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Release No. 10-094
June 17, 2010
ORANGE COUNTY ATTORNEY SENTENCED TO PRISON FOR STEALING OVER $2 MILLION FROM HIS CLIENTS’ SETTLEMENT FUND AND THEN LYING TO COURT TO COVER UP HIS CONDUCT
LOS ANGELES – An Irvine lawyer has been sentenced to 18 months in federal prison for misappropriating more than $2 million in settlement funds that he had obtained for clients in a class action and then lying to the federal judge presiding over the case to cover up the fact that he had squandered virtually all of the stolen funds in stock “day trading.”
Sandeep Baweja, 40, of Irvine, was sentenced Wednesday afternoon by United States District Judge A. Howard Matz. In addition to the prison term, Baweja has agreed to pay full restitution to his victims. However, because Baweja currently lacks the resources to repay victims, the California State Bar Client Security Fund expects to compensate hundreds of his victims for their losses.
After self-reporting to the federal judge presiding over the class action and law enforcement authorities in late 2008 that he had stolen and lost his clients’ money, Baweja pleaded guilty in January of this year to one count of wire fraud and one count of obstruction of justice.
According to court documents, in May 2007, Baweja filed a federal class action on behalf of current and former real estate agents of ZipRealty, Inc., alleging that ZipRealty denied class members certain sales commissions, refused to reimburse business expenses, and made unlawful wage deductions. In the fall of 2007, Baweja reached a $3.55 million settlement with ZipRealty, and on March 10, 2008, United States District Judge S. James Otero finalized the judgment, which prompted ZipRealty to pay the settlement, a quarter of which went to attorney’s fees for Baweja and his co-counsel. Baweja’s share of the attorney’s fees was $660,000. The balance of the settlement – approximately $2,525,000 – was to be paid to approximately 800 class member claimants on a pro rata basis.
After the settlement proceeds were deposited into a bank account that Baweja controlled on behalf of the class, Baweja set up a personal online stock brokerage account in April 2008 and began transferring most of the settlement proceeds into that account. Although he had no experience as a trader in the stock market, Baweja used the misappropriated funds to “day trade” securities and to purchase more than $24 million worth of securities on margin. By December 2008, the value of Baweja’s stock account had shrunk to approximately $55,000, meaning that Baweja had lost virtually all of the settlement money that he had held in trust for his clients.
After ZipRealty paid the settlement, claimants to the money began complaining that they were not receiving their portions of the settlement. ZipRealty brought the matter to the attention of Judge Otero, and Baweja responded by assuring the court that he was making disbursements from the settlement. However, Baweja intentionally misled Judge Otero by failing to tell the court that he had distributed only about $121,500, that funds had been paid to only 46 of the approximately 800 claimants, and that the delay in distribution of the settlement was due primarily to lack of funds caused by Baweja’s unsuccessful day-trading activities.
In papers filed in relation to the sentencing hearing, prosecutors asked Judge Matz to impose a sentence of nearly five years in prison. “Arguably, the two most serious transgressions a lawyer can commit are to steal from his client and to lie to the court. [Baweja] did both here,” according to the government’s sentencing memorandum, which argued for a 57-month prison term to punish Baweja’s conduct and to deter other attorneys from “pursuing opportunities for personal gain that so thoroughly eviscerate clients’ interests and their duties to the court.” The United States Probation Office recommended a 70-month prison sentence. Baweja requested a sentence of no more than a year in custody.
Judge Matz opted to impose the 18-month sentence, explaining that he believed a harsher sentence was not necessary to reflect the seriousness of the offense, to promote respect for law and to provide just punishment, given the nature and circumstances of the offenses and defendant’s history and characteristics.
The case against Baweja was investigated by the Federal Bureau of Investigation.
Release No. 10-095
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