THE Attorney General’s Office has moved for the disqualification of a law firm from any further representation of Bank of Saipan in the receivership case for alleged probable liability for legal malpractice.
AGO, on behalf of acting Secretary of Commerce Fermin M. Atalig, asked the Superior Court to issue an order preventing Calvo & Clark law firm from filing any further pleadings in the receivership matter because “they have real and apparent conflicts.”
“(Calvo & Clark’s) efforts to control the receivership, and strip (Randall Fennell) of his powers are designed to prevent further uncovering of the wrongdoing that occurred in this case,” said Assistant Attorneys General Allan L. Dollison and Alexis A. Fallon.
They said that on Dec. 3, 2001, Bank of Saipan’s major shareholders Paul Calvo, Thomas Calvo and Edward M. Calvo executed a stock purchase agreement with B.D. Montgomery, who was among the four persons later indicted over the alleged conspiracy to defraud the bank of $6.6 million.
Edward M. Calvo is the father of Edward A. Calvo. Paul and Thomas Calvo are uncles of Edward A. Calvo. Edward A. Calvo is a partner in Calvo & Clark, according to court papers filed by the government.
Dollison and Fallon said JLH Pacific Trust, one of the major shareholders of Bank of Saipan, also executed a stock purchase agreement with Montgomery.
The agreement indicated that Calvo & Clark were the attorneys for Calvos and JLH Pacific Trust, AGO said.
According to the stock purchase agreement, the purchasers were to tender a cash payable via wire transfer or delivery of other immediately available funds.
Instead of receiving the sale proceeds from the purchasers, the selling shareholders/board members obtained funds drawn from Bank of Saipan, AGO said. Nowhere in the record shows that there was approval for this disbursement of the bank’s funds, AGO said.
The selling shareholders did not tender their shares to the bank or to the purchasers and at present maintain possession of these shares and the proceeds from the bank disbursement, AGO said.
Nine days after the stock purchase agreements were executed, neither Calvo & Clark nor the selling shareholders revealed in a board of director’s meeting that the sale took place on Dec. 3, 2001, AGO said.
The deal, the government attorneys said, only unraveled upon the discovery that Montgomery and his associates participated in the defrauding of a bank in Grenada.
Upon investigation, they said, it was discovered that another Montgomery affiliate, Sweven Systems, “borrowed” $5 million from Bank of Saipan in an unauthorized loan transaction.
On Feb. 20, 2002, an attorney from Calvo & Clark learned of the purchasers “nefarious past,” AGO said.
Calvo & Clark, they said, then engaged in a series of steps to protect the selling shareholders and themselves from the fraudulent conduct of Montgomery and his affiliates.
Calvo & Clark engaged an independent law firm, Mair law firm, and an accounting firm to review the transactions.
The government lawyers cited two conflict of interests based on the Model Rules of Professional Conduct that have been allegedly directly violated by the law firm in their representation of the bank.
First, they alleged, Calvo & Clark have a direct conflict of interest by representing the bank and the shareholders in the sale of the majority shareholders stock.
Second, there is at minimum an appearance of impropriety when Calvo & Clark failed to do due diligence that led to the troubled condition of the bank, AGO said.
The stock purchase agreement for the Calvos and JLH Pacific Trust indicate that Calvo & Clark are the attorneys for the selling officers/shareholders, AGO said.
The government lawyers said it is obvious from the record that the minority shareholders, including Jerry Tan, were not informed by Calvo & Clark of the current status of the sale on Dec. 12, 2001.
“In fact, it appears that they were misleading Mr. Jerry Tan allowing him to believe that there would be a stock purchase agreement for his shares when in fact the stock purchase had already taken place,” AGO said.
