IN THE SUPREME COURT OF FLORIDA (Before a Referee) Complainant, TFB NO ,087 (20D) ,277 (20D) v ,881 (20D) REPORT OF THE REFEREE

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1 IN THE SUPREME COURT OF FLORIDA (Before a Referee) THE FLORIDA BAR, CASE NO. SC Complainant, TFB NO ,087 (20D) ,277 (20D) v ,881 (20D) ROBERT J. HUGHES, JR., Respondent. / REPORT OF THE REFEREE I. SUMMARY OF PROCEEDINGS Pursuant to the undersigned being duly appointed a referee to conduct disciplinary proceedings according to Rule 3-7.6, Rules Regulating The Florida Bar, the following proceedings occurred: On June 29, 2011, The Florida Bar filed a three-count complaint against Respondent. Respondent failed to file an Answer. On August 22, 2011, the Referee ordered Respondent to file an answer by August 29, Respondent failed to file an answer to The Bar s complaint. The Florida Bar filed a Motion for Default on August 30, A hearing was set for September 2, 2011, Respondent was ordered to appear, and a Notice of Hearing was sent to Respondent. On September 2, 2011, Respondent failed to appear and the Referee granted The Bar s Motion for Default. The Referee ordered that if any party desired a sanction hearing, it must be requested in writing no later than September 16, Respondent failed to request a Sanctions Hearing as required by Order of the Referee. A Memorandum of Law for Sanctions was submitted by The Florida Bar. All of the pleadings, responses thereto, exhibits, The Florida Bar s Memorandum of Law for Sanctions, and this Report of Referee, will constitute the record in this case to be forwarded to the Supreme Court of Florida. 1

2 II. FINDINGS OF FACT: A. Jurisdictional Statement. Respondent is, and at all times mentioned during this investigation was, a member of The Florida bar, subject to the jurisdiction and Disciplinary Rules of the Supreme Court of Florida. B. Narrative Summary of Case. 1. COUNT I TFB File No ,087(20D), Complaint of Michael Keeley: Raymond & Sankaty Entities: Beginning in or about the 1970s through the late 1990s, Respondent represented George Raymond, Jr. ( Raymond ), and other members of Raymond s family, in various personal and business legal matters. Raymond trusted Respondent as his legal advisor and friend of many years. In or about 1997, Respondent and Raymond decided to form a hedge fund business together. On or about September 30, 1997, Respondent and Raymond formed Sankaty Capital Management LLC ( Sankaty Management ). Respondent and Raymond were the sole managers and members of Sankaty Management, with equal authority to make decisions and operate the business. On or about September 30, 1997, Respondent and Raymond formed Sankaty Capital Partners, LP ( Sankaty Partners ). Sankaty Management s role was to manage the investments of Sankaty Partners. Until or about summer of 2000, Respondent and Raymond shared management responsibilities for Sankaty Management when Raymond became ill with cancer. Respondent began to solely manage and control the day-to-day operations of Sankaty Management. When the Sankaty entities were formed, Respondent was a partner with Harter, Secrest & Emery. Pursuant to the terms of Respondent s partnership agreement with Harter, Secrest & Emery, he was not permitted to enter into business transactions with a client without the approval and consent of the firm. Respondent did not have the approval and consent of the firm at the time he formed the Sankaty entities. Additionally, prior to forming the Sankaty entities, Respondent failed to disclose to Raymond the potential conflict(s) of interest, he did not provide written disclosures to Raymond about the transaction and terms on which Respondent s interests were fair and reasonable to Raymond, and he did not advise Raymond to seek the advice of independent counsel. On October 1, 2003, Respondent resigned as manager of Sankaty Management. Respondent had never filed any tax returns for Sankaty Management during his tenure as manager. 2

3 On or about December 20, 2004, a multi-count civil complaint was filed by Raymond against Respondent in Raymond v. Hughes, Case No CA, in the Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida. In or about February 2008, Respondent and Raymond entered into a Stipulation wherein Respondent agreed to a judgment against him in the amount of $1,400,000.00, in exchange for dismissal of the suit. The Circuit Court Judge entered a Final Judgment approving the stipulation and entering a judgment against Respondent for $1,400, Adams Family Ruse: Beginning in or about the 1970s, Respondent represented the Adams family, and advised members of the Adams family on matters regarding trusts, estate planning and investments. In or about September 2000, Mr. Adams died and his son, Peter Adams ( Peter ), became directly involved with Respondent. Peter approached Respondent about some questions regarding a charitable trust drafted by Respondent for Peter s father. Respondent referred Peter to consult with R. Daniel Grinnals, an attorney in New York. Mr. Grinnals drafted the Helen H. Adams Revocable Living Trust ( Helen Adams Trust ). Helen Adams ( Helen ) was the mother of Peter and Marc Adams ( Marc ). The Helen Adams Trust reduced Marc s anticipated inheritance from one-half of his father s estate to one-third, and Peter was named as Trustee. In May 2002, Helen received a $1,452, distribution from her deceased husband s estate. Helen wanted the distribution she received from her husband s estate to be placed into the Helen Adams Trust. At some point, Marc expressed an objection to his brother serving as Trustee, and the Adams family consulted with Respondent, who knew the family dynamics. Respondent suggested that the family deposit the money with Sankaty Management to be held in a separate cash account. Respondent agreed to oversee the safekeeping of the funds, in order to alleviate Marc s concerns. The funds were to be held separately in a money market type account, which would earn a modest rate of interest. On May 13, 2002, $1,302, was sent via wire transfer from Mr. Grinnals escrow account to Sankaty Management s bank account. The funds were deposited into Sankaty Management s operating account. Prior to advising the Adams family to transfer funds to Sankaty Management, Respondent failed to disclose to the Adams family the potential conflict(s) of interest, and he did not provide written disclosures to the Adams family about the transaction and terms on which Respondent s interests were fair and reasonable. Respondent did not advise the Adams family to seek the advice of independent counsel. Prior to or after leaving Sankaty Management, Respondent 3

4 did not inform Peter who would be monitoring the funds entrusted to Respondent or what options were available. The funds were never held in a separate cash account, as understood by the Adams family. Despite numerous requests by Peter for the return of the funds, Respondent failed or refused to return the funds. In or about 2007, Peter, as Trustee of the Helen Adams Trust, sued Respondent and the companies that Respondent had an ownership and/or managerial interest in at the time of the alleged conduct, in Adams v. Hughes, et al., Case No CA, in the Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida. Respondent and Adams entered into a Stipulation wherein Respondent agreed to a judgment against him as to Breach of Fiduciary Duty (Count I) in the amount of $1,197,393.42, and Peter agreed to drop Count II (Constructive Fraud), Count III (Conversion), and Count IV (Theft). The judge entered an order approving the stipulation and entered a judgment against Respondent and Sankaty Management in the amount of $1,197, The judge found that the money was entrusted to Respondent and he accepted the fiduciary duty to segregate the money, but that the money was in fact deposited into the operating account of Sankaty Management, to which Respondent used as his personal bank account to fund the operations of the company and other unknown activities. The judge further found that Sankaty Management was used as a conduit for Respondent to use the money entrusted to him as an operating account for Sankaty Management and that through the acts of Sankaty s managing partner, Respondent, the company allowed this money, which they exercised dominion and control over, to be commingled into the operating account for their benefit. The judge found that the money was not segregated, false statements were issued, the entity failed to monitor the money and failed to send the proceeds from the Trust s account directly to Peter as requested, and that these acts rose to the level of willful, wanton and malicious acts or omissions. 2. COUNT II TFB File No ,277(20D), Complaint of Claudia Schorrig: On or about December 17, 2007, Respondent, Ms. Schorrig, and Timothy Mattek ( Mattek ), Ms. Schorrig s financial planner at the time, participated in a conference call regarding the purchase of stock in a privately held company called UD Testing, Inc. During this conference call, Respondent and Mattek induced Ms. Schorrig into believing that she was being offered an opportunity of a lifetime to purchase UD Testing, Inc. stock at a value of $2.00 per share. Respondent and Mattek made several representations to Ms. Schorrig about UD Testing Inc., including informing her that the company paid great dividends between $0.20 to $0.40 per share, that the company was going public in 4

5 the very near future, that the value of the company could possibly triple or quadruple, and that Respondent owned shares of UD Testing, Inc. On December 20, 2007, Mattek presented Ms. Schorrig with a Joint Venture Agreement between Orange Tree Capital Management, LLC and Claudia Schorrig, as Partner. The agreement set forth a profit-sharing plan wherein Respondent and Mattek would receive a percentage of the profit or gain when the stock value increases, and Ms. Schorrig signed this agreement. Mattek also gave Ms. Schorrig a letter stating that Penn-York Associates, LLC is the holder of these shares and has agreed to sell its shares to you at this agreed price. Penn-York never owned any shares that were sold to Ms. Schorrig. In three installments, Ms. Schorrig purchased 40,000 shares of UD Testing, Inc. at $2.00 per share totaling $80,000. Ms. Schorrig was instructed to make each check payable to UD Testing, LLC, because Respondent wanted it that way. All three checks were endorsed by Respondent on behalf of UD Testing, LLC. Respondent opened a bank account in the name of UD Testing, LLC on or about December 21, 2007, as owner and member of UD Testing, LLC. The bank account was opened within a few days before or after receiving Ms. Schorrig s first check. At the time the bank account was opened, UD Testing, LLC was not in existence. At the time Respondent accepted and deposited Ms. Schorrig s first check to purchase shares, UD Testing, LLC was not in existence. Respondent established UD Testing, LLC on or about March 28, 2008, by changing the name of his former company, Penn-York Associates, LLC. Respondent owns 100% of UD Testing, LLC. Respondent stated he made the corporate name change in order to negotiate the checks from Ms. Schorrig. UD Testing, LLC was established by Respondent after collecting and depositing the full $80,000 from Ms. Schorrig. In January 2008, UD Testing, Inc. received a written request from Respondent s wife to transfer 20,000 shares of her common stock to Ms. Schorrig. In March 2008, UD Testing Inc. received a second request from Respondent s wife to transfer another 20,000 shares to Ms. Schorrig. During a phone conversation with an employee of UD Testing, Inc., Ms. Schorrig learned that she did not directly purchase shares from UD Testing, Inc., that the company never received any checks from her to purchase stock, and that the company had not publicly sold shares since about April Respondent did not convey to Ms. Schorrig that this was a personal sale of stock held by his wife, or that he owned UD Testing, LLC, and that his company was an entirely separate entity from UD Testing, Inc. 3. COUNT III TFB File No ,881(20D), Complaint of Elizabeth Greisz: Respondent failed to provide a timely response to the 5

6 Inquiry/Complaint, and failed or refused to respond to the Grievance Committee Investigating Member s numerous requests for additional information. III. RECOMMENDATIONS AS TO GUILT I recommend that Respondent be found guilty of violating: 1. COUNT I TFB File No ,087(20D), Complaint of Michael Keeley: Rule (Misconduct and Minor Misconduct); Rule (Communication); Rule (Conflict of Interest; General Rule); Rule (Conflict of Interest; Prohibited and Other Transactions); Rule 4-4.1(a) (Truthfulness in Statements to Others: In the course of representing a client a lawyer shall not knowingly make a false statement of material fact or law to a third person); Rule (Bar Admission and Disciplinary Matters); Rule 4-8.4(a) (Misconduct: A lawyer shall not violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another); Rule 4-8.4(c) (Misconduct: A lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation); and Rule 4-8.4(g) (Misconduct: A lawyer shall not fail to respond, in writing). 2. COUNT II TFB File No ,277(20D), Complaint of Claudia Schorrig: Rule (Misconduct and Minor Misconduct); Rule (Bar Admission and Disciplinary Matters); Rule 4-8.4(a) (Misconduct: A lawyer shall not violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another); Rule 4-8.4(c) (Misconduct: A lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation); and Rule 4-8.4(g) (Misconduct: A lawyer shall not fail to respond, in writing). 3. COUNT III TFB File No ,881(20D), Complaint of Elizabeth Greisz: Rule (Bar Admission and Disciplinary Matters); and Rule 4-8.4(g) (Misconduct: A lawyer shall not fail to respond, in writing). IV. STANDARDS FOR IMPOSING LAWYER SANCTIONS I considered the following Standards prior to recommending discipline: 6

7 Standard 4.1 Failure to Preserve Client s Property 4.11 Disbarment is appropriate when a lawyer intentionally or knowingly converts client property regardless of injury or potential injury. Standard 4.3 Failure to Avoid Conflicts of Interest 4.31 Disbarment is appropriate when a lawyer, without the informed consent of the client(s): (i) engages in representation of a client knowing that the lawyer s interests are adverse to the client s with the intent to benefit the lawyer, and causes serious or potentially serious injury to the client. Standard 4.6 Lack of Candor 4.61 Disbarment is appropriate when a lawyer knowingly or intentionally deceives a client with the intent to benefit the lawyer or another regardless of injury or potential injury to the client. Standard 5.1 Failure to Maintain Personal Integrity 5.11 Disbarment is appropriate when: (f) a lawyer engages in any intentional conduct involving dishonesty, fraud, deceit, or misrepresentation that seriously adversely reflects on the lawyer s fitness to practice. Standard 7.0 Violations of Other Duties Owed as a Professional 7.1 Disbarment is appropriate when a lawyer intentionally engages in conduct that is a violation of a duty owed as a professional with the intent to obtain a benefit for the lawyer or another, and causes serious or potentially serious injury to a client, the public, or the legal system. V. CASE LAW I considered the following case law prior to recommending discipline: Florida Bar v. Maynard, 672 So.2d 530, 540 (Fla. 1996) (Disbarment): The Court found that disbarment was the only appropriate sanction where the referee found numerous violations including, but not limited to, the misuse of client funds, 7

8 representing conflicting interests, entering into a business transaction with a client, and engaging in conduct involving fraud, dishonesty, deceit, or misrepresentation. Maynard and Randy Strausberg had known each other for many years and had become friends. Id. at 531. Strausberg hired Maynard to set up an Irrevocable Trust for his two children. Id. Maynard was requested to act as Trustee, and he agreed to keep Strausberg advised of the status of the Trust assets. Id. Maynard, as Trustee, loaned from the Trust the sum of $43,000 to a third party. Id. Maynard did not list the initial contribution in any accounting for the Trust, and he later testified that he had placed the funds in his general law office Trust Account. Maynard used the Trust fund to make loans to friends and to pay off his personal debt, and he did not file tax returns for at least two years. Id. at 532. Maynard also failed to communicate to Strausberg about what was going on with the Trust. Id. at 534. Florida Bar v. Spear, 887 So.2d 1242, 1244 (Fla. 2004) (Disbarment): Spear was disbarred for misappropriating client funds. Spear represented a client in the attempted purchase of a day care center. Id. The deal was not consummated and the client's $85,000 deposit was returned to Spear. Id. The funds were placed into Spear's operating account and within five days he transferred $75,000 from the account. Id. The Florida Bar requested Spear to provide his trust account records, but he failed to provide records which clearly identified the funds. Id. The Court held that, given the referee's findings and recommendations as to guilt, the recommended sanction of suspension was not authorized under the Standards and did not have a reasonable basis in existing case law. Id. at The Court emphasized that where conversion of client funds is concerned, the standards are clear, citing Standard 4.11 which provides that disbarment is appropriate when a lawyer intentionally or knowingly converts client property regardless of injury or potential injury. Id. at The Court recognized that the "overwhelming majority of cases involving the misuse of client funds have resulted in disbarment." Id., quoting Florida Bar v. Massari, 832 So.2d 701, 706 (Fla. 2002). VI. RECOMMENDATION AS TO DISCIPLINARY MEASURES TO BE APPLIED I recommend that Respondent be found guilty of misconduct justifying disciplinary measures, and that he be disciplined by: A. Disbarment 8

9 B. Payment of The Florida Bar s costs in these proceedings. VII. PERSONAL HISTORY, PAST DISCIPLINARY RECORD Prior to recommending discipline pursuant to Rule 3-7.6(m)(1), I considered the following: A. Personal History of Respondent: Age: 67 Date admitted to the Bar: July 6, 1979 B. Aggravating Factors: Standard 9.22 (a) prior discipline; Standard 9.22 (b) dishonest or selfish motive; Standard 9.22 (c) a pattern of misconduct; Standard 9.22 (d) multiple offenses; Standard 9.22 (e) bad faith obstruction of the disciplinary process by intentionally failing to comply with rules or orders of the disciplinary agency; Standard 9.22 (h) vulnerability of victim(s); Standard 9.22 (i) substantial experience in the practice of law; and Standard 9.22 (j) indifference to making restitution. C. Prior Discipline: In Supreme Court Case SC10-547, TFB File No ,150 (20D)OSC: Respondent was suspended from the practice of law, and continues to be suspended, for failing to respond in writing and failing to provide sworn testimony and documents as required by the subpoenas duces tecum. In Supreme Court Case SC11-630, TFB File No ,165(OSC): By Order dated September 20, 2011, Respondent was suspended from the practice of law for ninety-one days, effective immediately, for failing to furnish bar counsel with a sworn affidavit listing the names and addresses of all persons and entities that were furnished copies of the order of suspension within thirty days after service of the order in violation of Rule Regulating The Florida Bar 9

10 3-5.1(g). Respondent failed to respond to the Court s Order to Show Cause dated July 22, D. Mitigating Factors: None The Referee notes that the Respondent is not certified in any area of practice. VIII. STATEMENT OF COSTS AND MANNER IN WHICH COSTS SHOULD BE TAXED The Florida Bar s Motion to Assess Costs is granted. I find the following costs were reasonably incurred by The Florida Bar: A. Staff Level Court Reporter s Fees $ Photocopies $ Subtotal $ B. Grievance Committee Level Court Reporter s Fees $ Investigative Costs $ Photocopies $ Subtotal $1, C. Referee Level Administrative Costs pursuant to Rule 3-7.6(q)(1)(I) $1, Court Reporter s Fees $ Bar Counsel Travel $ Investigative Costs $ Subtotal $1, TOTAL: $3, It is recommended that all such costs and expenses be charged to the respondent and that interest at the statutory rate shall accrue and be payable beginning 30 days after the judgment in this case become final unless a waiver is granted by the Board of Governors of The Florida Bar. 10

11 Dated this 5th day of October, The Honorable Thomas W. Krug Referee Original to: The Honorable Thomas D. Hall, Clerk, Supreme Court of Florida, 500 South Duval Street, Tallahassee, Florida Copies to: Henry Lee Paul, Bar Counsel, The Florida Bar, 4200 George J. Bean Parkway, Suite 2580, Tampa, Florida ; Robert J. Hughes, Jr., Respondent, at his record Bar address of 800 Boylston Street, Boston, Massachusetts , and at his last known physical address of 102 Cliffside Drive, Plymouth, Massachusetts , and a copy by E- mail to:hughesrjh@gmail.com; and Kenneth L. Marvin, Staff Counsel, The Florida Bar, 651 East Jefferson Street, Tallahassee, Florida