Finding all the riches of alleged fraudster Kevin B. Merrill is pricey work in itself.
The 53-year-old Towson businessman had millions in bank accounts, vacation homes and exotic sports cars. With his criminal case underway, a team of lawyers and investigators set about to sell his treasures and pay back his investors.
The divestment team has billed more than $500,000 for their first 44 days on the job. Despite criticism from the defense team, they say their work is exhaustive and it’s money well-spent.
“If you look at the list of assets, it’s mind blowing,” said Lynn Butler, an attorney for the court-appointed receiver. “We’re responsible for changing the lights, maintenance, keeping [the houses] up and running. If you don’t, the value and the ability to market them falls.”
Merrill funded a lavish lifestyle by swindling hundreds of people around the country in an elaborate Ponzi scheme, federal prosecutors say. Officials pledged to repay his investors by selling everything from his $800,000 Louis Vuitton wardrobe to his $950,000 Bugatti Veyron sports car.
Court records list 22 attorneys on the divestment team. A federal judge approved hourly rates as high as $590 a person.
“They’re consuming the assets,” said Jack Jamison, attorney for Merrill’s co-defendant. “All this is supposed to be for the benefit of the investors.”
Jamison represents Merrill’s business partner Jay Ledford, 54, a Texas businessman also charged with fraud, identify theft and money laundering. Jamison asked U.S. District Judge Richard Bennett to freeze the divestment team’s payments and compel them to publicly show their invoices.
“Even blindfolded, it is easy to see billing is excessive and rates are exorbitant,” he wrote the judge.
In such work, attorneys routinely submit invoices under seal, Butler said.
“If you read our bills and you’re the opponent,” he said, “you would be able to see what the strategy is going forward.”
Their dispute arises in a lawsuit against Merrill and Ledford. The U.S. Securities and Exchange Commission sued them to recoup what authorities call “ill-gotten gains.”
Bennett appointed Gregory Milligan, vice president of the firm Harvey Management Partners LLC, as a receiver to manage the sales. Milligan’s lawyers defended the team’s expenses, saying the rates are small and deserved when compared to what authorities described as a $364 million Ponzi scheme.
“Certainly, it’s no one’s plan to outspend the estate,” Butler said. “The SEC is much more concerned about paying back investors than Mr. Jamison ever will be.”
A decade ago, a U.S. District judge in New York rebuked the SEC and its attorneys for charging nearly $11 million in fees to disburse $15.4 million from Northshore Asset Management LLC. The investment firm’s executives had been accused of buying hedge funds, raiding the money for themselves and leaving investors out to dry.
SEC attorneys racked up millions in fees while hunting for the money. And a judge ordered the SEC and its receiver to pay back nearly $5 million, writing that the lawyers had “swallowed” the estate.
Jamison quoted the judge’s order in the Northshore case.
“Sadly, it appears that Northshore’s investors would have been better off if the receiver had simply distributed the $15.4 million on deposit and promptly wound down the affairs,” U.S. District Judge William Pauley III wrote.
Investors around the country — retirees, small-business owners, bankers, lawyers and doctors — were duped into paying Merrill and Ledford millions over the past five years, prosecutors say. One California woman said she invested $150,000 set aside for her grandchildren’s college tuition. But many were corporate investors, prosecutors say.
U.S. Attorney Robert Hur called their business model one of the largest Ponzi schemes ever charged in Maryland. Both men could face more than 200 years in federal prison. They have pleaded not guilty. A trial date has not been set.
The investors believed their money was buying bundles of debt on student loans, credit cards and car loans known as “consumer debt portfolios.” But prosecutors say the businessmen actually were funneling money from new investors to their previous investors. Sometimes, prosecutors say, the men paid an investor with the person’s own money, only returning the funds under the guise of profits. Meanwhile, Merrill and Ledford allegedly skimmed off millions of dollars to live in style.
Officials have filed documents with the courts that they intend to hire Sotheby’s International Realty to sell a dozen houses the men owned in Maryland, Florida, Texas and Nevada. Together, the homes are worth more than $20 million.
Prosecutors say Merrill spent $37,500 on designer watches and jewelry, that he collected rare wine and art of the mustached Monopoly character Rich Uncle Pennybags.
In coming weeks, officials will launch a website with information about the sales, Butler said. The team picked Heritage Auctions in Dallas, Texas, to sell the collectibles.
“These guys just bought a lot of stuff,” Butler said. “Thankfully, it’s stuff that has a market to it. At the end of the day, that’s going to be a benefit.”