Former SEC Lawyer Fights SEC Suit
Miriam Rozen and Brenda Sapino Jeffreys
Texas Lawyer
06-25-2007
Phillip Offill Jr. has refused to do work for some prospective clients -- but maybe not enough of them.
"There are probably some I should have turned away that I didn't," says Offill.
The Dallas lawyer, who earlier this year started a solo practice, was named as a defendant in a civil complaint filed by the U.S. Securities and Exchange Commission on June 14 in the U.S. District Court for the Eastern District of Michigan.
The 48-year-old former SEC lawyer until recently was chairman of the securities section at the Dallas-based firm now known as Godwin Pappas Ronquillo.
In Securities and Exchange Commission v. Peter W. Fisher, et al., the SEC alleges that Offill participated in a "scheme" with others to issue stock unlawfully without disclosing a company's financial problems.
In the SEC's complaint in SEC v. Fisher, the federal government alleges that Offill controlled investment companies that made "sham" purchases of penny stock. Those purchases, the SEC alleges, were made to help a company, owned by Canadian Peter W. Fisher, avoid registration requirements with the SEC.
According to the SEC's Web site, penny stocks generally refer to low-priced, speculative securities of very small companies.
In its complaint, the SEC alleges the intermediary investment companies, some of which the agency alleges were controlled by Offill, improperly evaded registration by claiming that they intended to purchase the shares for "investment purposes" and that they had no intention to sell the shares. But, the complaint states, "these companies were not long-term investors" and instead Offill and his co-defendants arranged for "the quick transfer of the vast majority of shares to Peter Fisher, his family, his investment company or his business associates." Fisher, the SEC alleges, then subsequently sold a large number of shares to the public without disclosure of any important information about the company.
The SEC complaint alleges that the company did not disclose its unsuccessful business operations and its faltering finances and instead dispatched misleading press releases touting the company's economic prospects.
In the complaint, the SEC claims Offill and others violated §§5(a) and 5(c) of the Securities Act of 1933 for the unregistered offer and sale of securities.
The SEC seeks to bar Offill from participating in any future penny stock offerings and seeks a judgment requiring him to pay civil penalties for his alleged violations of securities laws.
Offill, who says he has not yet been served with the SEC's complaint nor hired a lawyer to defend himself, says, "I don't think I have anything to hide."
"Do I think the allegations against me are indefensible?" Offill asks and answers: "Absolutely not. And if I have to, I will go to court to defend myself. I deny any role or involvement in any manner of promotional scheme, pump and dump or whatever. I was simply an attorney representing a client, and I intend to vigorously defend myself."
The SEC defines "a pump-and-dump scheme" in a proposed rule it published on April 21, 2004, in the Federal Register: It involves using shell companies to mislead investors and having promoters pump up the price of a stock through unduly positive press releases.
The SEC complaint says Fisher lives in Ontario. An online search of a Canadian telephone directory resulted in a listing for one Peter W. Fisher in Ontario. A man at that number declines to confirm that he is the Peter W. Fisher named in the complaint. The court file lists no defense attorney for Fisher.
Offill's friends and former colleagues are puzzled -- and in one case, downright shocked -- by the SEC's allegations.
How could a former regulatory lawyer become entangled in allegations of violating the very rules governing securities that he used to enforce?
Richard Hull, a former partner in the firm then known as Godwin Gruber who is a friend of Offill's, says he is very surprised his former colleague is a defendant in SEC v. Fisher.
"I'd do anything I can to help him," says Hull, who practiced with Offill at Godwin Gruber before returning to Hull & Associates, a firm he had launched 20 years ago. "He's a smart guy, and he is an ethical guy. I've known him for 15 years. I find it hard to believe he would cross over either line -- ethical or legal," Hull says about Offill.
Dallas lawyer Keith Langley, who left the firm then known as Godwin Pappas Langley Ronquillo in March to start Dallas' Langley Weinstein Hamel, says, "There was a belief at the firm about Phil that things were fine. He was doing what he was supposed to do in an area where he had a particular expertise."
Godwin Pappas is not a defendant in SEC v. Fisher.
Offill is a smart lawyer, says Spencer Barasch, a partner in Andrews Kurth in Dallas who was once Offill's boss at the SEC.
While at the SEC, Offill handled civil suits alleging that defendants participated in Ponzi schemes or scams in the oil patch. He also handled suits alleging that small brokerage firms violated securities laws, Barasch says. In addition, says Barasch, Offill handled a number of suits alleging unlawful sale of penny stocks.
Barasch, who is a former associate director for the SEC in Fort Worth, Texas, and head of enforcement in the Southwest, worked with Offill at the SEC when they were both trial lawyers and later supervised him.
"He was very effective, very sharp, very good at putting a stop to these types of scams, a real strong aptitude for that," says Barasch, referring to the kind of suits Offill handled while at the SEC.
After earning his law degree from the University of Oklahoma in 1983, Offill went immediately to work for a state agency enforcing the securities laws -- the Oklahoma Department of Securities -- where he later became chief counsel, he says.
In 1985, Offill, a Texas native, went to work for the SEC in Fort Worth, starting as a staff lawyer and eventually becoming a senior trial counsel.
In 1999, he left the SEC to join Dallas-based Krage & Janvey, a six-lawyer firm, where Offill says he parlayed the firm's securities transactional clients into litigation clients and then back again.
In early 2003, however, management at the much larger firm then known as Godwin Gruber, which was expanding at the time, approached him, Offill says.
"They asked me nice. They had an interesting case for me to work. And they offered me a whole bunch of money," Offill recalls about the offer.
But shortly after he started at the firm, Offill says, he realized that the firm's heavy emphasis on litigation meant it didn't have a base of clients looking for lawyers for securities transactional work. The firm's large corporate clients came to the firm exclusively for litigation matters. So, Offill says, he started to develop his own base of clients seeking transactional work, typically smaller companies.
"I do the work that my clients bring me," says Offill. "You're not going to start with a big old thumper of a corporate client. The best way is to start with a smaller company, to find a company that you can grow with."
Neither Don Godwin, the chairman and CEO of the firm now known as Godwin Pappas Ronquillo, who was in New York, nor its managing partner Marcos Ronquillo, who was out of the country, responded to two telephone calls to each of their offices seeking comment for this story.
As Offill entered the private practice world, his former government colleague Barasch says he was not surprised to see the one-time SEC lawyer defend companies and individuals from SEC investigations, since many former government lawyers make that same transition.
Hull, too, says he is not surprised that Offill agreed to represent penny-stock-related clients. Any former securities regulator who goes into private practice, says Hull, will usually encounter penny-stock promoters seeking their counsel. "These guys always come to you. I have had those kind of clients," he says.
But Hull, who considers himself a close friend of Offill, says, "It is fair to say that there are a lot of abuses going on" in the penny stock area, in terms of violations of the securities laws by companies not disclosing in specific enough terms the financial and economic conditions of concerns they are promoting to investors.
"You can do it right, but, in general, the industry is weighted in favor of abuse," Hull says.
For his part, Offill makes no apologies for representing smaller companies seeking access to the public markets.
"There are thousands of companies who require and deserve access to the public markets. They are the foundation of the American economy. They require competent legal counsel," he says.
Hull says he would be surprised if allegations made in the SEC complaint turn out to be true.
EARLIER SUIT
Offill has been sued before in connection with his work for another penny stock client.
In Consolidated Sports Media Group v. Godwin Gruber, et al, filed in the 101st District Court in Dallas County, the plaintiffs, former clients of Offill, allege in their third amended petition that he helped forge and falsify corporate records to evade SEC regulations. In their third amended petition, the plaintiff, Consolidated Sports Media Group, and the plaintiff-in-intervention, Scott Schepper, who is president of CSMG, also allege Offill concealed conflicts of interest and lied to the SEC in connection to his work for them.
In the third amended petition, CSMG and Schepper allege that Offill and others conspired to carry out an illegal "pump and dump scheme" whereby they, or entities controlled by them, illicitly bought and sold stock in CSMG and made millions of dollars in a few months but left CSMG crippled by financial and legal problems. The third amended petition alleged, among other things against "Offill and Godwin Gruber n/k/a Godwin Pappas Langley Ronquillo," claims of legal malpractice, breaches of fiduciary duty and common law and statutory fraud.
The defendants denied the allegations.
Richard Sayles, a partner in Dallas' Sayles Werbner, who defended the firm and Offill in the case, which settled about two months ago, says his clients have denied the allegations and continue to do so.
Offill specifically denies the allegations, saying that, although he settled, he still considers the allegations in the CSMG suit to be outrageous and wrong.
After the suit was filed, Darrell Jordan Jr., who was managing partner of the firm then known as Godwin Pappas Langley Ronquillo, said, "We'll contest the matter vigorously, and we expect to prevail. "
When the plaintiffs settled with Offill and the firm, all sides agreed to keep the terms confidential, according to lawyers on both sides: Sayles and Jennifer Stephens, of counsel with Sifford, Anderson & Co. of Dallas, who represented CSMG.
CSMG also previously settled with other defendants, the two attorneys say.
The third amended petition, filed in October 2006, did make some additional allegations about Offill. The plaintiffs allege in the petition that, when asked by his then-managing partner Jordan to turn over CSMG's and Schepper's file to the plaintiffs, Offill failed to do so and instead sent it to the home of a co-defendant in the case. In turn, the co-defendant had the documents "deep six[ed]" or "caused to be thrown into a trash Dumpster," the amended petition alleges.
As alleged in the petition, a private investigator working for the plaintiffs was able to retrieve the documents from the Dumpster. Those documents ultimately helped the plaintiffs bolster allegations that Offill forged alternative documents, the petition alleges. The plaintiffs allege they identified the forged documents only because they had acquired originals from the Dumpster.
Offill says the allegations are absolutely false. He says he believes the documents were actually stolen from an office.
Langley says the firm's management, including Jordan, who was managing partner during the course of that litigation but left the firm on June 1, and Godwin were caught totally off guard by the Dumpster-related allegations.
"They had no part in those shenanigans," Langley says about Jordan and Godwin.
Jordan, who is officing temporarily at Webb & Ackels in Dallas, did not return a telephone message seeking comment before press time.
Overall, Langley says, Offill is "a well-intentioned person that got on a slippery slope." Langley says Offill may have seen penny stock transactions "as an opportunity to increase his volume of business."
Historically, the firm now known as Godwin Pappas Ronquillo has and continues to reward rainmakers and docks those who can't drum up the billable hours, Godwin has said previously.
The firm management has regularly pruned partners and associates who it deemed not profitable enough. By doing so for years, the firm maintained its profits per partner at levels that towered over most other Texas firms, coming in at $2.214 million in profits per partner in 2004, but PPP dropped to $625,000 in 2005 and $500,000 in 2006, according to several of 's annual reports on firm finance.
Offill says, however, he never had trouble meeting his hourly billing targets at Godwin Pappas and left the firm in January to "pursue other business opportunities." He opened the Law Offices of Phillip Offill Jr. in January.
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