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Alleged Fraudster Used Law Firms to Cover His Tracks

The Wall Street Journal went whaling on Thursday, and it looks like it speared a big one (even if the paper missed Moby Dick himself). A fascinating front-page story digs into the details of Private Equity Management Group CEO Danny Pang, who has been accused of defrauding investors, running a Ponzi scheme and was once a suspect in the 1997 unsolved murder of his ex-stripper wife, among other unsavory details. Reporter Mark Maremont offers details of Pang's phony résumé, his gambling debts, his shady investments and even his attempt to pay off his former business partner in order to keep the story out of the Journal. The paper reprints a letter that Pang's lawyer, Fulbright & Jaworski partner Charles Schmerler, sent Nasar Aboubakare offering him $500,000 if he could convince the WSJ to kill the story.

Other documents mentioned in the story suggest that Pang was double-billing his private-equity clients for $1 million to pay his Fulbright legal fees. But that's not the only law firm-related chicanery going on here. A follow-up piece in today's WSJ notes that some of the investment funds that Pang oversees are unaudited, "and the trustee assigned to keep track of investors' assets is a two-partner law office that includes one partner with ties to Mr. Pang and his firm." Daily & Knudson, based in Irvine, Calif., is a bit too small for this kind of work, suggests a hedge-fund attorney quoted in the story. Unfortunately the one guy who could help unravel the growing number of accusations and shady details, Danny Pang, is in China at the moment, where he's attending "an annual religious pilgrimage," according to a company spokesman.

This is likely just the beginning of a series of revelations about Pang and his enterprises as investors scramble to figure out what exactly Pang did with their funds. But what has been revealed so far brings up some uncomfortable questions for the law firms involved. So far it sounds like two-partner Daily & Knudson has more than a few questions to answer about its relationship with PEMGroup. But what about Fulbright & Jaworski? There's no indication the firm was ever aware of or involved in Pang's alleged frauds. For all he knew, Schmerler was simply helping a client maintain his privacy -- his letter to the WSJ was odd but not necessarily unethical. But at what point dose a hush-money letter like this raise a red flag?

Posted by Laurel Newby on April 16, 2009 at 06:18 PM | Permalink | Comments (0)

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