Giuliani Law Firm Sued by High Profile Texan, by Ben Smith, Politico, October 9, 2007

Giuliani Law Firm Sued by High Profile Texan

By Ben Smith
Politico
October 9, 2007

http://www.politico.com/news/stories/1007/6252.html

A prominent Texas Republican has sued Rudy Giuliani's law firm and a close friend and partner of Giuliani's, Kenneth Caruso, alleging that Caruso, the firm and others "schemed and conspired to steal $10 million."

J. Virgil Waggoner, a Houston businessman and philanthropist, filed the previously unreported suit in New York State Supreme Court in Manhattan in July. He alleges that Caruso, his former lawyer, conspired with Waggoner's investment adviser to cover up the disappearance of $10 million Waggoner invested through a Caribbean bank, the British Trade & Commerce Bank.

The Waggoner lawsuit is the latest messy allegation to hit Giuliani’s private businesses.

Waggoner claims Caruso "may have also been romantically involved" with the investment adviser.

The Caribbean bank was shut down after its handling of Waggoner's investment came to light, and its president was later jailed for money laundering.

Caruso, Bracewell & Giuliani, and Caruso's two former firms — all named as defendants — have filed motions to dismiss the complaint on largely procedural grounds, and Caruso's personal defense lawyer, Fred Warder, called it "meritless."

"It's a pretty familiar tale of a deal gone bad and the principal trying to scapegoat his lawyers," Warder said. "We expect it will go away on motions."

The Waggoner lawsuit is the latest messy allegation to hit Giuliani's private businesses, which include the law firm and his consulting firm, Giuliani Partners, located five blocks from each other in Midtown Manhattan.

His former police commissioner, Bernard Kerik, left the consulting firm after his nomination to head the Department of Homeland Security collapsed amid questions about his personal ethics. Kerik was convicted and fined in 2006 for illegally accepting gifts and failing to report a personal loan while running the police department.

Giuliani and his firm have also faced protests for employing a Giuliani childhood friend and Catholic priest, Alan Placa, who was barred from priestly duties after being accused of molesting boys more than two decades ago. Placa has insisted the charges are false, and Giuliani has stoutly defended him.

Caruso, who joined Bracewell & Giuliani in 2005, was, like many of the former New York mayor's tight inner circle, an assistant U.S. attorney when Giuliani was U.S. attorney for the Southern District in the Reagan administration.

Later, he worked on Giuliani's mayoral campaigns. In Giuliani's book, "Leadership," he describes Caruso as "a close friend" whose advice he sought when he was diagnosed with prostate cancer in 2000.

"I don't care if you're a senator or a mayor or anything else. You can't do anything unless you live and are healthy. You're my friend. Put your health first," Giuliani recalled Caruso telling him. Giuliani writes that he took Caruso's advice and dropped out of the race to replace former New York Sen. Daniel Patrick Moynihan.

Giuliani's personal financial disclosure form, required for presidential candidates, also shows an undated, apparently interest-free personal loan from Giuliani to Caruso valued between $250,000 and $500,000. There could have been interest compounded in a previous year (or if it's below $201, it would not have to be listed).

Giuliani's spokeswoman, Katie Levinson, declined to comment on the Waggoner lawsuit or the loan, referring comments to Warder. Melanie Hillis, a spokeswoman for Bracewell & Giuliani, whose main office is in Houston, also referred questions about the case to Warder.

Warder said last week he would seek his client's response to a detailed list of questions stemming from the complaint. Warder said Monday he was "not at liberty" to answer any questions except to say that the personal loan is not connected to the case.

Waggoner is an unlikely antagonist for the Republican front-runner. The founder of the Sterling Chemical Company, Waggoner — now in his late 70s and retired — has long been a major player in Texas Republican circles and gave tens of thousands of dollars to the campaigns for governor of now-President George W. Bush and the current governor, Rick Perry.

In 2000, he wrote a $250,000 check to the Republican National Committee. But he hasn't contributed to any 2008 presidential campaigns.

The sequence leading to Waggoner's lawsuit, according to the complaint, began at a Texas Republican fundraiser in 1996. There, the chemical executive met Lisa Duperier, who had been an unsuccessful 1986 GOP candidate for Congress in the Houston area.

The next year, the complaint says, Duperier — who is not named in the suit — convinced him to invest $10 million in a "High Yield Investment Program," promising extravagant returns and little risk.

The investment never yielded a penny, and it became a case study in concerns about international banking on Capitol Hill. In February 2001, the ranking Democrat on the Senate Investigations Committee, Michigan Sen. Carl Levin, released a report titled "Correspondent Banking: A Gateway for Money Laundering."

The report, which found the British Trade & Commerce Bank's handling of Waggoner's money "troubling," suggested Waggoner had been "told by [the bank] that the $10 million investment would produce $50 million or more in profits in less than six months."

The report said investigators found "no clear evidence that the [Waggoner] funds were ever invested."

Federal Judge Robert Sweet, who presided over an earlier attempt by Waggoner to recover part of his money, remarked that the promises "sound so preposterous that it is difficult to fathom how any investor could imagine they would be fulfilled," according to a motion filed by another defendant in Waggoner's suit, Caruso's former firm of Chadbourne & Parke.

The Senate report does not mention Duperier. It says that Caruso, then Waggoner's lawyer, refused to cooperate with Senate investigators.

In the summer of 1998, Waggoner's complaint says, Waggoner became concerned about his investment, and Duperier suggested he hire Caruso to investigate the whereabouts of his money and to attempt to recover it.

Waggoner now claims, according to the complaint, that Duperier was involved in the fraud and was living with a vice president of the British Trade & Commerce Bank, Charles Brazie, a fact of which Caruso — also allegedly romantically linked to Duperier, according to the suit — was allegedly aware.

Waggoner also complains that Caruso never told him that investments like his "were regarded as fraudulent and their promoters were generally considered as con artists."

Instead, he says, Caruso actually "sought and agreed to represent a principal of [the British Trade & Commerce Bank, Brazie] in connection with a 2001 U.S. Senate investigation" without disclosing the alleged conflict to Waggoner.

In the wake of the Senate report, the tiny Commonwealth of Dominica revoked the bank's license. The bank's president, Rodolfo Requena, was subsequently convicted in federal court in Miami on money laundering charges and sentenced to 30 months in jail.

Waggoner accuses Duperier of involvement in the alleged fraud and alleges that Caruso worked closely with Duperier — who initially steered Waggoner to the investment. The complaint cites a 1998 fax in which Duperier offered "talking points" to Caruso on how best to talk to Waggoner:

"As long as you are forceful, it should be OK. Repeat things and be direct. Just give him a sense that things are moving and he's not being shoved aside."

In an e-mail from the same year cited in the complaint, Duperier allegedly wrote of the investment program that there was "big money here. Remember, my share of this deal ultimately is $10 million."

Waggoner now seeks to recover his investment, along with punitive damages.

Duperier, who now lives in Washington and is a neighborhood activist in the Adams Morgan neighborhood, did not respond to messages left on her work and cell phones over nearly a week's time.

Waggoner's New York lawyer, James Mahon, declined to explain why she is not named in the suit.

Mahon declined to comment on whether he had shared details of the case with federal prosecutors at the Southern District of New York, where Giuliani served as U.S. attorney.

A spokeswoman for the U.S. attorney, Yusill Scribner, declined to comment on any aspect of the case, citing office policy not to confirm or deny the existence of ongoing investigations.