BISMARCK – A second class-action lawsuit alleges that a Bismarck law firm shares liability for a Bakken housing Ponzi scheme that cost investors $62 million.
The latest complaint against Pearce & Durick filed in U.S. District Court names about 10 plaintiffs from various countries and alleges that the firm actively assisted North Dakota Developments in offering unregistered securities to the public.
In May, the U.S. Securities and Exchange Commission filed a civil complaint against North Dakota Developments and its owners, Robert L. Gavin and Daniel J. Hogan, alleging they had defrauded investors since 2012 for North Dakota oilfield housing projects that were never finished.
Pearce & Durick, the escrow agent for North Dakota Developments, distributed money from investors to developers according to stages outlined in an agreement.
The court complaint says the firm dispersed money early without verifying that the milestones, such as the manufacturing or installation of modular units, had been met.
“I think Pearce & Durick is fooling themselves if they think they have no liability,” said attorney Joshua Kons of Connecticut, one of the attorneys representing investors. “They were negligent, they breached their fiduciary duties and they definitely participated in these transactions.”
Richard Thomas, an Arden Hills, Minn., attorney representing the Bismarck firm, said the firm denies that it did anything improper.
“Pearce & Durick has been victimized by these same developers who were victimizing these investors,” Thomas said. “Everything that is alleged in the complaint results from the fact that developers were misleading us and misinforming us about the status of events, upon which we relied.”
The complaint names about 10 plaintiffs from countries including the United Kingdom and Australia, but Kons said the case could cover everyone who invested with North Dakota Developments.
Investigative records indicate 980 investors from 66 countries invested more than $62 million in North Dakota Developments, according to the North Dakota Securities Department.
“Many of these people were lured in through various online marketing websites and portals which touted the virtues of investing in these man camps and how they offered very high returns for low risk,” Kons said.
A separate class action complaint filed last month makes similar allegations but defines the plaintiffs as investors who paid legal fees to Pearce & Durick.
Thomas said it will be up to a judge to decide how to proceed with the two cases, but typically a judge would want the plaintiffs’ attorneys “to decide who’s going to sail the ship.”
“You can’t have two competing class actions at the same time. It doesn’t make any sense,” Thomas said.
Both cases are assigned to U.S. District Court Judge Ralph Erickson.