The Truman Show was a successful movie starring Jim Carrey in which he played the role of Truman Burbank who lives an ordinary life. What Truman does not know is that the entire world around him is composed of actors. Truman is the star of a television show in which he is the only “real” person. There are many lessons to be learned from this sad case.
Yesterday the Illinois Supreme Court entered an order disbarring Vincent Porter, an attorney who the Court believes engaged misconduct serious enough for disbarment. Porter is an attorney and also acts as a sports agent. He did not realize it, but he came to star in his own version of The Truman Show, which ultimately led to his disbarment.
Vincent Porter came to star in his own version of The Truman Show. The transaction he was involved with was a sting operation set up by the FBI. The main witness against him was Marc Pennebaker, an FBI agent who set up the entire scam and recorded hours of conversations with Porter and others discussing a litany of fraudulent actions he was planning to perform, but never did. There were no investors. There was no deal. There were no victims. There was no financing. All that resulted from the FBI operation was the disbarment of Vincent Porter, whose greatest sin was, in my opinion, that he was duped by the FBI and failed to take measures to protect himself. His disbarment is a direct result of his failure to document precisely who he was representing and what his duties were as a lawyer. He was also fooled by a confidential informant who knew what to say, how to say it, when to say it and to record it.
This is how the Hearing Board described the charges:
The Administrator brought a two-count complaint against Respondent charging him with misconduct arising out of his participation in a purported deal to purchase Burger King franchises and related property. The deal, in reality, was part of an FBI sting, which culminated in Respondent’s arrest and eventual entry into a deferred prosecution agreement. Because of his role in the purported deal, Respondent was charged with assisting a client in conduct the lawyer knows is fraudulent, in violation of Rule 1.2(d); making statements of material fact or law to a third person which the lawyer knows are false, in violation of Rule 4.1(a); failing to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client, in violation of Rule 4.1(b); committing a criminal act that reflects adversely on his honesty, trustworthiness, or fitness as a lawyer, in violation of Rule 8.4(b); and engaging in dishonesty, in violation of Rule 8.4(c). Hearing Board Opinion January 18, 2019 at 2.
According to the ARDC and the Hearing Board, “Respondent was a participant in, and counsel to, a group of individuals that planned to defraud investors in a real estate transaction.” Further, Porter was accused of making false statements and withholding information about the transaction.
Porter became involved with Joseph Vaccaro who was being investigated by the FBI. Billy Crafton, a confidential information, contacted Vaccaro Vaccaro then introduced Porter to Crafton, who held meeting and made recordings. Crafton, Vaccaro and Porter discussed a scheme under which they would create an entity to purchase 13 Burger King Restaurants and sell those restaurants to a group of professional athletes at an inflated price. Porter met with Crafton and Vaccaro and later met with Pennebaker.
Comment
There is an old saying that if you meet with a group of investors and you have not clarified who you represent, it will later turn out that you represented all of them. It apparently never occurred to Porter to prepare an engagement letter which would have identified his client or clients. Had he taken this small step, it is possible that this entire fiasco could have been avoided. Because he did not protect himself or think about the attorney-client relationship, the ARDC alleged and the Hearing Board found that Porter represented a group of investors including himself, a confidential informant (Crafton) and another target of the investigation (Vaccaro).
Back to the Facts:
Respondent testified he also discussed the Burger King deal with Crafton at a restaurant in Chicago. An audio recording of a meeting between Respondent and Crafton on July 22, 2014 reflects the following statements:
Respondent indicated he was conducting due diligence and would be handling the legal side and structuring the LLCs;
Respondent and Crafton agreed that the real purchase price for the restaurants was $16 million, but Crafton would tell investors that the entire $20 million was going toward the deal;
Respondent confirmed that Crafton should not disclose to potential investors that Respondent, Crafton and Vaccaro would be taking $4 million off the top; Crafton should state that the other 50% stake in the Burger Kings would be owned by a group of New York investors whose identity he did not know; Crafton should not reveal that, in actuality, Vaccaro and Respondent would own the remaining 50% of the Burger Kings; and Crafton should deny any ownership interest or receipt of kickbacks;
Respondent indicated he would create multiple LLCs to make it appear that another group of investors would own 50% of the Burger Kings; When Crafton asked for confirmation that he should not disclose the actual structure of the deal, Respondent replied “Yeah, we’d all be committing suicide . . . you know, career suicide;”
Respondent and Crafton referred to a “home run deal” that the investors would not know about, and a “single” deal. The two deals were also characterized as an “A” deal and a “B” deal; and Respondent indicated he has the experience to do more deals in the future.
Hearing Board Opinion at pages 6-7.
Porter then prepared an Operating Agreement an LLC which was to be owned by the investors brought to the deal by Crofton. Hearing Board at 8. (Here again, the engagement letter would have greatly assisted Porter. Had he created an engagement letter he would have had to figure out who his client was. He might have chosen to represent Crofton or he might have chosen to represent the “investors.” Either choice would have been better than no choice at all because he could have then sorted out what his professional duties were.).
The October 1, 2014 Meeting
Porter agreed to meet with Pennebaker (posing as a financial advisor), Vaccaro and Crafton at Crafton’s office in San Diego. Another FBI agent played the role of “potential investor.” The meeting was, of course, recorded and Porter was arrested after the meeting was over. The Hearing Board explained:
On October 1, 2014 Pennebaker, again posing as a financial advisor, met with Respondent, Vaccaro and Crafton at Crafton’s office in San Diego. Pennebaker brought along another undercover FBI agent who posed as a potential investor. Both video and audio recordings were made of the meeting. (Tr. 78-79, 116, 125-26, 139, 150).
Pennebaker testified the purpose of the meeting was to gather more information and evidence relating to the Burger King investment. During the meeting Respondent stated the final details of the transaction had not been negotiated, but funds would be received from a New York investment group which would have a 50% ownership stake. When Pennebaker asked about the $37 million purchase price, Respondent again indicated the price had started higher and had been negotiated down. Respondent indicated he would be handling the legal end of arranging the deal, although the closing would be handled by Virginia attorneys, and he explained he was not taking any stake in the deal because as a lawyer doing the legal work, he did not want to create a conflict of interest for himself. (Tr. 84, 139, 141, 150; Adm. Ex. 11, Oct. 1, 2014, Track 5, 6, 7).
Respondent testified the information he presented at the meeting was given to him by Vaccaro and Crafton. He acknowledged that the pitch they made was based on a valuation of $40 million for the Burger King restaurants, with Crafton’s group of ten investors contributing a total of $20 million for 50% ownership of the Burger Kings and Vicar’s group owning the other 50%. Respondent recalled the purchase price was represented to be non-final at all times, and he advised Pennebaker that all the details would be disclosed once the deal was made. (Tr. 79-82, 207-08).
Respondent testified that no documents were signed at the October meeting and no papers changed hands. He denied knowingly making any misrepresentations to anyone or misrepresenting anything to the point of putting it on paper. (Tr. 81, 209, 214).
The Hearing Board
Porter attempted to defend himself on the ground that he did not represent any of the parties involved. The ARDC alleged that Porter represented a group of investors including himself and Vaccaro. The Hearing Board disagreed and concluded in Delphic fashion “We find that an attorney-client relationship was established.” Hearing Board at 12. (Note the problem – since Porter did not prepare and make everyone sign an engagement letter he lost the opportunity to decide who he would represent.)
The Findings:
We find that an attorney-client relationship was established. Although we did not hear testimony from Vaccaro or Crafton, we reviewed numerous statements made by Respondent during meetings and telephone conversations, which statements demonstrate he was acting as the attorney for the business group proposing the investment. In July 2014, he indicated to Crafton that his role was to handle the legal side of the transaction, conduct due diligence, and structure LLCs. He also drafted a preliminary version of an LLC operating agreement and provided that document to Crafton. When speaking to Pennebaker in September, Respondent stated his role was to handle the legal work for the deal; he was involved in due diligence and negotiations with Burger King; and funds from the investors would be deposited into his attorney IOLTA account. At the October in-person meeting, Respondent again stated that his role was to handle the legal end of the transaction.
While Respondent consistently disavowed that he would handle the actual closing, as that work had to be done by Virginia attorneys, the closing was only a portion of the legal work necessary for completion of the deal. By Respondent’s own representations, he held himself out as being responsible for the legal side of the transaction and took actions in accordance with his role as attorney. We find, therefore, that the predicate relationship for Rules 1.2 and 4.1 has been established.
Rule 1.2(d) – assisting client in conduct the lawyer knows to be fraudulent
The Administrator charged Respondent with violating Rule 1.2(d) by conduct including:
participating in discussions with Vaccaro and the informant about offering an investment deal to their professional athlete clients which concealed the true terms of the purchase of the Burger King franchises (including the ownership and purchase price of the franchises) from their clients;
agreeing to do the legal work to effectuate the scheme;
telling the informant to misrepresent the purchase price and ownership of the franchises to investors;
telling Pennebaker that the purchase price of the franchises was $37 million, and Respondent did not have an interest in the deal; and telling Pennebaker and the other FBI agent that another investor group would own the remaining 50% of the franchises.
We find Respondent engaged in each of the foregoing acts and by doing so, assisted clients Vaccaro and Crafton in furthering a fraudulent scheme. Fraud encompasses a broad range of human behavior, including “anything calculated to deceive . . . whether it be by direct falsehood or by innuendo, by speech or by silence, by word of mouth or by look or gesture.” In re Armentrout, 99 Ill. 2d 242, 251, 457 N.E.2d 1262 (1983).
Pennebaker’s testimony, as well as the recordings that were presented to us, showed that the three individuals plotted, as a group, to present a financial transaction in a way that would conceal the benefit they would personally realize from the transaction. That benefit was twofold. First, they intended to collect $20 million for the purchase of a group of properties that cost only $16 million, and then divide the remaining $4 million between themselves. Second, they planned to take a 50% ownership stake in the properties without making any financial investment whatsoever. Their financial benefit and interest in the transaction would not be disclosed to the investors. As we saw from Respondent’s September 19th telephone call with Pennebaker, Respondent represented that the purchase price was $37 million, which was more than twice the price he had discussed with Vaccaro and Crafton. Further, he falsely stated that a New York group was investing funds for the other one-half ownership, and he would have no ownership interest in the properties. In reality, the second group would be Respondent, Vaccaro and Porter, but their identities would be concealed by layers of LLCs. Respondent’s representations to Pennebaker were contrary to the facts set forth in Respondent’s discussions with Vaccaro and Crafton.
We recognize the investors were not misinformed as to their rate of return, and because the deal was never consummated, no one suffered a financial loss. The absence of an actual loss, however, does not erase the misconduct that occurred. By participating in crafting a deal with secret terms, presenting the deal to a potential investor without disclosing those terms, advising Crafton to misrepresent information, and making affirmative false statements regarding the investment, Respondent assisted in perpetrating a fraud.
We reject Respondent’s claim that he did not knowingly commit any misconduct. Pennebaker’s testimony, as well as the recordings, show that Respondent knew the actual terms of the proposed transaction and yet misrepresented those terms and advised Crafton to do the same. Further, Respondent’s claim that he was merely repeating information given to him by Vaccaro carries little weight in light of his role as the attorney structuring the deal. If the valuations for the properties were constantly changing, as he maintained, he had an obligation to ferret out the truth before passing information to potential investors. Further, we view Respondent’s lack of recall of key conversations, his vague testimony, and his portrayal of himself as a victim as nothing more than attempts to disguise his own involvement in the scheme. All in all, we did not find him to be a credible witness. By contrast, we regarded Mark Pennebaker as a reliable and objective witness who testified with precision and clarity.
Respondent had many opportunities to disagree with proposals made by Vaccaro and Crafton, to advise them to take a different course, or at least withdraw from representation and from the deal, but he did not do so. Instead, he became an active participant and took actions in furtherance of the scheme. Therefore we find that he engaged in misconduct in violation of Rule 1.2(d). Hearing Board Pages 13-15.
The Hearing Board also found that Porter violated Rule 4.1(a) knowingly making false statements of fact material fact to a third person and 8.4(c) dishonesty, fraud, deceit or misrepresentation and 8.4(b) a criminal act.
Rule 4.1(a) Violation
The Administrator charged Respondent with violating Rule 4.1(a) by:
falsely telling Pennebaker on September 19, 2014 that the purchase price of the franchises was $37 million; Respondent had no interest in the deal; and another investors group would own the remaining 50% of the franchises (in return for a $17 investment); and
by falsely telling Pennebaker and another undercover agent on October 1, 2014 that other investors would be investing money and those investors would receive the other 50% ownership interest in the franchises.
We have addressed the foregoing misrepresentations in the prior section and determined that Respondent made those statements and he knew they were false. We further find that the $37 million purchase price and the identity of other owners in an investment, including whether or not Respondent had an ownership interest in the deal, would be material to the investors’ decision in proceeding with the transaction. Therefore, we find a violation of Rule 4.1(a).
Rule 4.1(b) – knowingly failing to disclose material facts when disclosure is necessary to avoid assisting a criminal or fraudulent act by client
While the previous charge involved the providing of false information, Rule 4.1(b) involves the failure to disclose material information. The Administrator charged Respondent with violating Rule 4.1(b) by not disclosing to the undercover agent and Pennebaker that:
the true purchase price of the franchises was $16 million; and
Respondent, Vaccaro and Crafton would have an interest in ownership and would receive $4 million dollars out of the investors’ money.
We find this charge was proved. Respondent did not disclose the true nature of the Burger King transaction during his September 19, 2014 telephone call with Pennebaker, or during the October 1, 2014 meeting with Pennebaker and the second undercover FBI agent. As stated previously, the true purchase price and ownership interest was material information that should have been provided to prospective investors, as was the fact that $4 million of the purchase money would be going directly to Respondent, Vaccaro and Crafton. Respondent’s failure to disclose assisted his clients’ criminal or fraudulent conduct in violation of Rule 4.1(b).
Rule 8.4(c) Violation
The Hearing Board found:
Rule 8.4(c) – dishonesty, fraud, deceit or misrepresentation
In In re Edmonds, 2014 IL 117696, par. 62 the Court stated “there is essentially no way to define every act or form of conduct that would be considered a violation” of Rule 8.4(c) as “[e]ach case is unique and the circumstances surrounding the respondent’s conduct must be taken into consideration.” Rule 8.4(c) “is broadly construed to include anything calculated to deceive, including the suppression of truth and the suggestion of falsity.” Id. at 53. Motive and intent are rarely proved by direct evidence and must be inferred from conduct and circumstances. See In re Stern, 124 Ill. 2d 310, 529 N.E.2d 562, 565 (1988)
The Administrator charged Respondent with violating Rule 8.4(c) by engaging in the exact same conduct that was set forth in the Rule 1.2(d) charge. We found with respect to that charge that Respondent assisted in conduct that was fraudulent by making statements that were false, performing legal work to further the scheme, directing Crafton to misrepresent facts, and failing to disclose information that was material to the transaction. Further, his actions were taken with knowledge of the fraudulent nature of the transaction.
Our prior discussions amply support a finding that Respondent violated Rule 8.4(c). His motive and intent to deceive investors was further demonstrated by his agreement that Crafton should not disclose the actual deal to investors; and by his indication that disclosure would be “career suicide.” In addition, the video of the October 1, 2014 meeting demonstrated to us that Respondent had no trouble providing misleading and inaccurate information to the undercover agents. Indeed, we found his cavalier attitude in misrepresenting facts to be deeply disturbing. For the reasons stated, we find Respondent engaged in dishonesty, fraud deceit and misrepresentation.
The Panel also found a violation of Rule 8.4(c) criminal conduct. The Review Board essentially affirmed all the factual findings of the Hearing Board but recommended a suspension of three years. The criminal case against Porter was resolved by a deferred prosecution agreement. The Illinois Supreme Court disbarred Porter on September 21, 2020.
Comment:
This case is a teaching tool for every lawyer who is in the transactional practice. Porter was unlucky because his mistakes were on tape and on video. He was promised, but never received, a hidden interest in the deal. (That should have been disclaimed in the engagement letter. Porter could have been charged with entering into a contract with a client without advising the client to get his own lawyer, but the ARDC did not bother with that.)
The case worries me. In my career clients have, at times, said all sorts of things to me about what they intended to do. I have tried my best to correct them and stop them from engaging in illegal conduct. Porter did not speak up when the FBI agent and the confidential informant read their lines with Shakespearian skill. He sat mute or agreed or went along with the scheme. He was a dupe or chump. The joke was on him. If you wish to keep your license, you cannot be duped in this fashion. You must speak up when the client proposes something unlawful or inappropriate or just plain deceptive.
Porter did not write an engagement letter or even bother to write emails to the participants so that he could summarize the meetings they held. He had nothing to defend himself with. Because he never did the hard work of figuring out who he represented he never understood his duties to that “client.” Had he done so there is a chance that this fiasco could have been avoided. He should have asked other questions such as “Who represents the investors?” “Has anyone recommended that they engage counsel?” I would have been uneasy at the prospect of doing a deal of that size with no counsel on the other side to protect the imaginary athletes who were investing. That Porter never asked these questions saddens me. He never showed any sign, in my opinion, of trying to protect anyone, client or non-client.
He could also have asked the promoters to get a valuation of the deal by a reputable real estate appraiser. He could have requested audited financials of the “franchises.” Better yet, he should have requested tax returns. That too would have protected him and the investors. The promotors would have made excuses, but Porter could have used that to get out of the deal. (They could never have gotten an appraisal because the Burger King franchises did not exist and no one would sign an appraisal valuing nonexistent franchises. There were no tax returns either because the franchises did not exist.) Corporate lawyers ask questions, lots of questions. It does not appear that Porter asked any questions.
Long ago an experienced lawyer told me “if it looks to good to be true, it probably is.” This is a disbarment that did not need to happen. An engagement letter and a few minutes of careful thought could have avoided all of this.
The most troubling aspect of this case is that Porter never made a dime on the deal and no one lost any money. The deal papers were nowhere near completion and Porter, it appears, was waiting for further information from the “clients.” That is probably why the federal government entered into a deferred prosecution agreement with him. Why is this troubling? There is a chance that Porter is just as much a victim as the supposed investors were. Many lawyers in Illinois have done far worse conduct and not received a disbarment. But for the FBI, this “deal” would never have happened.
In the end of The Truman Show, Truman figures out that he is in a show that his life is onstage that his wife and friends are not real and he leaves the set. “In case I don’t see you, Good Morning, Good Afternoon and Goodnight.” To be a corporate lawyer in our world, you have to be at least as smart as Truman Burbank and know when to walk away.
If you are in the practice of law and you are concerned about something, call an ethics lawyer now. Don’t wait until the “deal” goes bad. Speak up. Ask questions. Ask the questions you would want to know the answers to if you were investing in the venture. Ask for the name of the lawyer or the accountant. If those people don’t exist, you can assume it is a scam of some sort. Warn your clients and protect your license.
Ed Clinton, Jr.
Legal Ethics Lawyer 