Bankruptcy Beat Snapshot: Kathy Bazoian Phelps

The bankruptcy attorney who wrote the book on Ponzi schemes is bringing her expertise to Diamond McCarthy, a boutique law firm that’s no stranger to untangling massive fraud.

Kathy Bazoian Phelps, co-author of “The Ponzi Book,” on Monday is opening the Los Angeles office of Diamond McCarthy, whose attorneys are overseeing the bankruptcy liquidation of Marc Dreier’s law firm, which collapsed upon Dreier’s arrest for fraud. At the firm, she’ll continue working on complex litigation, bankruptcy cases and receiverships, many of which have a fraudulent component.

“Joining Diamond McCarthy provides me with a much larger national and even global platform to assist the types of clients that my skill-set is geared towards,” she told Bankruptcy Beat Friday. “I can now more easily handle cross-border cases or any fraud case that has arisen anywhere in the country.”

Plus, she said she’s excited to be working with talented lawyers “who just happen to be fantastic people as well.”

Based in Houston, Diamond McCarthy expanded to Denver last year and also has offices in New York, Dallas and Austin. Besides the Dreier case, it handles a lot of Ponzi and fraud work, which founding partner Allan B. Diamond says makes Phelps a natural choice to join the firm.

“She’s a really fantastic fit for us because her niche expertise is something that we do every day in cases all across the country,” he said. “We have a lot of Ponzi-slash-corporate-fraud cases that we’re litigating right now.”

While many Ponzi scheme orchestrators look locally for investors, turning to communities of which they’re a member in order to gain trust, a lot of the actual frauds go far beyond those communities. A schemer might funnel investors’ cash to a foreign bank account or premise an investment opportunity on foreign currency exchange.

“It’s an easier sell for Ponzi scheme perpetrators to sell that kind of a scheme, and it’s also harder to regulate,” Phelps said. “I do see them increasing in frequency, leading us all over the country and all over the world.”

During the past two decades, Phelps has seen a lot of investment opportunities go bust. She once represented a bankruptcy trustee who was unwinding a business that traded emission credits in Southern California. It purported to buy the emission credits from a company whose emissions were less than allotted and sell the credits to a company that was going to emit more than its credits allowed.

“What we learned throughout the first days in case…is that the business that was represented to people wasn’t actually taking place,” she said. “We had to reconstruct the truth and learn a complicated business model in the emission credit trading world and piece the story back together, which we did and we successfully recovered a lot of money.”

Write to Jacqueline Palank at [email protected].