The lawyers knew him as David Rosse, an eccentric who declined face-to-face meetings and spent countless hours in his sprawling Connecticut estate, supposedly earning millions in the bond market.
Now, this nebbishy recluse has turned into a major embarrassment for Akin, Gump, Strauss, Hauer & Feld, one of Washington's most influential law firms. Among the mortified: Robert S. Strauss, a superconnected rainmaker who landed a role for himself and his firm in the bizarre tale of a $200 million financial fraud.
In May, federal authorities unmasked Rosse as Martin Frankel, the mastermind behind a scam that has left a handful of insurance companies bankrupt. Frankel has not been seen since police discovered a batch of half-burned documents in his fortress-like Greenwich compound, sparking an international manhunt and leaving behind a horde of red-faced insurance regulators. Yesterday, the Hartford Courant reported that through an unnamed defense lawyer, Frankel had contacted government prosecutors and was negotiating the terms of a possible surrender.
Apparently this 44-year-old high school dropout duped a crowd of pricey lawyers and accountants, Strauss the most prominent of them. Last year, the 80-year-old Texan met Frankel at Akin, Gump's offices and agreed that the firm would represent Thunor Trust, which Frankel set up in 1991. Authorities now say that Frankel used Thunor to buy up a handful of insurers and then siphon off their assets in an elaborate pyramid scheme.
According to sources, Frankel generated thousands of dollars in billable hours for the firm, but the work could end up costing Akin, Gump plenty and not just in terms of lost prestige. Legal experts said that Akin, Gump is a possible target for lawsuits filed by insurance companies and premium holders seeking to recover lost funds.
"Whenever you have a large financial fraud and you peel away the con artist, you're left asking about the lawyers and accountants because you can't engineer these schemes without them," said Stephen Gillers, a professor at New York University School of Law.
For Akin, Gump, the Frankel debacle adds to a recent spate of unwanted publicity. The firm's other leading moneymaker, Vernon E. Jordan Jr., was a central figure in the Monica Lewinsky scandal and was questioned about his conversations with the former White House intern during Kenneth Starr's independent counsel investigation.
How did Strauss, Washington's Man to See, end up working for the world's most wanted fraudster? Strauss declined to comment. But a lawyer with the firm said yesterday said that Akin, Gump had done ample legwork to check out its client -- which technically was Thunor, not Frankel.
"Our corporate lawyers asked the questions that they thought were appropriate and they were satisfied, under the circumstances, with the answers they received," said Mark MacDougall, an Akin, Gump litigation partner. "But the most important thing is that, as we have now learned, the Thunor Trust acquired all of the insurance companies involved in this case years before coming to Akin, Gump."
Former investors and business associates have described Frankel as an unimpressive stock picker who trolled the Internet for women, ran afoul of the Securities and Exchange Commission and was banned from trading securities in 1992. Still, it seems Frankel had one bankable skill: cultivating name-brand establishment figures who could cloak him in respectability.
Accounting giant Ernst & Young worked on one Frankel-led acquisition, and Prudential Securities traded securities on behalf of insurers owned by Thunor. The imprimatur of Strauss, who quickly handed off all work for Thunor to partner Kay Tatum, seemed to help too.
"Apparently there was a pyramid of insurance company monies and there was also a pyramid of celebrities," said Maurice Nessen, an attorney for a former business associate of Frankel's. Strauss was introduced to Frankel by Thomas Corbally, a New York businessman who had developed a large Rolodex of contacts during a colorful career as a consultant. Last year, Corbally called Strauss and asked if he would be interested in doing some work on behalf of a highly successful bond trader named David Rosse, one of Frankel's many pseudonyms.
Led by partner Tatum, Akin, Gump provided counsel to Thunor Trust and its successor, the St. Francis of Assisi Foundation, as these and related entities negotiated to buy a pair of insurance companies, one in Colorado and another in Washington state. Both deals ultimately fell through.
The question now is whether there were red flags about Frankel's swindle that Akin ignored. Another law firm, Denver's Alexander & Crabtree, dropped Frankel and his associates after getting suspicious while serving as local counsel in the Colorado deal. According to partner Hugh Alexander, concerns surfaced when a lawyer noted that a trust connected to Frankel had tried to fob off a postage stamp as an official government stamp of the Virgin Islands.
"Then, some funds were put into a Prudential account that were verified as being there, and then were gone," said Alexander yesterday. "That's suspicious."
Alexander relayed its worries to Akin, Gump, which investigated but continued to represent Frankel-connected groups until the first week of May, right before the smoke in Frankel's mansion summoned firefighters and police to his estate and ended his years of deception.
Over the past two decades, there have been a growing number of successful lawsuits against professionals accused of aiding companies implicated in financial fraud, said New York University's Gillers. During the savings and loan crisis, he said, a number of law firms were sued for damages, with cases settling for sums that reached into the tens of millions.
Speaking generally rather than about the merits of any possible litigation against Akin, Gump, Gillers said such suits always boil down to whether the firm did enough to determine, before the fact, if a client was acting legally and legitimately.
"Plaintiff's lawyers show up in such cases, second-guessing everything that lawyers for the con artist did and didn't do to find warning signs," Gillers explained. "The suits typically suggest that the firms ignored the red flags because of the generous fees."
Staff researcher Richard Drezen contributed to this report.
CAPTION: The estate of Martin Frankel in Greenwich, Conn. A fire at the site first revealed apparent fraud.
CAPTION: A 1995 photo of Martin Frankel, who is now the object of an international manhunt for his alleged role in a $200 million financial fraud.
CAPTION: Robert S. Strauss was among those apparently duped.