Please ensure Javascript is enabled for purposes of website accessibility

Investment adviser sues lawyers for $215M

A Baltimore County-based investment adviser is suing his attorneys for $215 million after agreeing to pay more than $750,000 to settle an action that accused him of violating state securities regulations.

Steven and Karen Yarn of Owings Mills are seeking $15 million in compensatory damages and interest and costs, as well as $200 million in punitive damages. In an action removed last week to federal court, they allege that their attorneys at the New York- and New Jersey-based Hamburger Law Firm LLC “failed to exercise a modicum of legal expertise, were negligent and grossly negligent in their advice,” and practiced law in Maryland without a license.

“Although required to be a member of the Maryland Bar in order to practice in Maryland, the Defendants negotiated, filed documents and represented the Plaintiffs in Maryland without having ever associated with a Maryland attorney, without an admission pro hac vice and without having been a member of the Maryland Bar,” the Yarns said in their complaint.”

Steven Yarn spent the majority of his career as an insurance broker, and his wife is his business partner. The Yarns hired the Hamburger Law Firm and its affiliated consulting firm, MarketCouncil LLC, to help them branch out into the securities business.

The lawsuit alleges that the attorneys also had Steven Yarn “sign forms for submission to the Maryland Securities Division in blank” which their attorneys would then submit without Yarn’s prior approval or review.

The attorneys then allegedly changed the address of a Maryland-based investor in submissions with the Maryland Attorney General’s Securities Division to make it appear that the investor lived in Washington.

“At no time did the Defendants advise the Plaintiffs that they had fraudulently changed an address of the Maryland investor to make it appear that he lived in the District of Columbia,” the Yarns allege in their lawsuit, originally filed in Baltimore City Circuit Court in September.

On Sept. 22, 2009, the Maryland Attorney General’s Securities Division issued a cease and desist order against the Yarns. The order charged the Yarns with, among other things, borrowing money from advisory clients, taking custody of client funds without notifying the Maryland Securities Division, failing to comply with the net capital requirements for the funds raised, failing to maintain supervisory procedures, failing to maintain funds in escrow by Hamburger Law Firm and failing to maintain compliance procedures.

Steven Yarn entered into a Consent Agreement with the Maryland Securities Commissioner in January 2010, in which he agreed not to engage in the securities or investment advisory business in Maryland and to pay civil monetary penalties.

In the current lawsuit, the Yarns allege that the securities violations were the result of their attorney’s gross negligence, negligence and fraud, and that they relied on their attorneys to comply with the regulations.

“As a result of the Professional Malpractice of the Defendants, both directly and by their duty to supervise an employee, the Plaintiffs have lost their license to sell investments, have obligated themselves to pay over $750,000, have lost over $300,000 in income per year, have lost and will continue to lose standing in the community and with their commercial partners,” the Yarns allege in their complaint.

Rhonda I. Framm, who now represents the Yarns, said the Hamburger attorneys negotiated the Consent Agreement “over my client’s strong desire to try the case.”

The defendants “self-servingly told Mr. Yarn that he would have to pay defendants an additional $30,000 (to the defendants) for the defendants to defend him from the effects of the defendants’ fraud and mismanagement,” she said in an email.

Framm said the attorneys had an ethical obligation to withdraw from the case and advise the Yarns to seek other counsel.

Instead, according to the complaint, the Yarns’ attorneys sent them a letter on Sept. 25, 2009, stating that there was no conflict.

Jeffrey J. Hines and Christopher M. Corchiarino of Goodell, DeVries, Leech & Dann LLP represent Hamburger Law Firm. Bill McGuire, a spokesman for MarketCouncil, said it is the firm’s policy not to comment on pending litigation.

Framm, a solo practitioner based in Owings Mills, said Steven Yarn has suffered greatly as a result of his attorneys’ misconduct.

“It has not only kept him from doing anything in the securities field but he has become a pariah in the insurance industry,” she said. “There is no way this man can come up for air.”