COVINGTON — Using intimidation, secrecy and lies, three once-prominent Lexington-area attorneys conspired to pocket the bulk of a $200 million diet-drug settlement, a federal prosecutor told a Covington jury Monday.
Shirley Cunningham Jr., Melbourne Mills Jr. and William Gallion would have kept more of the $200 million settlement — in addition to the $105 million they received — if the Kentucky Bar Association had not issued a subpoena for bank records in the case in February 2002, said Laura Voorhees, assistant U.S. attorney.
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Voorhees, in her closing arguments Monday, also accused the attorneys of using a series of court hearings to cover up their alleged theft of $65 million from 440 former clients.
Meanwhile, defense attorneys questioned the credibility of several government witnesses and said any mistakes made in the settlement were unintentional — and not criminal.
The attorneys sued American Home Products on the behalf of the former clients who said the diet-drug fen-phen damaged their hearts. The case was settled in 2001.
The closing arguments in the case — now in its seventh week — took all day Monday to complete. The jury will begin deliberations Tuesday.
If convicted of one count each of conspiracy to commit wire fraud, the maximum sentence the three could receive is 20 years in prison.
After the attorneys learned that the bar association was applying for a subpoena to get bank records in the case, there were a series of wire transfers from Gallion's and Cunningham's personal accounts — totaling approximately $60 million — into an account designated for clients' settlement money, the indictment alleges.
Not long after they moved money back into the clients' account, they went to then-Boone Circuit Court Judge Joseph ”Jay“ Bamberger, who approved the 2001 fen-phen settlement, and asked him to approve attorney fees of approximately 49 percent of the $200 million settlement.
”But they had already taken their fees,“ Voorhees said.
Bamberger also OK'd a second distribution of funds to the clients.
Even though the order was entered in February 2002, it did not become part of the Boone Circuit Court record until June 2002, when Bamberger issued an order sealing everything after the May 2001 settlement agreement in the case.
Voorhees said even after ”they got their hands caught in the cookie jar,“ by the bar association, they still didn't tell the truth about what happened to the money.
Whitney Wallingford, a Lexington attorney who represented the three attorneys at the time, sent the bar a letter saying that the clients had received $116 million. In fact, the clients had received $74 million.
Wallingford said he made a calculation error on the spreadsheet that he sent the bar and that his clients never saw the letter.
Voorhees didn't buy it.
”That wasn't a mistake,“ Voorhees said.
But defense lawyers slammed the government's case. At one point O. Hale Almand Jr., a lawyer for Gallion, even pointed to Voorhees and referred to the case as an ”overzealous“ prosecution.
In order for the jury to convict, federal prosecutors have to show beyond reasonable doubt that the three intended to defraud their clients. There was no criminal intent, defense lawyers said.
The federal government had several people who worked for Gallion and Mills testify in the case. They were named as co-conspirators in the indictment. Yet the alleged co-conspirators — some who had immunity from federal prosecutors — said they were not part of a criminal enterprise, said Stephen Dobson, a lawyer for Cunningham. In fact, some of the former employees said they thought at the time they were doing the right thing for their clients, Dobson said.
Cunningham was not present at many key hearings in the case, Dobson said.
Mills couldn't have participated in a conspiracy to defraud the clients, his lawyer said. He was a barely functioning alcoholic at the time, said James Shuffett, Mills' lawyer. ”Mills played no role in the handling of the case because of his condition,“ he said.
Defense attorneys also dismissed the testimony of Stanley Chesley, a Cincinnati lawyer who testified that he was hired by the three men to negotiate a settlement with American Home Products.
Chesley was paid $20 million to negotiate the settlement but testified last week that he had no idea how the funds were distributed to the clients. Chesley was given limited immunity in the case by federal prosecutors.
Dobson said that Chesley's testimony was ”bought and paid for by an immunity agreement.“ Voorhees later countered that it was the defense, not the prosecution, that called Chesley to the stand. They did not pay for anything, she said.
Chesley said he was not at a key February hearing where decisions were made on how the attorney fees would be calculated. Yet, there was testimony from Bamberger and at least one other person that showed that Chesley was at the hearing, said Almand, Gallion's attorney.
If he lied about that, what else did he lie about, Almand questioned?
The attorneys did not tell their clients many details about the settlement because of a confidentiality clause that said the fine for disclosing the total amount of the settlement was $100,000, Almand said.
Almand also said that the clients in the case received much more money — some received millions more — than those who filed similar fen-phen lawsuits.
Voorhees, in her rebuttal, told the jury to remember what the lawyers' former clients said on the stand. ”They deserved dignity and respect,“ Voorhees said. ”They were treated like they were being run through a mill.“
One client tried unsuccessfully to get more information from Cunningham, but never did. Instead, she was given a second check. But something didn't seem right, the woman testified.
”She was smelling a rat,“ Voorhees said. ”She was smelling three rats.“