Prominent Arkansas Lawyer Probed Over Missing $9 Million

[WSJ_law_blog]

Prominent Arkansas plaintiffs’ lawyer Gene Cauley has landed in some hot water due to his apparent inability to produce more than $9 million in settlement money he was overseeing for clients, according to federal court records.

Cauley specializes in securities litigation, scoring some huge settlements and earning recognition as one of the nation’s top young lawyers.

Cauley’s criminal lawyer, John Wesley Hall, says that the missing settlement money is being investigated by federal authorities. “We are working to be able to find the money and pay it in 90 days,” Hall says. “Mr. Cauley fully expects to make everyone 100% whole.”

Here’s the background. Cauley was one of the lead plaintiffs’ lawyers in a 2004 securities suit that alleged that the BISYS Group Inc., an insurance company, inflated its stock value by issuing false and misleading press releases and financial filings. The company has denied wrongdoing, but it settled the case in 2006 for $65.8 million.

According to this transcript of an April 20 hearing before New York federal judge Jed Rakoff, Cauley was the sole signatory of an account created to hold the BISYS settlement money. The attorney, according to the transcript, informed his co-counsel last month that he could not produce about $9.3 million in settlement funds that was supposed to be distributed to the plaintiffs in April.

Hall told Rakoff at the hearing that the missing settlement funds “are presently unavailable,” but Hall declined to elaborate, citing Cauley’s privilege against self-incrimination.

“The inference I’m drawing is that Mr. Cauley has either misappropriated or otherwise misallocated these funds,” Rakoff announced. “I trust there will be a prompt investigation of this matter by the U.S. Attorney’s office.”

Rakoff ended the hearing with a remarkable flourish.

“When I hear people cracking lawyer jokes, I always take umbrage and point out that the profession of Lincoln, the profession of Madison and Jefferson often represents the highest ideals in our society,” the judge said. “But recent events give me pause about how true that is.”

We will follow the situation as it evolves.

In 2005, the NLJ named Cauley one of the “Top 40 Lawyers under 40,” noting that he had scored a $41 million securities settlement with NewPower Holdings in 2004 and an earlier $115 million settlement in a shareholder fraud case against Lernout & Hauspie Speech Products. Earlier in his career, NLJ reported, Cauley assisted “in the Nasdaq market-makers antitrust case . . . that concluded with a landmark settlement exceeding $1 billion.”

In the BISYS case, Rakoff last November entered an order awarding Cauley and his co-counsel more than $20 million in fees and expenses.

The attorney, who was once featured as a LB Lawyer of the Day, has a charitable foundation in Little Rock.