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By David Arthur Walters

It was not what regulators actually investigated but

what they declined to pursue and even condoned
that brought ruin to the greatest number of people.
This time the entire nation was brought to the brink
of disaster at the culmination of yet another reign of
greed in the annals of unbridled capitalism’s sordid
financial history.

For example, time and time again the Securities and

Exchange Commission was alerted to the fraudulent
activities of Ponzi-schemer Bernie Madoff, but
regulators were either sleeping on the job or sitting
on their hands.

And down in sunny Florida, the favored locale for

American-style fraud, where Mr. Ponzi himself had
retired, bank regulators stood by while fraudster
Allen Stanford’s licensed brokers fleeced investors
out of billions of dollars. Funds were being laundered
and documents shredded right under the regulators’
noses, yet there were no “red flags” raised, because
the unique laundry trust had been condoned by state
banking lawyers in collaboration with Mr. Stanford’s
lawyers – we would say “in collusion” if it were not
for the fact that the agreement laying the foundation
for the scheme was embodied in a public document.

But the public was woefully ignorant. Little did the

public know about that agreement, for the public
relies on duly licensed lawyers to forge legal
agreement, and it depends on its lawmakers to make
sure state officials are ensuring the public welfare.
Thus can the rest of the public occupy itself with
other tasks. While doing so, it was being defrauded.
The press watchdogs were sleeping too – the bottom
line ruled: newspaper chains had become the power
elite’s advertising agencies in disguise.

Something smelled rotten in Florida to a very few

people, especially banking lawyers on both sides of
the illusory fence between public and private
interests. In fact the deal officials struck with Mr.
Stanford’s lawyers at Greenberg Traurig, the
powerful, politically connected Firm, was rotten at its
core. Mr. Stanford had previously solicited Bowman
Brown, a prominent Florida lawyer, to strike the fishy
deal with the state, but Mr. Brown’s ethics precluded
him from being retained. The deal with Florida stunk
to high heaven, and several lawyers knew it, but
what could they do except gossip about it among

For one thing, they could have complained to The

Florida Bar, the Supreme Court of Florida’s licensing
and disciplinary “arm,” an official agency of the
judiciary. The Florida Bar is an “integrated” or
involuntary bar, meaning that Florida lawyers must
belong to it in order to practice law in state courts.
The bars of several states became integrated with
the judicial branches when their respective courts,
citing each other in a colossal exercise of judicial
vanity, realized that the judiciary had always had an
inherent power or natural right, corresponding to
their very existence as courts, to regulate the
practice of law without interference from the
legislative and executive branches. All this in
contradiction to the principle elaborated by
Alexander Hamilton, that the courts “were designed
to be an intermediate body between the people and
the legislature” but not superior to the legislature, for
“the power of the people is superior to both”, and the
judiciary should not act contrary to the authority
delegated to it. (Federalist 78).

Mind you that the American judiciary had to struggle

long and hard for its independence since the days
when courthouses were burned down in some places
and laws were passed that anyone of good repute
could practice law regardless of his training.
Alexander Hamilton, for one, read the law for only
three months, and a reading of Blackstone might
inspire one to hang out a shingle. President Thomas
Jefferson tried to use the impeachment process,
which he called a political “farce” due to his own
experience presiding over an impeachment trial, to
smother the judiciary in its crib lest it become
genuinely independent.

Suffice it to say that the bar was not highly regarded

among American Revolutionaries, mostly because of
the experience with the British courts. A lot was done
to restore the profession’s integrity thereafter, but
there were still too many individualists not to
mention bad apples in the barrel. The most
successful concerted reaction to the assaults on the
integrity of the bar was the integrated bar movement
of the 1930s.
One state judiciary after another rounded up the
wagons into one circle. Part of the self-defense
included improving the reputation of the profession
by disbarring incompetent and unethical lawyers. Of
course the critics of the integrated bar argue that the
it is a monopoly constituted by judicial tyranny, that
it serves to drum out of the corps anyone who
refuses to goosestep according to the marching
orders of its own power elite, and reference is
sometimes made in Florida to the “good old white
boys” of yesteryear. Too few lawyers, they say, are
actually disbarred, and those are mainly small fry in
comparison to the great white sharks, the powerful,
politically connected law firms about which popular
novels may be written – power is worshipped
religiously regardless of how it is exercised.

However that may be, who would better know which

lawyers deserve discipline than lawyers? It takes one
to know one: The code of ethics for lawyers requires
them to inform on one another if they observe
behavior in their colleagues that is remarkably
untoward. Of course nobody ratted on likes a rat very
much, and almost everyone has something to hide.
The conservative or traditional theory of virtue ranks
loyalty to ones aristocratic kind as the highest ethic
of all, but liberal liberty demands some whistle
blowing, at least in those egregious cases that might
endanger the institution itself.

Which leads us to wonder, now that the awful deeds

have been done, now that billions of dollars have
been bilked and lives ruined, thanks to the
collaboration of certain private and public lawyers,
Did a single one of the lawyers who were saying “I
told you so” to one another back then register any
complaints or inquiries with the agency that
regulates lawyers, namely, The Florida Bar?

We may never know. That was back then, what was,

was, so let’s move forward, and so on.. Title I Section
24 of the Florida Constitution, Chapter 119 of The
Florida Statutes, and Rule 1-14 of the Supreme
Court’s Rules Regulating the Florida Bar provide the
public with the right of access to public documents
received or created, but the law apparently does not
specify how long The Florida Bar must keep certain
records. The Supreme Court’s self-revealed, inherent,
absolutely independent political power apparently
dictates that, if The Florida Bar counsel decides not
to conduct an inquiry or to recommend disciplinary
action, the pertinent file is destroyed one year after
his or her decision is made.

On August 3, 2009, Donna F. McMahon, Case

Management Administrator of the Legal Division of
The Florida Bar, responded to one of my inquiries as
follows: “Matters received by The Florida Bar which
are pending investigation are not public information.
We may acknowledge the status if there is specific
knowledge of the pending matter: ‘Rule 3-7.1 (e)
Authorized representatives of The Florida Bar shall
respond to specific inquiries concerning matters that
are in the public domain, but otherwise confidential
under the rules, by acknowledging the status of the
proceedings.’ The matter becomes public once a final
disposition is recorded. If the matter is closed by bar
counsel at staff level (declines to pursue
investigation), one year from the date of closure the
matter is purged from the attorney’s record.
Therefore we do not have a 10-year history of
matters disposed with a finding of no probable cause
(closed by staff).”

If we examine the rules, we see that Rule 3-7 reads

in part as follows:


Scope of Confidentiality. All matters including files,
preliminary investigation reports, interoffice
memoranda, records of investigations, and the
records in trials and other proceedings under these
rules, except those disciplinary matters conducted in
circuit courts, are property of The Florida Bar. All of
those matters shall be confidential and shall not be
disclosed except as provided herein. When disclosure
is permitted under these rules, it shall be limited to
information concerning the status of the proceedings
and any information that is part of the public record
as defined in these rules. Unless otherwise ordered
by this court or the referee in proceedings under
these rules, nothing in these rules shall prohibit the
complainant, respondent, or any witness from
disclosing the existence of proceedings under these
rules, or from disclosing any documents or
correspondence served on or provided to those
persons…. (e) Response to Inquiry. Authorized
representatives of The Florida Bar shall respond to
specific inquiries concerning matters that are in the
public domain, but otherwise confidential under the
rules, by acknowledging the status of the
proceedings.” (Emphasis added. See Rules
Regulating the Florida Bar for omitted text).

We note with some interest that the Supreme Court

of Florida seemingly considers its disciplinary arm’s
records as private property as opposed to public
property, leaving us to speculate as to whether
Florida’s public records laws even applies. Whenever
the law would interfere with its “inherent powers”,
the Court might declare it unconstitutional, a
violation of the separation of powers. Indeed, the
integration of the bar in Florida is sometimes referred
to by its opponents as the “privatization of the bar.”
The integrated bar seems to represent a case of
extreme judicial independence, one that is not
conducive to the just balancing of powers among the
branches of government. The Court can make up its
own rules as it goes along in respect to its officers,
and becomes, in effect, the prosecutor, judge and
jury in all disciplinary cases, and legislator in
qualifications for licenses. In other matters, it is said
that the people are being made to answer to it, and
not it to the people.

In any case, I asked Ms. McMahon for a definition of

the term “purged,” and whether or not a specific Bar
rule calls for the purging of all files closed by staff.
She promptly responded on September 10, 2009:

“‘Purged’ means that the record is deleted and the

physical file (if applicable) is destroyed.” “If there
was a file that was closed with no discipline imposed,
it has been one year from the date of closure and the
file has purged from our records, the computer
record is deleted and the paper file (if applicable) is
destroyed.” “The fact that we purge files closed with
no discipline one year from closing is not a rule but,
rather, a Bar policy.”

We believe it is fair to say that, if politics governs the

distribution of power, the term “policy” in this
instance has political implications, for knowledge is
power, and this particular policy is anal retentive and
detrimental to the general public’s welfare even
though it is an improvement on the opaque policy
over the days when disciplinary matters were kept as
trade secrets. It is detrimental as well to the
reputation of the legal profession, which is best
served by transparency in disciplinary matters, by a
policy that at least keeps longstanding records of
complaints for future analysis. Complaints lodged
against officers of the law remain in the public
records for years, so why are dismissed complaints
lodged against officers of the court destroyed after a
year? Consumer protection bureaus collect and
publish data on complaints over several years, and
the fact that a particular licensed person or business
is drawing a large number of complaints gives buyers
cause to beware and regulator cause to raise their
eyebrows and to get off their duffs and diligently
investigate complaints.

The Florida Bar does not publish information about

closed cases at this time on its website – one has to
ask for specific information, and must do so within
one year after closure. Perhaps a publisher might
purchase all the information as it occurs behinds the
scenes and sell it to the public, but the process would
be far more transparent and less costly if the
information were published by the The Florida Bar, or
if at least a summary was published, providing the
names of attorneys involved, the nature of the
complaints and inquiries, and the counsel’s
reasoning for closing the files.

I made the following public information request in re

Allen Stanford and The Florida Bar on August 20,

“Ladies and Gentlemen: This is a public request for

records pursuant to Title I, Section 24 of the
Constitution of the State of Florida, Chapter 119 of
the Florida Statutes, and Rule 1-14 of the Rules
Regulating the Florida Bar. Please provide me with
uncertified photocopies of any document received or
made in respect to any and all inquiries and
complaints regarding the conduct of private
practitioners and State of Florida attorneys in any
way related to the allegedly fraudulent activities of
Allen Stanford and his agents, representatives, and
sundry entities. Of particular interest to me is any
record relative to the negotiations between State of
Florida officials and Mr. Stanford’s attorneys that
resulted in the official approval of the purportedly
unlawful foreign trust scheme that allowed the
Stanford operation to bilk billions of dollars out of
investors. According to investigative reporters, the
“powerful” (i.e. politically connected) firm of
Greenberg Traurig negotiated the deal with the State
of Florida after other attorneys, such as Bowman
Brown, had been approached and refused the
assignment. The deal was apparently sealed on the
basis of the 1998 official legal advice of state
employee David Burgess, a non-lawyer, apparently
under the supervision of state banking authority Art
Simon, a lawyer, who himself was reportedly advised
by counsel not to approve of the deal but did so
anyway. Please provide me with an estimate of the
cost of providing the records, for my approval and
payment of the estimated cost in advance of the
shipping of the records. Respectfully, David Arthur

As we have observed, the Bar could not, according to

its rules, provide any documents appertaining to
pending investigations, and it would have shredded
or otherwise destroyed any files that had been closed
for over a year. The expectation that it would have
old information to turn over to me or would provide
records about pending investigations was foolish, for
the Stanford agreement with the State of Florida was
made a decade ago, and the Stanford Fraud only
became a hot topic after the fraud was belatedly
investigated, so those matters would pending if not
dismissed out of hand.

The Bar courteously responded to my naïve request

for public records, stating that Mr. Stanford was not a
lawyer, so he was not subject to its jurisdiction, but if
particular lawyers were named, it would see if there
were any closed files available. Since the Bar does
not publish information on pending or closed cases, it
appears that interested parties should keep asking
about certain attorneys at least once a year, lest the
files be closed and destroyed. Good policy might
dictate keeping a list of “pending investigations” on
its website, which would also prompt people who
might have information about those attorneys to
come forward with it.

One attorney who has been named as a person of

interest in the Stanford Fraud is Carlos Loumiet. Mr.
Loumiet helped Mr. Stanford establish his operation
in Antigua and to make the unique foreign trust deal
with Florida. Around the same time, while still a
partner at the politically connected firm of Greenberg
Traurig, he signed off on an audit of Hamilton Bank,
which was on the hot seat with regulators. A civil
complaint was brought against him by the Office of
the Comptroller of the Currency, whose November 6,
MONEY PENALTY, Case No. AA-EC-06-102, makes the
following charges:

“After examination and investigation into the affairs

of the Bank, the Comptroller of the Currency of the
United States of America (“Comptroller”) is of the
opinion that: (a) Respondent Loumiet harmed the
Bank by concealing the crimes of the Bank’s
chairman and CEO, Eduardo Masferrer; its president,
Juan Carlos Bernace; and its CFO, John M.R. Jacobs;
whom Respondent Loumiet and his former law firm,
Greenberg Traurig LLP (“Greenberg”), represented
while they purported to represent the Bank. The
officers orchestrated unlawful transactions in order to
hide the Bank’s losses resulting from the Russian
debt crisis of 1998. The officers misled the Bank’s
external auditor, federal regulators and public
investors in the Bank’s holding company, Hamilton
Bancorp Inc. (“holding company”). The officers have
been sentenced to prison for perpetrating and later
misrepresenting the unlawful transactions. (b) In
2000, the Bank and the holding company retained
Greenberg and Respondent Loumiet to investigate
the unlawful transactions, and the credibility of the
Bank’s officers. In two reports co-authored by
Respondent Loumiet and his partner at Greenberg,
Robert Grossman, Respondent Loumiet protected the
officers by making materially false and misleading
assertions, and by suppressing material evidence.
Following the reports, the officers steered additional
business to Greenberg and Respondent Loumiet.
Greenberg collected $1.16 million of fees from the
Bank and the holding company during 2001-02, and
Respondent Loumiet received a share of these fees.
(c) The Comptroller closed the Bank in 2002, in order
to stem losses to the federal deposit insurance fund.
The Bank has cost the insurance fund
approximately $127 million, net of recoveries. Public
shareholders lost their entire investment. The
Comptroller seeks a final Order barring Respondent
Loumiet from providing or participating in the
provision of legal or consulting services to any
insured depository institution, or serving as counsel
for such an institution. Respondent Loumiet would be
required to disclose a copy of the Order to any
institution-affiliated parties, see 12 U.S.C. § 1813(u),
who retain him to provide legal or consulting
services. The Comptroller assesses a civil money
penalty of $250,000 against Respondent Loumiet.
Pursuant to 12 U.S.C. § 1818(i)(2)(G), the Comptroller
has accounted for Respondent Loumiet’s financial
resources and absence of good faith, any history of
previous violations, and such other matters as justice
may require, and has fully considered Respondent
Loumiet’s submissions concerning these matters.
This penalty is payable to the Treasurer of the United

Greenberg Traurig settled similar charges against it

with the Federal Deposit Insurance Corp. for $7.6
million. And Greenberg Traurig and Grossman paid
$925,000 to settle the charges brought by the OCC.
But Mr. Loumiet refused to make a deal, abd was
found guilty by Administrative Law Judge Ann Z.
Cook. An appeal was made, and the case against him
was reluctantly dismissed by Comptroller or the
Currency John C. Dugan at the end of July 2009
because he found insufficient evidence that Mr.
Loumiet’s acts harmed the bank, one of three
technical elements necessary to subject him to
sanctions. Controller Dugan expressed deep regrets
about Judge Cook’s “abusive” refusal to admit expert
testimony regarding the professional standards of
care that Mr. Loumiet should have held himself to.

The press reported that cases were pending against

Mr. Grossman and Mr. Loumiet at The Florida Bar in
reference to the Hamilton Bank Fraud. Ms. McMahon
advised me that the file regarding Mr. Loumiet, File
No. 2007-70, 743, was closed on July 30, 2009, and
that the Miami office would scan it for public
examination. However, Mr. Grossman’s case is still
pending, although it was reportedly opened prior to
that of Mr. Loumiet.
We are looking forward to examining File No. 2007-
70, 743, as there is considerable speculation about
the reasons for its closure. Finally, we shall take Ms.
McMahon’s cue, and ask her or someone at The
Florida Bar to make a Rule 3-7.1 statement as to the
status of any pending cases relevant to the Stanford

Miami Mirror
September 12, 2009