In a May 2, 2022 press release, the Securities Exchange Commission (SEC) announced charges related to settlements, which may be of interest to the workers' compensation community. The SEC is charged with government oversight of investments and related regulation. At first glance, its connection to settlements is perhaps less than obvious. It is important to remember that accusations and even charges do not equate to guilt. While the SEC has alleged wrongdoing, that has yet to be accepted or proven.
According to the release, a company, its attorney Chief Executive Officer (CEO), and its president are accused of "defrauding individuals with disabilities." The allegations include that the accused misled these individuals "into believing that the (accused) were placing their funds in a pooled trust managed by a non-profit association." The SEC alleges that the "defendants instead used a non-profit trustee as a shell company to profit from disabled personal injury victims." Those who suffer injury or disability may face significant challenges, and likely could do without being misled.
The SEC alleges that the accused company and the "executives took advantage of vulnerable victims with special needs, making unethical and illegal profits off of them.” This involved the SEC because it alleges that the accused thereby "violat(ed) the antifraud provisions of the federal securities laws, as well as some "registration provisions of the federal securities laws." The main thing I remember from securities in law school is that those laws were said to be complex and challenging; I was cautioned repeatedly about "dabbling" in them as a lawyer.
The allegations of concealment extend beyond the "individuals with disabilities." The SEC further alleges that the accused "diverted at least $775,000 in trustee and joinder fees directly from the beneficiaries’ accounts to their for-profit business," and that this was "concealed from the beneficiaries, the Internal Revenue Service, and the Social Security Administration." Thus, it appears that there is perhaps the potential for other government agencies to take an interest in this situation. As complex as the securities regulations may be, in a moment of distraction, one might wonder whether they are as complex as the estimated 70,000 (or at least 2,600 pages) U.S. Tax Code.
Some portion of the funds in this instance were allegedly "used . . . to reimburse themselves, sponsor events and parties, and promote . . . (a/the) for-profit business." The SEC is seeking "permanent injunctions" to preclude this activity as well as "disgorgement of ill-gotten gains plus prejudgment interest," seeking to recoup the monies it says were inappropriately used.
There are important considerations worth noting. First, and most obvious, is that compliance with registration and antifraud provisions is important in any respect. However, the challenges of "individuals with disabilities" may be more so. People who are facing physical and emotional injury may well suffer impairment related thereto, related to the stress of immediate impacts to their lives or livelihoods, or from the stress and anxiety of perceived or potential impacts. In a nutshell, as the SEC notes, these can be "vulnerable" persons to whom special care and attention may be appropriate or even necessary.
I was reminded, in reading the story, of the many rules of The Florida Bar regarding the concepts of candor, zealous representation, and effective trust accounting. I have seen far to many situations in which poor bookkeeping (misfeasance) and worse (malfeasance) resulted in settlement money not reaching the appropriate hands (the injured party). Though the sentiment of fair dealing and responsibility are evidenced in the Rules Governing The Florida Bar, the instances of misappropriation are simply too numerous. See Then Arrested (January 2021).
Just examples from the May 2, 2022 Florida Bar Disciplinary actions are two unrelated but too familiar situations: "failed to timely notify the association that he had collected the funds and failed to timely distribute the funds to his client" (45-day suspension and two years of probation); "did not adequately involve the clients in the settlement process and did not apprise them of the total settlement amount or the amount . . . intended to take as the firm’s fee, which was substantially higher than the amount the clients would obtain" (suspended for 91 days). The monthly report of discipline matters seems to persistently return to such themes.
It is entirely possible that accounting issues may become complex following settlement of a workers' compensation case. There may be lingering issues with the settling attorney's fee or costs, the fees/costs of some former counsel, a Medicare issue, payment of medical bills, and more. Settlement documentations are often straightforward and mundane, but there are also a variety of potential complications. Attorneys are well advised to remain aware of such challenges. And critically, to remain aware of the requirement and benefits of a detailed and signed closing statement (Rules Regulating The Florida Bar, Rule Rule 4-1.5(f)(5):
"the lawyer shall prepare a closing statement reflecting an itemization of all costs and expenses, together with the amount of fee received by each participating lawyer or law firm. A copy of the closing statement shall be executed by all participating lawyers, as well as the client."
Every client should be provided with such a closing statement. The distribution of funds among expenses, fees, and net recovery should be clear. And, the client's signature on the statement may bring peace of mind to all involved, particular as memory of the details may fade over time.
The allegations of the SEC will be interesting to observe. Whether any wrongdoing is eventually accepted or proven remains to be seen, but the allegations are a foundation upon which many can be reminded of the potential for different people to have varied perceptions of transactions and the benefits to all of the closing statement.
