Fen Phen Lawyers, Charged With Bilking Clients, Head to Trial

[WSJ Law Blog]

And speaking of horse racing, the two lawyers who used allegedly misappropriated settlement funds to purchase last year’s Preakness winner, Curlin, are set to head to trial today in federal court in Covington, Kentucky. Last June, the two lawyers — Shirley Cunningham and William Gallion — along with a third, Melbourne Mills, were indicted for allegedly bilking their clients out of about $65 million of a $200 million settlement in a Kentucky case over diet drug Fen Phen.

According to this piece in the Courier Journal, at trial, presided over by district judge William O. Bertelsman, who earlier this year saddled the defendants with some seriously high bail, the prosecution will put on 40 witnesses to show how the lawyers moved money between bank accounts, allegedly violating four laws and 13 ethics rules. Some of the money, the prosecution may show, went to buy a Porsche, a BMW and courtside seats at Rupp Arena, home of the Wildcats. Gallion and Cunningham used part of their settlement cash to purchase Curlin, the 2007 Horse of the Year.

If convicted, the lawyers could receive up to 20 years in prison. The indictment, according to the Courier Journal, also seeks damages of $45 million and the return of more than $20 million that the lawyers placed in a charitable fund that they paid themselves $149,800 each to manage.

The lawyers, who have pleaded not guilty, have conceded that “some matters could have been handled differently, so as to cause less su****ion and criticism,” as one of their lawyers said. But in court papers, the defendants reportedly claim that their former clients were handsomely compensated and that their fees — $75 million for themselves, $30 million for consultants and other lawyers — were approved by a judge, although that judge later resigned after being accused of misconduct in the case. (Their clients reportedly received $74.2 million of the $200 million that the drug-maker now known as Wyeth paid in 2001 to settle the class action.) Also, one of the plaintiffs’ experts wrote in a pretrial report that they “relied heavily on the advice and guidance” of Cincinnati lawyer Stanley Chesley, who negotiated the Fen Phen settlement and is a defendant in the civil suit against the lawyers.

A government expert, Northern Kentucky University law prof Edward Brewer, will testify that Gallion’s claim in 2002 that clients were “thrilled” to give away excess funds to a charitable fund was “bovine excrement,” as he described it in a pretrial report.