US v. Reed, Crim. No. 93-50048-02.

• Decision Date: 12 April 1994
• Docket Number: Crim. No. 93-50048-02.
• Citation: 851 F. Supp. 1296
• Parties: UNITED STATES of America, Plaintiff, v. Glen REED, Defendant.
• Court: U.S. District Court — Western District of Arkansas

851 F. Supp. 1296

UNITED STATES of America, Plaintiff, v. Glen REED, Defendant.

Crim. No. 93-50048-02.

United States District Court, W.D. Arkansas, Fayetteville Division.

April 12, 1994.

R. David Lewis, Little Rock, AR, for plaintiff.

P.K. Holmes, U.S. Atty., Claude Hawkins, Asst. U.S. Atty., Fort Smith, AR, for defendant.

MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

This criminal case arose when a federal grand jury indicted Ezra Earl Maglothin, Jr., licensed as an attorney by the State of Arkansas, practicing in Fayetteville, Arkansas, and Glen Reed, an accountant and formerly a certified public accountant. Mr. Reed was Mr. Maglothin's accountant working out of his law office at the time of the occurrences described below. It was alleged in the indictment that from on or about July 1, 1991, to on or about August 13, 1993, the defendants, aiding and abetting each other, "devised and intended to devise a scheme and artifice for obtaining money by means of false and fraudulent pretenses, representations, and promises."

It was alleged that, as part of such scheme and artifice to defraud, Mr. Maglothin would offer his services as an attorney to the general public, and Mr. Reed would offer his services as an accountant. It is charged that, during their representation of their clients, they would, by various false and fraudulent pretenses, representations, and promises, induce such clients to allow money belonging to them to be placed in the attorney trust account maintained by Mr. Maglothin. The indictment then alleges that the defendant, through various means, withdrew such funds from the trust account, and converted them to their own use.

Based on these alleged activities by the defendants, each was charged with multiple counts of mail fraud in violation of 18 U.S.C. § 1341 and 18 U.S.C. § 2, and one count each of stealing, embezzling, and converting to their own use money which was being held in the trust account for the benefit of the United States in violation of 18 U.S.C. § 641 and 18 U.S.C. § 2. Additionally, Mr. Maglothin was charged with one count of wire fraud and two counts of money laundering in violation of applicable federal law.

The court granted Mr. Maglothin's motion to sever and provided in the severance order that the Maglothin case would be tried beginning the week of February 28, 1994, with the Reed case to immediately follow, with totally different jury panels being utilized for each of the trials.

The Maglothin case was tried to a jury commencing on February 28, 1994, and ending when the jury acquitted him of all counts on March 2, 1994. The Reed case was commenced on March 3, 1994, and ended when the jury convicted him on the charges contained in three counts of mail fraud and one count of stealing and embezzling government money or property. Now pending before the count is Mr. Reed's motion for judgment of acquittal presumably filed pursuant to the provisions of Rule 29 of the Federal Rules of Criminal Procedure.

The Victims

The crimes (and the court believes they were crimes) about which this court heard an abundance of evidence during these two trials were, by no means, victimless crimes. There were numerous victims, certainly including several who testified whose woeful and heartrending stories will be told below. Additionally, society in general was a victim, as well as two professions, law and accounting, which, in the past at least, have been respected, productive, important, and useful parts of our society.

While, in the last 12 years of doing this job as United States District Judge for this district, this judge has heard cases that evoked personal feelings and concern about various aspects of our society, none have literally made me "sick at my stomach" as this case did.

As the evidence unfolded of the reprehensible conduct of the defendants in this case, the court actually began to understand why, during the court's voir dire of the jury, six jurors stood and had the "guts" to tell the judge, whom they knew is also a lawyer, that they could not give the defendant lawyer a fair trial simply because he was a lawyer, implying in some cases, and saying in effect in others, that they had a feeling which they could not wipe from their minds that all lawyers are "crooks."

While this court is convinced that those jurors were "wrong" to lump all lawyers together because of the highly publicized conduct of a very small percentage of "bad apples," the court recognizes that it would be difficult to convince the average layperson that people such as Mr. Maglothin and over a half dozen other lawyers from this area of relatively the same legal generation who have either admitted, been convicted of, or disciplined for dishonest conduct ranging from orchestrating and operating a gigantic insurance fraud scheme to attorney-elected officials taking bribes to "fix" criminal charges made against citizens, were an exception and not the rule.

Certainly the evidence which fourteen jurors heard in this case, and faithfully reproduced and reported by the news media, will only serve to do even more damage to an already wounded profession.¹ Conduct such as that disclosed during the trial of this case make it increasingly difficult to convince anyone that only a very small, almost minute percentage of lawyers and accountants, are dishonest and engage in deceitful conduct against the best interest of their clients. The conduct of honest professionals is not newsworthy, so the public doesn't hear about them. Thus, the court is convinced that society, the legal profession, and the accounting profession are truly victims in this case.

While society and those professions were undoubtedly harmed by the conduct of the defendants in this case, that harm was somewhat undefinable and difficult to quantify. That is not true of the harm that was done to individual victims in this case, and the court will now summarize conduct which resulted in damages to those individuals that are clear and unmistakable and subject to being quantified.

The court will first explain the method by which money belonging to clients described below should have been handled and is handled by most lawyers. Howard Brill, a University of Arkansas professor and an acknowledged expert on legal ethics, testified and described the obligation imposed upon lawyers when dealing with funds belonging to others. Professor Brill explained that most lawyers have office accounts into which money belonging to the lawyer or law firm are placed and from which various expenses are paid. Additionally, however, every lawyer is required to maintain a trust account which is used to deposit the funds belonging to others coming into the hands of the attorney.

Except for a small amount which is sometimes placed in the account by the lawyers when it is first opened, all other funds in that account belong to others and the attorney is expected to properly maintain and account for such funds. The attorney is not permitted to commingle his funds with that of his clients, and if he does so, he has committed an unethical act which could result in discipline. He may not use those funds for his own purposes under any circumstances, and must always have them available to remit to his client at the appropriate time.

An attorney may not, under the ethical rules, even temporarily use his clients funds for any purposes and may not even invest them for his client except where very specific rules are followed. Any investment of a client's funds must, of course, be with the client's permission and must be fair to the client. The lawyer cannot ethically recommend that the funds be invested in speculative ventures, and any investment made for the client, after consent, must be disclosed in writing and the client must be told before the investments are made that he should get independent advice from other counsel.

If these rules are not followed, it is unethical for a lawyer to invest his clients funds or to go into business with the client under any circumstances. Again, if the attorney violates these ethical rules, he is subject to discipline which can include disbarment.

Barbara K. Walden

Witness Barbara Walden, from Russellville, was a pitiful example of how a person who has the misfortune of hiring a lawyer who disregards ethical rules and who engages in a course of deceitful and dishonest conduct is irreparably affected. Ms. Walden, obviously an uneducated person, was either in tears or near tears during her entire testimony. While on the witness stand she told a tale which should have made any honest, responsible person "sick at their stomach" as it did this judge.

Ms. Walden was an over the road truck driver, and in April of 1990 she was asleep in the sleeping compartment of an over the road tractor when the tractor started burning. She jumped from the vehicle and broke her neck and "messed up" her shoulder. She had surgery and still is required to see a physician approximately once per month. She can't raise her right arm and has been given a disability rating of 25% to the body as a whole.

She knew Mr. Maglothin because he had at one time been engaged, according to her, in the trucking business. She journeyed to his office on the south side of the square in Fayetteville and retained him to represent her on a contingency fee arrangement. A fee agreement was entered into in which Mr. Maglothin was to receive 40% of the net of any amount recovered.

A lawsuit was filed against Freightliner and it was subsequently settled for $300,000. She understood that she was to receive, after expenses and attorney's fees were paid, approximately $118,000. The $300,000 check or draft was sent to Mr. Maglothin, and he deposited it in his trust account. The settlement was just before Christmas of 1992, so on December 22, 1992, he gave her $2,000 to "get me through Christmas." He told her that the settlement check had not cleared. On January 15, 1993, she...