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Business Observer Friday, Nov. 19, 2004 15 years ago

A tale of two Lawyers

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One attorney blew the whistle on an investment scheme. The other, accused of failing to look out for investors, has been sued for legal malpractice.

A tale of two Lawyers

One attorney blew the whistle on an investment scheme. The other, accused of failing to look out for investors, has been sued for legal malpractice.

By Francis X. Gilpin and Sean Roth

Associate Editors

On Sept. 4 of last year, a staff attorney for the U.S. Securities and Exchange Commission in Miami received a telephone call. On the other end of the line was a Sarasota lawyer.

Beth L. Clause told the SEC attorney that she had recently resigned as general counsel for a slew of companies purported to be investing in viatical settlements. The terminally ill sell future life insurance proceeds at a discount to investors whose cash settlements can be spent while policyholders are still alive.

Clause, 36, accused her former bosses, C. Douglas York and Robert K. Coyne, of defrauding nearly 2,000 investors who had put up approximately $59 million for viatical settlements, sometimes derisively known as ideath futures.i

Four days later, the SEC filed for an injunction to stop York and Coyne from violating securities laws and asked a federal judge in Tampa to name a receiver to find compensation for their alleged victims.

Court-appointed receiver David M. Levine is still at it. But Levine isnit just going after York and Coyne. He wants a piece of another former lawyer for the pair.

Last month, Levine named Ivy League-educated Stanley A. Goldsmith in a legal malpractice complaint filed at the federal courthouse in Tampa.

Goldsmith, who worked out of the same downtown Sarasota office building as York and Coyne, is accused of failing to inform investors that they had no control over the life insurance settlements they were buying. Contrary to the claims of York and Coyne, the investors were funding what SEC has called a Ponzi-like scheme.

Levine says Goldsmithis negligence icaused damages in the seven figure rangei and he wants the Sarasota lawyer to help make investors whole again.

Goldsmith, 48, declined comment to GCBR. As of Nov. 16, Goldsmith hadnit responded in court to the receiveris lawsuit.

One ex-lawyer for York and Coyne dropped a dime. Another allegedly looked the other way. This is the story of what each of them did and why they could face very different fates.

A resignation

Beth Clause served less than two years as general counsel of Viatical Capital Inc., Resource Funding Group Inc. and Life Investment Funding Enterprises Inc. Under those corporate umbrellas, York and Coyne formed 65 limited liability companies into which investors poured their money.

At various times during her tenure, Clause told the SEC, about 100 investors had demanded the return of their principal. Maturity dates for their investments had long passed. York, a licensed insurance agent, and Coyne refused, according to Clause.

York and Coyne urged investors to wait until they took Life Investment public. For other policies that York and Coyne desired to resell, Clause says the duo wanted the LLCs to reinvest the proceeds with another of their companies. Why? Clause says the two men would get a $500,000 sales commission.

York, 42, and Coyne, 60, had been banned from conducting their viatical business in six states because they were caught selling unregistered securities, according to court records.

As Clause grew suspicious, her inquires to York and Coyne went nowhere. iEvery question I had, I would be ridiculed for asking it,i she told GCBR.

That was reflected in her Aug. 15, 2003, resignation letter. iPlease be advised that as requested by Mr. Coyne I have efigured it out for myselfi and effective immediately I hereby [withdraw] as General Counsel,i Clause wrote.

Peter E. George, a Tampa lawyer with George & Titus PA who briefly represented Coyne in the SEC litigation, condemned Clause for spreading iwild and unsubstantiated accusations.i

But Clause didnit stop with the resignation letter.

Five days later, she wrote another letter to executive committees of the LLCs, expressing her concerns. Two companies owned by York and Coyne sued to prevent Clause from further contact with investors.

Court-appointed receiver David Levine has praised Clause. iMs. Clause, incidentally, has been extremely helpful to the receivership,i Levine wrote in a September 2003 letter to investors. iShe was necessary because critical paperwork (including the member files) were removed from the entities one week before the SEC filed its action.i

Levine had hoped to hire Clause to track down assets to compensate investors, but she says she turned down his offer.

New legal counsel for York and Coyne have argued in court that the SEC has no jurisdiction over the viatical business because the LLC memberships donit meet the definition of an investment contract. York and Coyne couldnit be located by GCBR for comment.

Lone Star roundup

During August of last year, Clause traveled to Texas at her own expense to meet with Viatical Capital investors. York was trying to persuade investors, who were concentrated in Texas and Florida, to reinvest with his companies.

Clause says she was talking to investors at a San Antonio hotel when York showed up. York ibegan to harass the investors,i Clause later told Texas securities regulators.

Yet Clause was having trouble getting across to the investors, too. iA lot of people thought I was the devil,i says Clause, due to her past association with York and Coyne. iThey didnit want to believe their money was gone.i

The next day, Aug. 28, 2003, Clause placed an urgent call to the Texas State Securities Board. York was trying to get investors to re-up with his companies so he and Coyne could collect more sales commissions, Clause told state securities investigator Letha L. Sparks. iClause asked whether there was something the SSB could do to stop York from soliciting these investors,i Sparks recalled in an affidavit.

From her Austin office, Sparks says she later called York at a San Antonio law firm where investors had assembled for another meeting. York denied Clauseis allegations, according to the Sparks affidavit.

How did York know that his nemesis, Beth Clause, had gone to Texas? Stanley Goldsmith, the other former lawyer for York and Coyne, had something to do with that.

James P. Ellison, a Sarasota private detective, claims Goldsmith contacted him on Aug. 22 of last year.

Goldsmith wanted Ellisonis company, JP Surveillance Agency Inc., to follow around Clause, according to Ellison.

iMr. Goldsmith told me he would send payment and that he would speak to his client, Mr. York,i Ellison later recounted in an October 2003 letter to Debra J. Davis, an assistant staff counsel in The Florida Baris Tampa office.

iI didnit know I was being watched,i says Clause.

Goldsmith ran up a bill of $8,735 with Ellisonis company for the surveillance of Clause. That included tailing Clause to Texas, says Ellison.

But Ellison claims Goldsmith stiffed him, which was the reason that he was writing to The Florida Bar. Ellison says Goldsmith directed him to York, who wouldnit pay up. The Baris Davis closed her file on the Ellison complaint in March, without taking action. She told the private eye that her organization doesnit mediate civil disputes.

Conflict of interest

Levineis lawsuit poses a bigger problem for Goldsmith.

York and Coyne recommended investors retain Goldsmith, a Dartmouth College graduate who obtained his law degree at Vanderbilt University, to represent each of the LLCs. They claimed Goldsmith had special knowledge of the viatical settlement business, Levine says in his lawsuit.

York and Coyne used $7.5 million of investor money to buy viaticated insurance policies with a total face value of more than $13 million. The investors were supposed to control those policies as the new beneficiaries. But Goldsmith, who was representing the LLCs while also serving as a personal attorney for York and Coyne, failed to inform the investors that they had no say over those policies, which had been acquired with their money.

iGoldsmith actively concealed from the Viatical Funding LLCs his acts and omissions that formed the basis of his malpractice and breach of fiduciary duties,i Levine states in his court action. iAs a result of Goldsmithis failure to inform O the Viatical Funding LLCs have lost millions of dollars.i

Clause says many of the investors are in their 80s. At the snailis pace of the receivership, those investors will be dead before they see a dime from the court, says Clause, who recently opened a small office on Main Street in Sarasota to practice securities law.

Levine, a Miami bankruptcy lawyer, says Goldsmith should not have represented the investors as well as York and Coyne at the same time.

In his reports to the court, receiver Levine suggests Goldsmith might have played a role in ioff-booki sales commissions paid to York or Coyne for moving viatical policies. A letter from Goldsmith, uncovered by Levine and cited in court records, makes reference to a iside agreementi involving payments to an unidentified company.

Levine says Coyne appears to maintain offshore accounts in Antigua, Belize and the Cayman Islands. As the SEC probe continues, Coyne followed the money and is observing the rest of the legal proceedings against him from abroad, according to Levine.

The receiver called Coyneis wife to testify at a deposition. Charotte Lynn Huggins Coyne informed Levine that she hadnit seen her husband since Jan. 13. Huggins Coyne filed for divorce earlier this month.

iShe now suspects that Mr. Coyne is in Costa Rica, where it is believed that he may be hiding money and/or other assets,i Levine wrote investors.

Huggins Coyne furnished Levine with a few of the letters that her family has received from her husband. The correspondence was sent via Federal Express from San Francisco, but Levine says the letters came in envelopes mailed from a Latin American country.

iHoney, [b]e strong, donit let the world get you down, be happy girl,i one letter begins. iIim going to do my best to recover from this but, I want you to live your life as if I were not coming back to you.i

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