A New York appellate court held that a two-year suspension from the practice of law was appropriate discipline for an attorney whose IOLA account was allegedly raided by his brother and the law firm bookkeeper. The court said the attorney had failed to maintain “appropriate vigilance” over his firm’s accounts.
The case is In the Matter of Peter J. Galasso, Supreme Court, Appellate Division, Second Department, New York (940 N.Y.S.2d 88).
The Grievance Committee alleged that Peter Galasso and the Galasso Langione firm misappropriated funds deposited in its accounts after representing several clients in a variety of cases.
The firm represented Stephen Baron in connection with an action for a divorce. Pursuant to a written escrow agreement dated June 8, 2004, the respondent acknowledged the receipt of funds totaling $4.8 million representing the proceeds of the sale of a commercial property owned by Baron (the Baron funds).
In June 2004, the Galasso, through his agents and employees, arranged for the funds to be deposited into an interest-bearing account at Signature Bank entitled “Stephen Baron Galasso Langione LLP Escrow Agents.”
Stephen and Wendy Baron, through their respective attorneys and agents, demanded payment from the following the divorce determination, but according to the court records to date, the firm has failed to deliver or pay more than $4.3 million of the Baron funds to the respective parties.
Between June 11, 2004, and mid-January 2007, there were a series of Internet transfers of Baron funds, totaling more than $4.3 million, from the Baron escrow account into various accounts maintained by the respondent and the Galasso Langione firm at Signature Bank. The Baron funds were disbursed to the respondent, other members and employees of the Galasso Langione firm, various third parties, and various business entities.
The Barons demanded an accounting of the funds, but allege they received only a partial accounting. The Grievance Committee also alleges that Galasso failed to timely and fully respond and or comply with requests associated with its own investigation into the firm, including a written update on the status of the forensic investigation that was undertaken by the firm in 2007, an accounting to trace the funds, and bookkeeping records detailing where the funds were disbursed.
In two other incidences, an $800,000 medical malpractice/wrongful death settlement, and a $175,000 personal injury case settlement on behalf of Adele Fabrizio, were allegedly misappropriated by the bookkeeper.
In these various incidents, Galasso was charged with breaching his fiduciary duty by failing to safeguard funds, being unjustly enriched by the use of the misappropriated funds, failing to properly supervise non-attorney staff, breaching his fiduciary duty in failing to provide appropriate accounting to the clients, and failure to timely comply with demands for information by the Grievance Committee.
Regarding the charge of failing to supervise non-attorney staff, the referee noted that Galasso had permitted his former bookkeeper to handle the firm’s banking and bookkeeping responsibilities and relied on the firm’s former bookkeeper to reconcile the firm’s IOLA accounts.
“However, the respondent failed to properly supervise the firm’s former bookkeeper with respect to the foregoing, and failed to properly review, audit, and/or reconcile the firm’s IOLA accounts,” the referee said. “In the exercise of reasonable management and supervisory authority, the respondent would have been aware of the inappropriate handling of the firm’s IOLA accounts and the unlawful and improper disbursements of funds received on behalf of the Estate so that remedial action could have been taken to avoid or mitigate the losses suffered by the Estate.”
The Special Referee sustained all charges, but Galasso moved to disaffirm the referee’s report.
What the court decided:
The court confirmed the referee’s report and denied Galasso’s cross motion, noting, however, the cooperation he had provided during the investigation.
“In determining an appropriate measure of discipline to impose, the court notes the respondent’s testimony as to the negative impact the conduct of his bookkeeper and brother, Anthony Galasso, has had on his personal and professional life; the changes he has made with respect to his business practices; his cooperation in connection with the criminal prosecution of his bookkeeper and brother, Anthony Galasso; and his pursuit of lawsuits against, among others, Signature Bank, in an effort to reclaim the misappropriated Baron funds, as well as the funds misappropriated from the Estate and from Adele Fabrizio,” the court said. “In addition, the court considered the 37 letters of good character submitted on the respondent’s behalf. However, we find that the respondent failed to maintain appropriate vigilance over his firm’s bank accounts, resulting in actual and substantial harm to clients. Under the totality of the circumstances, the respondent is suspended from the practice of law for a period of two years.”