Lexington attorney pleads guilty in fraud case; government seizes horse, restaurant, bar

vhoneycutt@herald-leader.comOctober 30, 2013 

A jailed Lexington attorney who helped collect a judgment for victims sickened by the diet drug fen-phen pleaded guilty Wednesday to six federal charges.

Seth Johnston pleaded guilty to two counts of mail fraud, one count of wire fraud, conspiracy to obstruct justice, conspiracy to distribute synthetic marijuana and tax fraud, according to Kyle Edelen, a spokesman for the U.S. Attorney's office. He entered the plea Wednesday in U.S. District Court in Lexington.

Johnston had been the focus of a federal investigation into his financial holdings. The attorney had been jailed on criminal charges involving synthetic marijuana — the catalyst for the federal investigation into his finances.

Among the items subject to forfeiture are a horse, Woodland Dream, and its foal, which has been ordered to be sold at the Keeneland November Breeding Stock Sale. Also subject to forfeiture is the Glenn's Creek Beer Exchange on East High Street, and the Glenn's Creek Brewer's Union on McCracken Pike in Woodford County, according to court documents.

The guilty plea involves allegations that he defrauded Angela Ford, an attorney in Lexington, who represented plaintiffs in a civil law suit in Boone Circuit Court.

That lawsuit alleges breach of fiduciary duties related to fraud in handling the settlement obtained as a result of a class-action lawsuit against the manufacturers of the diet drug Fen-Phen.

Ford obtained summary judgment against three attorneys in the lawsuit.

This summary judgment award was subsequently reversed in part and is currently pending appeal in the Kentucky Supreme Court. Ford hired Johnston to assist in the collection of assets to satisfy the judgment, according to a court document.

Prosecutors said in a court document that Johnston perpetrated a scheme to defraud Ford, the attorney representing the plaintiffs in the lawsuit, by failing to report his collection of funds for purposes of satisfying the judgment obtained to benefit plaintiffs, and instead used the funds for his benefit.

Johnston was also accused of using assets of an estate that he was hired to distribute for his own benefit.

He represented that the estate contained cash assets of approximately $731,601.38. In reality, he was aware that the estate consisted of approximately $1.8 million in cash assets, prosecutors alleged in court documents.

On other count, Ford hired Johnston to create three limited liability companies. Ford was to be the sole member and manager of the LLCs, and the LLCs were to be created solely for her benefit. Ford and Johnston set up bank accounts for the three LLCs, and Ford deposited, caused to be deposited, or intended to be deposited, a combined total of approximately $3.5 million into the three bank accounts. Johnston was not to spend, invest, or move the money without Ford's further instruction. Johnston was to bill Ford for the time he spent creating the LLCs and any accompanying formation documents.

Johnston also acknowledged a scheme to defraud Angela Ford and misappropriated some of Ford's funds without her knowledge He provided documents to hide the scheme regarding the status of her money, prosecutors alleged.

He also pleaded guilty to filing false income tax returns.

Johnston was being held at the Fayette County Detention Center.

Some of the offenses carry a maximum of 20 years in prison.

Johnston's attorney Bernard Pafunda declined to comment.

Valarie Honeycutt Spears: (859) 231-3409. Twitter:@vhspears

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