Mississippi Litigation Review & Commentary : Mississippi Personal Injury Lawyer & Attorney : Phillip W. Thomas Law Firm : MS Litigation Review & Commentary

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U.S. Bankruptcy Trustee Patrick Collins did not pull any punches at the A&O creditor's meeting last week. You can listen to the entire meeting here. The meeting was over three hours long and Mr. Collins' comments were a small part of it. Among Mr. Collins' comments to the investors:

• you've been screwed;
• you've been lied to;
• some of the A&O policies have already lapsed;
• the lapse of other policies is imminent; and
• there is no money or other assets available to pay premiums on the policies.

Participants by phone included government regulators, including attorneys from the Texas attorney general's office. Discussions were heated at times and sad at others. One woman said she put her kids college fund into these investments and asked if she was going to be able to send her kids to college.

Russell Mackert testified under oath. Among Mackert's testimony:

• he lives in the same subdivision as Abdulwahab ("Wahab") and Mackert's finance is Wahab's wife's aunt;
• Shepard Capital was created for the purpose of acting as custodian of the A&O entities;
• the sale price of A&O to Blue Dymond was close to $3 million;
• Blue Dymond is a Nevis LLC;
• he dealt with RJ Stephenson from Blue Dymond;
• Mackert drafted the sale documents;
• he drafted trustee documents for 10-12 insureds and he was referred by life insurance agents;
• he was trustee for some of the policies;
• he controls A&O Life Funds LP's bank accounts;
• there are a few hundred dollars in the bank accounts;
• in March 2009 they started hearing about Prestige Title's problems;
• the Prestige-A&O relationship pre-dates Mackert's involvement with Shepard;
• the $4.6 million that A&O gave to Prestige to pay premiums was supposed to last for the life of all the policies;
• Mackert filed a police report with the Biloxi police department;
• Shepard hired an attorney in Biloxi [Don Dornan] to represent A&O; 
• Prestige bounced checks for premiums in February;
• Oncale and Almindinger loaned money ($40,000 each) to the company so premiums could be paid;
• Wahab had other legal problems and couldn't contribute;
• under the bond agreements the bond holders were supposed to pay if the insured did not die by a certain date;
• PCI did not pay under any of the bonds;
• 1 bond should have paid out as of today; 
• he described getting the run-around from the bond company; 
• the folks in Mississippi [Stephen Colson] looted the company's funds; and
• the bulk of the investors' money was used to acquire policies. 

Someone said that substantial commissions were paid to insurance agents who brought these policies to the companies. It was also said:

• the paper work is a mess;
• there is a secondary market for these policies where they could be sold;
• Mackert and his lawyer don't know what happened to any money before Mackert got involved; and
• they don't know if there were inappropriate distributions to insiders or brokers.

 Patrick Collins said there was wide-spread fraud here and law enforcement in multiple jurisdictions are looking at this. He can't really say when it started and stopped or who did it.

Mackert said there is an on-going federal investigation involving Prestige's principal [Colson].

It does not take a rocket scientist to see what happened here or where it is headed. The details have not emerged yet, but the big picture is clear. See this prior post regarding where the A&O money went. I'm not buying that all A&O's problems were caused by Prestige and Colson.   

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On Friday September 4, 2009 Stephen Colson filed for personal bankruptcy in federal court in Gulfport. Here is the Petition and Creditors Matrix. This is not surprising because Colson's businesses were shut down late last year or early this year. Although expected, the news is still sad. I hope Colson's legal problems work out in a way that give him a chance to rebuild his life at some point. 

Colson's lawyer in the bankruptcy case is Jackson based attorney Craig Geno. Mr. Geno is one of the leading, if not THE leading, bankruptcy lawyers in the state. I'm sure that he will do a good job on the case.

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There were two new cases filed in the last week in federal court against Biloxi lawyer Stephen Colson. On August 20, 2009 Wachovia Bank filed this Complaint against Colson and Prestige Title. The suit is based on loans and credit lines that are in default. The amount sued for on each is as follows:

1. Note 1: $292,355.36
2. Loan 2: $720,088.09
3. Loan 3: $494,321.01

Total: $1,506,764.40.

Eric Hatten with Burr Forman's Jackson office represents Wachovia. The fact that Colson defaulted on loans is not surprising, since his businesses were apparently shut down last fall.

The second case was a declaratory judgment action filed on August 24, 2009 by Aspen Insurance UK Limited against Prestige, Colson, Wachovia Bank and Lawyer's Title Insurance. Here is the Complaint, which Aspen filed in the Jackson Division instead of Gulfport for reasons that I can't identify. Aspen alleges that it issued a professional services liability policy to Prestige/ Colson in 2008 and there were misrepresentations in the application. As a result, Aspen claims that it has no duty to defend and indemnify Prestige/ Colson in their several legal actions. I don't know how this will turn out, but having the insurance company pay the freight for defending the lawsuits is usually a very big deal for a defendant.  Carroll Warren and Parker of Jackson filed the complaint and are local counsel for Chicago lawyers.

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After Judge Ozerden dismissed the two pending Colson cases because the federal court no longer had jurisdiction, the cases were re-filed or transferred to the Harrison County Chancery Court. All the local chancery court judges recused themselves from the case, which is common when a lawyer is a party in the case. The Mississippi Supreme Court appointed Judge Frank McKenzie of Laurel to preside over the case. It's my understanding that not much has happened since the case moved to state court.

One of the most interesting aspects of the Colson litigation was the emergence of the A&O Life companies, their manager, Russell Mackert and Adley Wahab. A&O claimed some of the Colson funds interpleaded in the Wachovia interpleader action. A&O is a controversial company that I previously characterized as "shady" in my opinion. Adley Wahab is a defendant in a civil lawsuit filed by the SEC in Texas. The lawsuit raises serious allegations against Wahab and his associates. Here is a brief filed by the SEC that gives a flavor of the SEC's allegations. The SEC alleges that in the summer of 2007 Wahab became aware of the SEC investigation and began transferring millions of dollars in assests with the assistance of Mackert. During this same period, Wahab sold A&O to Blue Dymond, which was not mentioned in the SEC brief. According to affidavits filed by Mackert, who is now managing A&O, he does not know who owns Blue Dymond. Hopefully, the SEC will look into this at some point.     

I have also been in communication with A&O investors in Texas and New York. According to some of these investors, A&O is not re-paying its investors as promised. It's hard to reconcile the SEC's allegations with a legitimate company that pays investors as represented. I encourage concerned A&O investors to contact an attorney to discuss their legal rights. I believe that there may be a litigation path that would allow A&O investors to recoup their money. If there are any attorneys who are pursuing litigation against A&O or its principals who would like me to publish their contact information for investors to contact, I would be happy to do so.

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Judge Ozerden issued an opinion and order today dismissing the Lawyer's Title v. Colson case for lack of subject matter jurisdiction. Here is the Court's opinion. Like the Wachovia case, the intervention of non-diverse parties strips the Court of diversity jurisdiction. In this case Mississippi residents intervened. The case will wind up in state court, presumably in the Circuit Court of Harrison County.

The dismissal of the Lawyer's Title case will make it difficult for people to follow the Colson litigation. State court records in Mississippi are not available on-line. In addition, after one initial article the Sun-Herald does not appear to be following the litigation. You would think that given the case's magnitude, Colson's prominence on the Gulf Coast, and the impact on the scandal on many Coast residents that the Sun-Herald would have a reporter assigned to the case. I will continue to blog about the litigation in the future to the extent that I become aware of developments.

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The Joe Hand vs. Colson and Read Eye Grill case was settled in record time. Here is the notice of settlement that Joe Hand filed. The settlement appears to involve payments to Joe Hand over the next nine months, but does not specify the amount of the settlement.

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On June 12, 2009, Joe Hand Promotions, Inc. sued Stephen Colson and the Red Eye Grill for piracy of UFC #92, which was held on December 27, 2008. Here is the Complaint.

Joe Hand alleges in the Complaint that it was the exclusive promoter in Mississippi for the UFC event. It seems that an unauthorized showing of the event was held at the Red Eye Grill in Biloxi. The Complaint alleges that Stephen Colson is liable to Joe Hand as the owner of the Red Eye Grill. The Complaint seeks in excess of $150,000 in damages.

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Pursuant to a court order, A&O Life filed another affidavit today regarding the members of the LLC that owns A&O, which is Blue Dymond Capital Group, LLC, which is owned by Physician's Trust, LLC. Here is the affidavit, which was signed by Russell Mackert.

The affidavit states that Brent Oncale and Adley Wahab sold A&O to Blue Dymond in August or September 2007. Incidentally, I also received an email from a Houston lawyer last week who represents Wahab. The email stated that Wahab sold his interest in A&O in the late summer of 2007 and that he has no ongoing managerial or other control with A&O Life Funds LP.

Mackert's affidavit goes on to state that in February 2008, Blue Dymond asked Mackert to assume a managerial/ custodial role for the A&O entities. Paperwork was executed by Mackert's contact at Blue Dymond, R.J. Stephenson. Mackert is now unable to get in touch with Stephenson, which prevents him from identifying the members of Blue Dymond.  

A&O's affidavit raises a dilemma for Judge Ozerden, who appears to be trying to determine if the court has diversity jurisdiction over the dispute. It will be interesting to see what Judge Ozerden does next.

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In a five page opinion  issued yesterday, Judge Ozerden rejected the parties' request to keep the Wachovia-Colson interpleader action in federal court and remanded the case to the Circuit Court of Harrison County. Judge Ozerden ruled that the presence of Sandion-Coldwell Banker destroyed diversity jurisdiction and compelled the remand. The Court rejected the argument that the action was proper in federal court because it could have been filed as a statutory interpleader, since that was not how it was actually filed and the plaintiff is the master of the complaint.

Judge Ozerden's opinion was concise, well written, and based on irrefutable logic. It's easy to see why he was voted most likely to succeed in the stellar Gulfport High School class of 1985, which included standouts such as Todd Ladner and Gulfport attorney Nathan Schrantz.

I will probably be unable to blog on the Wachovia interpleader action going forward, since I do not have easy access to the Harrison County Circuit Court records. I will continue to follow the Lawyer's Title action and post anything that I hear on the Colson story.  

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In the Colson litigation Judge Ozerden entered the following order today requiring the A&O entities to identify the partners of Physician's Trust, LLC:

TEXT ONLY ORDER directing Movants A&O Bonded Life Assets Management, LLC; A&O Bonded Life Assets, LLC; A&O Bonded Life Settlements Management, LLC; A&O Bonded Life Settlements, LLC; A&O Capital Management, LLC; A&O Life Fund Management, LLC; A&O Life Fund, LLC; A&O Life Funds Management; LLC, A&O Life Funds, LLC; A&O Resource Management, Ltd.; Houston Tanglewood Partners, LLC; Life Fund 5.1 Management, LLC; Life Fund 5.1, LLC; Life Fund 5.2 Management, LLC; and Life Fund 5.2, LLC, to file into the record in this case on or before Tuesday, June 16, 2009, an Affidavit or Declaration identifying the members of Physician's Trust, LLC, and their respective citizenships. If any member of Physician's Trust, LLC, is a partnership or an limited liability company, Movants are directed to likewise identify the partners or members of that entity and their respective citizenships, and so on. NO FURTHER WRITTEN ORDER SHALL ISSUE FROM THE COURT REGARDING THIS DIRECTIVE. Signed by District Judge Halil S. Ozerden on 6/9/2009. (EMN) (Entered: 06/09/2009)

This is the third similar order and, apparently, the last. The "so on" language should get this matter to the bottom of what Judge Ozerden is apparently looking for: the people who own the A&O entities. It will presumably be Adley Wahab and his partners.

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In the Colson-Wachovia interpleader action many of the parties want the action to remain in federal court. Advanced Title and Escrow filed this response on Wednesday. Advanced Title argues that jurisdiction is proper in federal court under the federal interpleader statute, since there is "minimal" diversity. Advanced concedes that case law does not clearly support its argument.

Lawyer's Title also filed this response on Wednesday. Like Advanced, Lawyer's Title argues that the federal interpleader statute grants the court jurisdiction because there are two are more claimants of diverse citizenship and there is no requirement of complete diversity of citizenship in an action under the federal interpleader action.  

I am not familiar with the concept of minimum diversity, but the responses are well written and the arguments seem decent. From reading the briefs (but not the cited authorities) it looks like this is an area where there is not a lot of case law and Judge Ozerden could go either way without being clearly wrong.

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On Friday A&O Life filed an affidavit identifying the members of Blue Dymond Capital Group LLC. Here is the affidavit, which was signed by Russell Mackert. The affidavit lists Physician's Trust LLC as the sole member of Blue Dymond. Physician's Trust was identified last week in a comment on this blog as an entity affiliated with A&O.

Based on his prior orders, Judge Ozerden may order that A&O identify the members of Physician's Trust.

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Vanderbilt Mortgage and Finance, Inc. filed a motion to intervene in the Colson-Lawyer's Title case claiming $33,318 in funds wired to a Prestige Title account with Regions Bank (not Wachovia), but never disbursed or returned. Here is the motion. The motion states that Vanderbilt Mortgage wired the funds on February 17, 2009, which was four days after Lawyer's Title filed suit and about a month before the Wachovia interpleader.

Vanderbilt's motion raises several questions. First, why didn't Vanderbilt file a separate action, since its motion does not establish a connection between Vanderbilt and the Lawyer's Title action? Second, what was the extent of the Prestige-Colson entities use of Regions accounts and are there any funds in the accounts? Third, has Regions filed any Suspicious Activity Reports (SAR) with the government or interpleaded funds in a state court action? 

Banks can get in big trouble for not filing SAR's. AmSouth, which merged into Regions a few years ago, forfeited $40 million to the federal government in 2004 for not filing SAR's, as explained in this Justice Department press release   and Statement of Facts.

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In the Colson litigation, Judge Ozerden was not satisfied with A&O's affidavit identifying its partners, and issued the following text order in both cases:

TEXT ONLY ORDER directing movants A&O Bonded Life Assets Management, LLC; A&O Bonded Life Assets, LLC; A&O Bonded Life Settlements Management, LLC; A&O Bonded Life Settlements, LLC; A&O Capital Management, LLC; A&O Life Fund Management, LLC; A&O Life Fund, LLC; A&O Life Funds Management; LLC, A&O Life Funds, LLC; A&O Resource Management, Ltd.; Houston Tanglewood Partners, LLC; Life Fund 5.1 Management, LLC; Life Fund 5.1, LLC; Life Fund 5.2 Management, LLC; and Life Fund 5.2, LLC, to file into the record in this case on or before Friday, May 29, 2009, an Affidavit or Declaration identifying the members of Blue Dymond Capital Group, LLC, and their respective citizenships, and identifying any general or limited partners of A&O Resource Management, Ltd., other than the previously identified general partner A&O Capital Management, LLC, and their respective citizenships. NO FURTHER WRITTEN ORDER SHALL ISSUE FROM THE COURT REGARDING THIS DIRECTIVE. Signed by District Judge Halil S. Ozerden on 5/19/2009. (EMN) (Entered: 05/19/2009)

With $1.5 million interpleaded by Wachovia, the filed claims to date are:

1. Lawyers Title:                $10 million
2. Adams Homes:            $624,000
3. Seashore:                      $428,000
4. Coldwell Banker:          unspecified
5. Denada Invest.:            $530,000
6. A&O Life Funds:           $3 million

             Total:                              $14,520,000 (plus Coldwell Banker's claim)       

This means that there is at least $13 million in claims in excess of the amount available to satisfy those claims.

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Over the last several weeks Judge Ozerden issued several orders requiring the parties to provide information on the identity and residency of parties to the case, including members of limited partnerships. Reviewing the parties' filings, it appeared that the court may lose diversity jurisdiction over the case. That appears to have now happened, with Judge Ozerden entering this Order requiring the parties to show cause as to why the Court should not remand the case to state court on the basis that there is no diversity jurisdiction.

The reason for the Court's conclusion that the case should be remanded is the fact that Wachovia and Sandion Coldwell Banker are both citizens of North Carolina. As a result, there is not complete diversity of citizenship. Although no party raised this issue, federal courts monitor jurisdiction and sometimes remand cases on their own.

For practical purposes, once the case is remanded to state court it will proceed much like it would if it stayed in federal court. But the case will be much harder to monitor, since unlike in federal courts, state court records are not available to the public on-line. Although the court file will still be public record and available for inspection at the clerk's office, I will not be in a position to monitor filings like if the case stayed in federal court. This is an unfortunate development for people following the litigation on this blog, since the Sun Herald stopped covering the litigation after an initial article several months ago. I will continue to monitor the Lawyer's Title action and post updates about it as warranted. In addition, I will continue to monitor the federal court filings for new actions related to the Colson litigation, which I expect.

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I discussed the controversy surrounding viatical settlements in this earlier post. For anyone interested in the viatical settlement business, here was the headline and excerpts from a 2007 Business Week article :

Profiting From Mortality
Death bonds may be the most macabre investment scheme ever devised by Wall Street.

"Life settlements" are arrangements that offer people the chance to sell their policies to investors, who keep paying the premiums until the sellers die and then collect the payout. For the investors it's a ghoulish actuarial gamble: The quicker the death, the more profit is reaped. Most of the transactions are done by small local firms called life settlement providers, which in the past have typically sold the policies to hedge funds. Now, Wall Street sees huge profits in buying policies, throwing them into a pool, dividing the pool into bonds, and selling the bonds to pension funds, college endowments, and other professional investors. If the market develops as Wall Street expects, ordinary mutual funds will soon be able to get in on the action, too.

BUT THE INVESTMENT BANKS are wading into murky waters. The life settlements industry increasingly finds itself in the grip of dubious characters devising audacious and in some cases illegal schemes to make money. Many are targeting elderly people with deceptive sales pitches—so many that the National Association of Securities Dealers has issued a warning about abusive practices. Others are promising investors unrealistic returns or misleading them about the risks. Some are doing both.

 The complete article is worth the read.

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In this memorable quote from the movie Wall Street the character played by Michael Douglas tells Bud to call a number and tell the man that Blue Horseshoe Loves Anacott Steel. A&O Life's filing in federal court listing its member partners reminded me of this quote. The only new name identified in the affidavit was Blue Dymond Capital Group, LLC, a citizen of the West Indies. The person signing the affidavit was A&O front man Russell Mackert.

Mr. Mackert claims to have personal knowledge of the facts in the affidavit, but does not explain who he is, how he obtained that knowledge or his relationship with A&O. The affidavit does not mention Adley Wahab, who is presumably the man behind the curtain. Mackert and A&O seem shady--real shady. Their presence in this litigation is bad for Steve Colson, because he was doing business with these shady characters.  

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In my prior post I mentioned that it looked like Lawyer's Title v. Colson intervenor A&O Life does not want much known about its identity. Looks like Judge Ozerden thought the same thing, except he did something about it with this Text Order issued today:

TEXT ONLY ORDER directing Lewis Holdings, LLC; ReMax Alliance; A&O Bonded Life Assets Management, LLC; A&O Bonded Life Assets, LLC; A&O Bonded Life Settlements Management, LLC; A&O Bonded Life Settlements, LLC; A&O Capital Management, LLC; A&O Life Fund Management, LLC; A&O Life Fund, LLC; A&O Life Funds Management; LLC, A&O Life Funds, LLC; A&O Resource Management, Ltd.; Houston Tanglewood Partners, LLC; Life Fund 5.1 Management, LLC; Life Fund 5.1, LLC; Life Fund 5.2 Management, LLC; and Life Fund 5.2, LLC, to file into the record in this case an Affidavit or Declaration identifying the citizenship of each of their respective members or partners, or if not a partnership or limited liability company, identifying their state of incorporation and principal place of business, on or before Friday, May 15, 2009. NO FURTHER WRITTEN ORDER WILL ISSUE FROM THE COURT REGARDING THIS DIRECTIVE. Signed by District Judge Halil S. Ozerden on 5/8/2009. (EMN) (Entered: 05/08/2009)

It's pretty funny that A&O's efforts to conceal its identity actually brought more attention to it.

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The Colson litigation now involves a $3 million claim involving viatical settlements by A&O Bonded Assets and related entites. Looks like I picked the wrong week to stop sniffing  glue.

In viatical settlements an owner of a life insurance policy sells his future death benfit to an "investor" for a lump sum payment. The "investor" then pays the premiums until the insured dies, and collects the death benefit at death. Unlike the life insurance company, which would just as soon the insured live forever, the "investor" is cheering for death, since it allows him to earn the return on his investment. Needless to say, viatical settments are controversial and are rife for abuse by the "investors", since many life insurance owners are not financially sophisticated enough to know whether the payout is fair. In addition, viatical settlements arguably defeat the purpose of life insurance, but that is a topic for another day.

Here is A&O's Motion to Intervene in the Lawyer's Title case, supporting memorandum and supporting affidavit of Russell Mackert. The affidavit does not describe Mackert's relationship to A&O, but the results of a Google search indicate that Mackert is a Houston, TX area lawyer. It appears that Mackert is a front man for the real investors: the hedge fund A&O Life Funds.  A&O Life either does not want anyone to know much about it, or it has the worst web site designer in the world.

The memo provides a more detailed explanation of the claim than the motion. In 2008 A&O Bonded Life Assets Management LLC and related entities entered into a Escrow Management Services Agreement with Prestige Title. A&O deposited $4.6 million with Prestige Title that Prestige was to use to pay the premiums on the policies. In return for Prestige's services, A&O paid Prestige $150,000 annually. A&O claims that its $4.6 million was comingled with other Colson entity firms and then sequested as a part of the Lawyers Title case and Wachovia intepleader action. It looks like Prestige paid the premiums for a while and that A&O's real loss is approximately $3 million.

A&O also claims that Prestige has not been paying the premiums on the policies and that some of the policies will lapse soon unless the premiums are paid. A&O places the value on the policies where a lapse is imminent at $29 million. The total value of the policies at issue is $179 million. Here is a partial list of the policies, which have huge face amounts. Obviously, A&O is not going to let these policies lapse and will cover the premiums if Prestige does not pay. A&O is trying to cut its losses by recovering money in the ongoing litigation. It's hard to imagine a less sympathetic party in this litigation. A&O's attorney is former Mississippi Bar President Don Dornan, so at least it has a respected attorney.

In another Colson development I have learned that Colson is suing Tedd Martin, who is his partner in Prestige, in state court. State court pleadings are public record, but are not accessible on-line. I do not know what Colson alleges in the action.  

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Stephen Colson filed a response opposing Denada Investment's Motion to Intevenve in the Wachovia-Colson interpleader case. Colson's position is that the Denada promissory note is a separate transaction that is unrelated to the subject of the interpleader action. In addition, the response points out that only about $150.00 of the interpleaded funds were in Colson's personal accounts or his law firm's accounts. Most of the funds were in various Prestige Title accounts, including trust accounts.

Colson's response appears valid and I expect Judge Ozerden to deny Denada's motion to intervene. Look for Denada to file a separate action against Colson in the near future.

Overall, things have been fairly quite in the two Colson cases currently pending in federal court. In the Lawyer's Title case the parties are conducting written discovery and Judge Ozerden scheduled a hearing on a motion for preliminary injunction for July. There is a motion pending to consolidate the two cases, which if granted will make following the litigation easier.

The two big shoes that have yet to drop are a criminal indictment and a bankruptcy filing. I think we'll see both before this is over. I'm hearing from Coast contacts that Colson is telling people that he is innocent and will be vindicated. I hope so. Colson has a reputation as being a nice guy and many people would like to see this work out for him.

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Denada Investments, LLC moved to intervene in the Colson-Wachovia interpleader action on Monday. Here is Denada's proposed answer and cross-claim. Denada's claim of $530,000 is based on a 2007 one page promissory note that Colson personally guaranteed. It appears that the entire principal may still be due, but it's unclear. Denada alleges that Colson defaulted in November 2008. Denada is represented by Clarence Webster and Will 'Deuce' Manuel of Bradley Arant out of Jackson.

With $1.5 million interpleaded by Wachovia the filed claims to date are:

1. Lawyers Title:                $10 million
2. Adams Homes:            $624,000
3. Seashore:                      $428,000
4. Coldwell Banker:          unspecified
5. Denada Invest.:            $530,000

There are now over $11.5 million in claims to date with only $1.5 million to satisfy those claims.

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There were two more intervenors on Wednesday in the Colson-Wachovia interpleader action. Seashore Development Group, LLC filed a motion and attached a proposed cross-claim that seeks $428,429.25 of the funds that Wachovia froze and interpleaded into the court. Seashore has a condominium development in Biloxi. Colson's companies held escrow deposits and closing settlement funds for the development that were held in Wachovia bank accounts. 

Sandion LTD, d/b/a Coldwell Banker also filed a motion and proposed cross-claim .Coldwell Banker claims that the frozen Wachovia accounts hold a substantial amount of earnest monies belonging to its clients and that it has been unable to close many sales. For some unexplained reason, Coldwell Banker did not identify the amount of its claim or even the number of affected transactions.  

With $1.5 million interpleaded by Wachovia the filed claims to date are:

1. Lawyers Title:   $10 million
2. Adams Homes:     $624,000
3. Seashore:        $428,000
4. Coldwell:          $??????

There are over $11 million in claims to date with only $1.5 million to satisfy those claims. There could also be additional claims filed in the future. The two prominent questions at this point are:

1. How much money is missing; and
2. Where did it all go?

There will be a lot of attorneys and forensic accountants trying to get answers to those questions on behalf of many clients. It will also be interesting to see when the claimants start turning on each other and Wachovia in this case or separate actions.

 For additional information on this developing case click here.

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Kingfish at the Jackson Jambalaya blog has an update on the Steve Colson fraud scandal.

One question is how many victims will there be? I received a not so nice email from one of the victims that stated that there are 250 people "going through this." 

Kingfish found this Mobile Press article from early March. I'm surprised by the limited amount of press attention that this story has received thus far. This appears to be a major scandal involving a lawyer, the mortgage industry and LSU football players who may have been investors in some of Colson's companies. 

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United States Magistrate Judge John Roper entered an Order yesterday allowing Adams Homes to intervene into the Stephen Colson / Wachovia Bank interpleader action. The motion was unopposed and the order was a standard order prepared by Adams' counsel. Adams will now be able to make its claim for over $600,000 of the $1.5 million deposited into the Court by Wachovia.

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On Monday Adams Homes filed a motion to intervene into the Wachovia v. Colson interpleader action. Here is Adams' proposed answer and counterclaim that it will file if the court grants the motion to intervene. Adams claims Colson's companies owe Adams $623,898.21 in unpaid proceeds, earnest money deposits, withheld closing items, and unpaid interest. Adams is represented by Les Smith of Page, Mannino in Biloxi. Smith is a product of the famed University of Mississippi School of Law class of 1993, which included standouts such as former MSU safety Bo 'Recap' Russell, and Michael Morton.

Lawyers Title Insurance Corp. previously sued Colson and his companies for $10 million. The Adams claim brings the total known filed claims against Colson to $10.6 million, with Wachovia putting up only $1.5 million to satisfy those claims. It sure sounds like there is some money that is missing.

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There is more litigation involving Coast lawyer and businessman Stephen Colson. I previously wrote about the financial scandal involving Colson. On Friday there was a federal court removal of an interpleader action involving Colson that was originally filed in Harrison County Circuit Court. The interpleader Complaint alleges that in February, Wachovia Bank froze over fifty bank accounts belonging to Colson or related entities and deposited the funds--over $1.5 million--into the Court. 

The Defendants in the case include Colson, Colson's businesses, Fidelity National Financial, Fidelity National Title Group, Lawyers Title Insurance Corporation and John Does 1-50. The Doe Defendants will allow Wachovia to add other parties who claim an interest in the funds. It would not be surprising to see parties with claims against Colson or his businesses intervene into the lawsuit.

The interpleader Complaint identifies all the bank accounts and their balances. The action states that in late 2008, many of the accounts were suffering overdrafts that Colson promised to rectify, but didn't. The Complaint states that Wachovia investigated and discovered "unusual" transfers between the accounts in order to cover overdrafts. An interpleader action requires Colson and others with a claim to the funds to fight over the money in Court. The case has been assigned to federal district court judge Sul Ozerden.

The interpleader action is an ominous development for Colson. First, his companies' bank accounts were emptied and frozen, presumably shutting down operations. Second, Wachovia is required by law to report certain suspicious activities to the government. There is background information on suspicious activity reports (SAR) here, here, and here. Banks get in big trouble for not reporting suspicious activities. There is little doubt that Wachovia alerted the government about this unusual activity and that an investigation is underway. The investigation could lead to criminal charges against Colson. Finally, getting out of line with a client's money is a cardinal sin for lawyers. If Colson was improperly moving client funds from trust accounts to personal or business accounts, then the Mississippi Bar will impose severe penalties even if Colson escapes criminal prosecution.

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The Sun-Herald is reporting a financial scandal and lawsuit involving prominent Biloxi attorney Stephen Colson.  Basically, there is a whole lot of money missing and the allegations are that Colson and his title company stole it. The Sun-Herald story focuses on a couple whose check from Colson's title company to pay off their house bounced. According to their attorney Andy Alfonso of Ocean Springs:

This is going to rock the Coast, as far as being a huge public catastrophe.”

The only lawsuit on file is not on behalf of the couple that is the subject of the newspaper article. If you want to read the Complaint of the only lawsuit on file so far, here is the PDF. Gulfport attorney Joe Sam Owen is defending Colson. Sheryl Bey with Baker Donelson in Jackson filed the lawsuit. 

Colson is a Gulfport native who attended high school at St. Stanislaus in By St. Louis and college and law school at LSU. He has been active in the LSU alumni association and is well known on the Coast. For Colson's sake, I hope that the allegations are not true. A lawyer stealing client funds usually means automatic disbarment. It would aslo be another black eye for the legal profession in Mississippi.