Lawyer Settles in Vaughan Case [Albuquerque Journal, N.M.]

Feb. 21--The Albuquerque lawyer credited with giving Doug Vaughan the idea for his notorious promissory notes has proposed a $525,000 insurance settlement in the Vaughan Company Realtors bankruptcy.

In the settlement agreement, Sylvain Segal denies any knowledge or liability regarding Vaughan's long-running Ponzi scheme that scammed 600 investors out of about $75 million. The scheme was based on giving high-interest promissory notes to investors in exchange for loans.

Segal has agreed to have his professional liability insurance carrier pay $525,000 to Judith Wagner, the trustee in charge of liquidating the company estate in U.S. Bankruptcy Court. The agreement is subject to approval by a bankruptcy judge.

The $1 million malpractice insurance policy was the target of Wagner's lawyers, but was being spent down to pay for Segal's legal defense, said Segal's lawyer, Briggs Cheney of Albuquerque.

"As a result, neither Mr. Segal nor the trustee could afford not to settle," Cheney said in an emailed statement to the Journal. "There was no choice."

Cheney repeated Segal's assertions of innocence, saying, "I am certain that Mr. Segal would have prevailed (in court)."

Vaughan, a former real estate executive who now faces 10 to 12 years in federal prison after pleading guilty to fraud, used Segal's name prominently in promotional material for his note program. In that material, Vaughan credits Segal with coming up with the idea to raise money for real estate investments through issuing promissory notes.

Vaughan used the notes to operate a Ponzi scheme, an investment swindle in which money put up by later investors is used to pay fake profits to earlier ones. He also used investor money to sustain his money-losing real estate businesses and finance a lavish personal lifestyle.

In the proposed settlement, Wagner claims Segal "failed to meet the standard of care required of an attorney when providing legal services to a corporation." She says Segal provided legal services to Vaughan from 1992 to 2010, roughly the same duration as the Ponzi scheme, and thus should have known something was wrong with the note program.

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