Disbarment urged for lawyer who misappropriated $400,000

A northern California attorney's alleged scheme to defraud clients — that included purported threats from a Columbian hit man, references to a Caribbean drug cartel and $16,000 a month for "protection" — has led to a disbarment recommendation. Following an 11-day trial, State Bar Court Judge Pat McElroy found that CLIFFORD B. MALONE [#66689] of Walnut Creek committed eight separate acts of misconduct that cost his clients more than $400,000.

"This case involves an outrageous breach of an attorney's fiduciary duties to his clients by squandering more than $400,000 of client funds to bankroll his and his family's vacations, their personal expenses, a salsa business venture and a private investigator for protection," McElroy wrote in a 20-page decision handed down Dec. 30.

Malone "presents a story of imaginative excuses, ranging from a Columbian hit man and the Caribbean drug cartel to generous clients who gave him money 'out of the blue.'"

McElroy's recommendation was forwarded to the Supreme Court for action.

"I vehemently protest my innocence," Malone said after the decision was announced. "I think the decision was clearly erroneous.

". . . As God is my witness, it's such a bizarre, strange, isolated situation that I don't think anyone would ever believe it."

The case began in 1990, according to McElroy's findings, when Malone, now 55, learned about several people who invested money in fraudulent certificates of deposit issued by a bank. He targeted seven potential clients for a lawsuit, the judge said, and in 1993 the plaintiffs won a $7.8 million judgment. By special verdict, Dr. Harvey and Cristel Chin, a dentist and his wife, were awarded just over $1 million.

The clients paid private investigators $28,000 to locate the bank's assets, but were unsuccessful.

In 1994, Malone told the Chins that he found a high-level investigator to help. In fact, McElroy said, he had been introduced to the investigator by a contractor who installed tiles in his home and he never verified the man's credentials. The investigator owned a food import and distribution business.

According to court papers, Malone encouraged his clients to hire the investigator, requesting $75,000 to fund the cost of recovering the court judgment. Malone denies the allegation.

Between November 1994 and August 1995, the Chins paid Malone at least $387,000.

Malone told them his house was broken into and ransacked, so he hired the investigator to provide security for himself and his family. He also claimed his family, fearing for their lives, had to flee the Bay Area.

In February 1995, the Chins gave Malone $125,000; by April, only about $2,000 was in the trust account. Malone said he needed another $75,000 for 24-hour surveillance on the bank CEO's home. He also said the banker had hired a Columbian hit man and that Malone's home had been shot up and his office ransacked.

The Chins also said Malone claimed he was just weeks away from recovering the assets. They wrote a check for $100,000. On the day it was deposited, Malone wrote a check for $50,005 against the trust account. Malone testified at trial that he did not solicit funds from the clients but that the money came "out of the blue."

Sometime later, Malone called the Chins and said he and his family needed to go into hiding due to threats from the banker. As a result, they gave him another $20,000 to pay the cost of hiding and protecting Malone's family. A check for $62,000 also was written and cashed.

Malone also, at some point, told the Chins it was not safe to call him at home and claimed that he and his wife drove 30 hours to Chicago, in a truck that transported a BMW, to warn their daughter that her life was in danger.

In August, the Chins gave Malone another $100,000, taking out loans against their home and dental practice and from friends. In September, the balance in the client trust account dropped to $2,380.79.

According to the court papers, the Chins' accountant met with Malone, who told him his clients were greedy and said chances of asset recovery were slim. He did not account for the clients' funds and the clients declared bankruptcy.

McElroy found that Malone used $54,540 of the clients' funds for his own benefit.

The investigator disappeared in 1996, when Malone says he began to be suspicious of him. Malone eventually filed a fraud complaint against the investigator.

McElroy ruled that Malone improperly solicited his clients in the first place, knowing they were vulnerable and needed money. She rejected his stories about threats and danger, and said the trip to Chicago was simply a trip to deliver a car to his daughter.

The judge said the evidence did not show how the clients' money was spent, but a ledger established that some of it paid for the investigator's trips to "Biker Week," boat shows, Lake Tahoe and Key Largo Bay, and to fund his salsa business. The money "did not go to any investigation," McElroy concluded.

She also found that Malone charged his clients an unconscionable fee of $20,000 that he used to send his family to Italy.

Malone said he worked more than five years on the case and never received a dime; in fact, he said, he advanced $17,000 in court costs that was not reimbursed. The evidence was "crystal clear" that his family went into hiding out of fear of the banker, he said.

"We had to protect ourselves," he said. "We were on the run for a year and a half. We pulled our kids out of school, our house was broken into a couple of times, the office was ransacked, there were constant death threats."

He also said he had great sympathy for the Chins and denied ever calling them greedy.

Malone said he has practiced law for 28 years without any discipline. Now, he said, "I have to try to make a living somehow."