Q&A With James Knauer

What inspired you to become a lawyer?

I really didn’t intend on practicing law. I just got a law degree because I intended on entering the world of finance and I thought a law degree would be a nice thing to have. I started working for a judge at a court of small claims, a municipal court, during the first semester of law school and I really fell in love with being a lawyer, and it changed my focus.

Any specific memories of your experience there?

That was the beginning, back in the late 1960s, of the legal services organization, which provided legal services to indigents. I was really impressed with how dedicated some of the public-interest lawyers were for even small cases. Frankly, they were out-lawyered, out-manned, out-moneyed. I didn’t go into public-interest law, but that was another thing that made me have a lot of respect for the legal profession.

What are your thoughts on the Walmart class action settlement?

I remember when I first got involved in that case. You don’t always have the white hat on when you’re involved in a piece of litigation, but the more I got involved in the case, the more I realized how bad the facts were for Walmart. We got managers who admitted to changing the payroll records and intentionally denying these people their meals and rest breaks, and we began to learn that it was a pattern that was going on all over the country. We were exchanging information with lawyers in other states, so we were all kind of working on our cases together. We paid our expert witnesses enormous amounts of money, which we were able to do because they were hired in each state so they could take the information they learned in one state and go to another state and testify. For one law firm to pursue the case on a nationwide basis was almost impossible, so it was interesting in the sense that we had a lot of cooperation between lawyers handling similar clients in other states.

What year did you come onto that case?

Roughly 2000. I think it lasted nine years.

Is it difficult when a case goes on for almost a decade?

Well, the class certification was appealed. It was reversed—we had to start all over again. We had, I think, eight-and-a-half-thousand hours, nine years, one appeal. It isn’t something we just stumbled into. You have some real highs and lows.

Tell me about the experience of being involved in Ponzi scheme cases.

There was a period of a few years where there were these investment schemes—it feels like it’s been happening again recently—that were inducing people to invest in these so-called “high-yield investment certificates,” with all these promoters claiming there was some sort of secret bank syndication of high-yield investments that weren’t available to the general public, but if you had minimums of $10 million and up, you could obtain these investments. I never actually got to hear one of the pitches, but I had dozens of people trying to tell me about them. I’d ask them to explain how that could possibly work, and of course they couldn’t. These promoters were apparently just mesmerizing.

I was involved in about four of these big Ponzi scheme cases. When I got the first one in the ’90s, doing things on the Internet was in its infancy. The FCC called me and warned me that there are thousands of investors and that they would all call me once I was the receiver. We came up with the idea of a Web site and putting all the information that we got on it, everything from court documents to handwritten notes and pictures that we’d uncovered. We started doing that and all the phone calls died off immediately. The FCC called us and said, “You’re really on to something here! We never thought of doing that before.”

These cases don’t typically return tremendous amounts of money—it’s just gone. I had one big case where the promoters scammed the investors out of about $30 million, but they themselves got scammed in another offshore banking swindle and they took about $16 million, and they put it into another Ponzi scheme and that’s where the money went!

Are you surprised that people keep falling for the same old tricks?

There’s one going on in Florida right now, where a prominent lawyer, whose name is Rothstein, was claiming to private investors that his law firm was settling thousands of cases a year, promising enormous returns to people who were investing in his personal injury settlements, that were, for the most part, nonexistent. So somebody’s got a new scheme every day. There are some pretty intelligent people who have been fooled.

In the first case I had, [the schemers’] pitch was that they had, through Goldman Sachs, an exclusive right to invest in hot IPOs—and this was in the Internet bubble days, where, when hot IPOs came out, the stock was so oversubscribed, you couldn’t get any of it. On its face, that doesn’t sound too unlikely, but when one of the larger investors questioned it, they hired an actor from California to fly to New York to meet with this investor, tell him he worked for Goldman Sachs, and that it was true. So I’ve seen some amazing things that they’ll do to convince people.

What advice would you give to young lawyers just starting their legal careers?

Return your phone calls, keep your calendar up to date, and don’t talk more than you listen.