Posted on Nov 10, 2006
Father, son take stand
Both had plans for rectifying a $1M shortage and paying clients, they said.
By RICK LEE
Daily Record/Sunday News
Article Launched:11/09/2006 06:20:01 AM EST
Nov 9, 2006 — Mark Frankel and Stephen Frankel both said Wednesday they had plans for rectifying a $1 million shortage in their law firm's client escrow account.
The Frankels, 58-year-old Mark and his 34-year-old son, Stephen, are on trial on multiple charges of theft by failure to make required disposition of funds received. The Pennsylvania Attorney General's Office alleges the father and son practiced a "rollover" scheme to pay clients' personal injury settlements and cover up funds misappropriated from the escrow account.
Both men testified in their own defense Wednesday. Closing arguments are set for this morning in York County Common Pleas Court. Bucks County Senior Judge Edward G. Biester Jr. was appointed to hear the case after the York County judges, almost all with professional or social connections to the Frankels, recused themselves.
Mark Frankel, who "ultimately" accepted responsibility for the mismanaged account, said he believed all of the firm's clients could be paid. According to the Frankels' arrest affidavits, clients were owed $1.1 million and only $300,000 remained in the escrow account when it was frozen by authorities in October 2004. The missing funds, according to testimony, resulted from years of improperly paying employee withholding taxes from the escrow account.
Frankel said the remaining escrow money, coupled with money he maintains is owed to the firm by former associate partners Steven Stambaugh and Girard Rickards, would settle all claims against the account.
Frankel contends Stambaugh and Rickards have refused to reimburse the firm for fees and advanced costs on cases they took from the firm when it closed and later settled.
He said that if that money could have been assembled before his law firm was raided, "we would not be here today."
Stephen Frankel, who became the de facto head of the firm in June 2004 after his father's disbarment for sexual impropriety with clients, said he ordered the rollover payments - using money from a recently settled case to pay off an older case - to stop when he learned of the practice.
He said firm's bookkeeper, Anita Livaditis, "stalled" the release of a settlement check to one of his clients in spring 2004.
"That was the first time I heard the words, 'It's not there,'" he said.
He said he demanded that current clients receive their money when their cases were settled and that his father or the firm pay off the outstanding clients.
"I was angry," he said. "I expressed it to Anita, I expressed it to my father, I expressed it to my mother. I told them I fundamentally disagree with my father and it needed to be fixed."
He said he learned of the escrow shortage earlier in 2004 and was assured by his father and Livaditis that "it was a relatively minor mistake" in the range of $50,000.
Stephen Frankel said he tried to correct the situation by implementing an office budget, slashing advertising expenses and cutting all attorneys' salaries. He also forewent his own "bonuses" on cases he settled.
On cross-examination, he said he felt he was "someone trying to fix a bad problem, using my own time and my own money because it was the right thing to do."
Both Frankels admitted to emotional and mental-health problems resulting from the firm's financial problems.
Mark Frankel said he had been disbarred, was seeing two psychiatrists, "taking a fair amount of medication," his mother had died, his wife had left him, his children weren't talking to him, his friends had turned their backs, "and everyday it was played out in the newspaper over and over again."
"My mental state at that point was extremely grave," Mark Frankel said. "I didn't know which end was up."
Stephen Frankel said he checked himself into a mental-health facility for depression and suicidal thoughts in September 2004.