Admitting misappropriation, Claremont lawyer agrees to disbarment

An attorney who pleaded guilty last year to wire fraud in connection with a foreign investment scheme that bilked millions of dollars from his victims was disbarred after admitting misconduct that included misappropriating almost $400,000 from several clients. GERALD MICHAEL SHAW [#60001], 63, of Claremont stipulated to disbarment July 8, 2011, and was ordered to make restitution and comply with rule 9.20 of the California Rules of Court.

He had faced possible summary disbarment after the wire fraud conviction and had been on interim suspension since October 2010. That matter became moot once the disbarment took effect. Shaw, formerly of Newport Beach, also tried to resign from the bar in 2008, after he was indicted by a federal grand jury, but the Supreme Court did not accept his resignation.

In the four matters that led to the disbarment, Shaw stipulated to 11 counts of misconduct ― he misappropriated $391,857 from several clients, committing acts of moral turpitude, did not deposit client funds in a trust account, represented clients with potentially conflicting interests, and he failed to perform legal services competently.

Shaw received more than $90,000 in settlement funds on behalf of a client, but didn’t inform the client and deposited the money in his business account rather than his trust account. He then spent all the money. Although a bankruptcy judge eventually permitted Shaw to collect $82,326 in fees and $67,489 for costs, he had spent the settlement before obtaining the court order. The client sued him for malpractice and won $356,000 to resolve his claims against Shaw. He also did not serve a summons or a complaint in a matter he handled for the same client and stipulated that he failed to perform legal services competently.

In a second matter, he represented the estates of a couple killed in an automobile accident, receiving two $100,000 settlement checks on behalf of their estates. He didn’t deposit either check in his trust account, and although he was entitled to 20 percent of each settlement, which he took, he spent the remaining funds ― $80,000 from each settlement.

Four years later, he wrote a check to the representatives of the husband’s estate for $43,000 but it bounced. More than another year passed before he paid that amount with a cashier’s check.

The wife’s estate obtained three more settlement checks totaling $200,000, and although Shaw had been substituted out, he believed he had done some work on those matters and was entitled to attorney’s fees of $40,000. He therefore wrote a check for $40,000 (the difference between what was supposed to be held in trust and what he believed was his fee) and stated in the memo section that it was for “full and final settlement of attorney’s fees.” However, the new lawyer didn’t cash the check. Shaw eventually sent a cashier’s check for $40,000.

Shaw did not inform the representatives of either estate of a potential conflict of interest or obtain their written consent to his dual representation.

Another client paid Shaw $154,872 to handle a disability lawsuit. She eventually settled for $776,179, an amount Shaw deposited in his personal or office checking account rather than a client trust account. After giving the client more than $607,000, Shaw should have maintained $169,000 for the client, but he kept the money.

Shaw pleaded guilty to wire fraud in 2010 in connection with a high-yield investment program in which he and an employee, Gregory De Lavalette, solicited investments from victims ― some who were his clients ― by falsely stating that the money would be used to trade European bank instruments. According to the FBI, the men said the money was safe, would be refunded within 30 days of a request and claimed to trade AA-rated securities and bonds. In some cases, federal law enforcement said, Shaw and De Lavalette promised between 30 percent to 40 percent weekly returns.

Shaw pleaded guilty to one count connected to the transfer of $300,000 from a victim to Shaw’s bank account. The victim believed the funds would be used for foreign security investments. Investigators and prosecutors believe, however, that Shaw defrauded at least 10 victims of $4.5 million.

Bar prosecutors had no proof the wire fraud was related to the misconduct charges it filed against Shaw.

Prosecutors believe De Lavalette, who also pleaded guilty to one count of wire fraud, stole about $395,000.

In mitigation, Shaw was going through a divorce during the time covered by the stipulation and he learned that an employee had embezzled $225,645 in client funds by forging his signature on 154 law firm checks.