In re Patrick J. Maruggi, 2013 NY Slip Op 07279: New York Attorney Disbarred for Misappropriation of Client Funds

The Appellate Division of the New York Supreme Court disbarred an attorney after finding that he had intentionally converted client funds.  The attorney was a partner in a real-estate company, which facilitated mortgage loans to investors for the purchase and rehabilitation of distressed properties.  Investor funds were secured by mortgages on various properties and investors were issued promissory notes providing periodic interest payments.

In 2007, the attorney’s firm stopped making interest payments to investors and explained that, as a result of the financial crisis, many of the borrowers were unable to make payments and he had foreclosed on the loans on the investors behalf.  However, in lieu of foreclosure on one particular property, the attorney transferred title from a third party into the name of an investor, unbeknownst to him.  The attorney then forged the investor’s signature on a deed transferring the property to an entity solely controlled by his partner’s mother in exchange for $65,000.

This purchase was facilitated by a loan provided by another investor.  Part of the agreement with this investor, required that a specific amount of the loan proceeds were to be held in a separate escrow account to be used for rehabilitating the properties.  The attorney instead deposited the funds into his lawyer’s trust account, and subsequently withdrew the money without the client’s permission.

Upon learning of the fraudulent transfer and the misappropriation of funds, both clients filed separate complaints with the New York Departmental Disciplinary Committee.  The attorney filed an initial response denying any wrongdoing.  He failed to participate in any further proceedings and refused to respond to various subpoenas requesting the production of his trust account records and demanding his appearance at hearings.

After hearing the Departmental Disciplinary Committee’s recommendation that the attorney be disbarred for fraudulently executing a deed in violation of NY R. Prof. C. 8.4(c), intentionally converting escrowed funds contrary to NY R. Prof. C. 8.4(a), and failing to cooperate with the Committee’s investigation in violation of NY R. Prof. C. 8.4(d).  The Appellate Division of the Supreme Court accepted the Committee’s recommendation and disbarred the attorney.

Decision: In re Patrick J. Maruggi

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