April 1978 Repsco received a total of $10,000, representing a $5,000 loan from Mrs. Clark, and $5,000 from her brother and grandfather. The following month Mrs. Clark invested an additional $25,000 in the company. For this loan she expected to receive monthly interest payments of $500. At the end of the six-month period, she reinvested her funds in the company. She did not receive any documents or security for these loans. Through respondent she invested $10,000 in July 1978 with Com Link International; $10,000 in January 1978 with E.H. Limited which loaned the proceeds to Equities, and during April 1979 she invested $7,000 with Equities. Her brother also loaned $3,000 to Equities. Respondent, on behalf of Mrs. Clark's grandmother, received $50,000 in insurance proceeds on August 31, 1979.*fn3 On that same date he loaned $48,500 to D.L.B. Financial Corporation. Among the investments from her grandfather's policy were $2,000 as a loan to Repsco Air and $3,000 as a loan to Equities. Mrs. Clark had never heard of any of these companies before respondent advised her to lend money to them. She had no prior investment experience and trusted respondent's judgment. At no time had respondent advised her to seek the advice of an investment counsel or an independent attorney. While she received some interest payments on the loans, the principal was not repaid.
At the ethics hearing, Mrs. Clark testified that she was totally unaware of the $48,500 loan to D.L.B. and did not learn of it until she attended a hearing of the Clients' Security Fund. The ethics committee concluded respondent's actions were deceptive and fraudulent. [ DR 1-102(A)(4), 1-102(A)(6), 2-101(A), 2-101(B)(6), 5-104(A).] It concluded he improperly handled the investments, ...