Opinion ID: 1454365
Heading Depth: 1
Heading Rank: 12

Heading: thirty-fourth cause of complaint

Text: In this cause of complaint the Bar alleged that Griffith violated former Disciplinary Rules: DR 1-102 Misconduct. A) A lawyer shall not:    (3) Engage in illegal conduct involving moral turpitude. (4) Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation. because of the following conduct: At all material times ORS 165.100 and 18 U.S.C. § 1014 prohibited a person from knowingly making or issuing a false financial statement for the purpose of influencing the action of a bank upon a loan application renewal. [24] The Bar further alleged that between June 1980 and March 1983, through a series of written financial statements Griffith knowingly misrepresented his own financial worth, liquidity and ability to repay Columbia Pacific, Canadian Imperial Bank of Commerce and Peoples National Bank of Washington for the purpose of obtaining extensions of credit for himself. Griffith's answer was in effect a general denial. The Trial Panel found that Griffith had violated both former DR 1-102(A)(3) and (4). It said that Griffith knowingly misrepresented the value of assets reported on his financial statements and failed to disclose in some of the statements substantial contingent liabilities. It held that the conduct violated state and federal banking laws and was conduct involving moral turpitude. Griffith points out in his brief in this court that to prove a violation of ORS 165.100, supra, the Bar must show by clear and convincing evidence (1) a written financial statement, (2) knowingly submitted to one of the three banks named in the complaint, (3) containing a material inaccuracy, (4) submitted with intent to defraud. Griffith also points out that to prove a violation of 18 U.S.C. § 1014, supra, the Bar must prove by clear and convincing evidence (1) a false statement to one of the three banks named in the complaint, (2) for the purpose of influencing actions of the bank, (3) that the statement was false as to a material fact, and (4) Griffith knew it was false. The Bar in its brief counters by stating that Griffith is charged with both illegal conduct ( former DR 1-102(A)(3)) and dishonest conduct ( former DR 1-102(A)(4)) and therefore he could be found guilty of violating the latter disciplinary rule even if all the elements of a criminal offense are not present. This cause involves three separate financial statements. Under our de novo review we have examined all of them in detail, but we elect to discuss only the statement of November 25, 1981. It was made during a time period when First Northwest needed additional cash. To help the situation Brookens and Griffith were contemplating purchasing additional shares in the corporation. Lester Hardy wanted out of First Northwest but was told that the financial position of the corporation would not permit it. The Village Joint Venture project in Medford and another project in Springfield were in financial trouble. [25] The Bar's chief complaint about this financial statement is the entry under assets which reads: First Northwest Financial Corp.  ratio of 2.5 X book value $1,216,528.00 Under liabilities is an entry which shows Griffith owing Thomas E. Wolf the sum of $125,000. The financial statement does not say so but we conclude from the record that the entry in question represents the original 150 shares which Griffith purchased for $26,250, plus the 125 Wolf shares which we discussed in the second cause. An independent audit by Peat, Marwick, Mitchell & Co as of June 30, 1981 shows 600 shares of First Northwest issued and outstanding for a total value of $434,013 for stockholders equity, including a capital account of $105,000. Therefore the book value of the stock was $723.35 per share. The total book value of Griffith's 275 shares was $198,921.25. 2.5 times book value of 275 shares equals $497,303.12. Between June 30, 1981 and October 31, 1981, the financial condition of First Northwest did not improve. Disaster struck. An internal audit prepared by the corporation on the latter date showed the capital account remained at $105,000 but a loss in earnings had reduced the total stockholders' equity to a minus $146,673.35. Another internal audit as of November 30, 1981 showed the capital account constant but the stockholders' equity had been further reduced to a minus $178,322.04. We can draw only one inference  on November 25, 1981, the stock in First Northwest had no value. It was worthless. Griffith's statement that his stock was worth $1,216,528 was a gross and flagrant misrepresentation. On the financial statement in question Griffith showed his NET WORTH BEFORE TAXES to be $1,949,054. If the $1,216,528 listed as the value of First Northwest stock is subtracted Griffith's net worth is reduced to $732,526. The Bar also points out that the statement does not show as a liability the $250,000 that Griffith owed to Columbia Pacific on his line of credit. Griffith borrowed the money for the use of First Northwest, and therefore he claims that if the liability is shown, he should be entitled to an off-setting credit that the same amount is due him. Normally Griffith would be correct but considering the financial condition of First Northwest on November 25, 1981, it is doubtful that the amount was collectable on that date. [26] The statement in question also lists as an asset a 13.12 percent interest in Lawyers' Retirement Trust for $259,139. The trust owned a total of 93,700 shares of Columbia Pacific stock. Griffith's beneficial interest of 13.12 percent represented 12,293.44 shares. $259,139 divided by 12,293 shares equals $21.08 per share. The 1981 annual statement of Columbia Pacific states that Foster & Marshall Inc., a stock brokerage house, quoted a price on the stock of 8 3/4 bid and 9 3/4 asked for the fourth quarter of that year. [27] The Bar also contends that Griffith should have listed an offsetting liability to Wells Fargo Bank when he listed the value of Lawyers' Retirement Trust. Griffith answers by saying that the debt to Wells Fargo was owed by Wolf, as trustee and that he had only a contingent liability because of his personal guarantee. In spite of Griffith's argument, the value of the assets of the trust were reduced by the amount of the note. [28] Griffith testified he reached the $1,216,000 value of the First Northwest stock in his November 25, 1981 financial statement as follows: (Q) (SCHULTE) So you are saying that this figure of 1,216,000 is what you felt the two and a half times of your market value of your interest in the company was worth at that time? Is that what you're trying to say? (A) (GRIFFITH) What I'm saying is this is the number that's probably given to me by Tom Wolf which I believed to be accurate. I have no reason to think he would give me an inaccurate figure. And I had no reason not to believe that he had a great deal more knowledge than I about those kinds of computations and what you'd put in something like this. Later Griffith explained further: (A) What this number means is that Tom Wolf would have given me, and it was on the reliance of what do I put down for this asset, and this is what he would advise me. So, I probably would have never thought about it other than to think of it being as whatever Wolf happened to tell me. That would have been the source of my knowledge, both of the number and of book value.    BY Mr. SCHULTE (Q.) Did you even inquire about the definition of book value? That's where I'm having a lot of trouble because, at this time, you only had invested roughly $75,000 in the company. (A.) No, I did not make that inquiry. I would get the whole thing, you see. In other words, I'd say, `What do I put down?' He'd say, `Two times book,' this number, and that's what I'd put down. If he said nothing about book value and a number, that's what I'd put down. (Q.) Mr. Griffith, you must have been literally dancing to think that your $75,000 investment was now worth a million-two at this point in time. I mean, did you believe you were worth that much money? (A.) Yes. (Q.) Almost a double millionaire? (A.) Yes. (Q.) You had a sincere belief you were worth that much when you gave this statement to the bank? (A.) Yes. (Q.) You did not create this statement to justify your line of credit? (A.) No. (Q.) Your line of credit at that time was $250,000. (A.) Okay. (Q.) Were you present at any meetings of the shareholders of First Northwest at around this time where there was discussion about your inability to meet the obligations of First Northwest? (A.) There was a need for cash, and there was a meeting where not only cash was being contributed but Hardy wished to disentangle from First Northwest or reduce his interest in it. [29] The financial statements in question were delivered to the banks named in the Bar's complaint and those banks relied upon the information therein contained to loan money to Griffith. We have discussed only one of Griffith's financial statements. The other two statements referred to in the Bar's brief in this court contain errors which inflate Griffith's net financial worth, but are not the flagrant, gross misrepresentations set out in the November 25, 1981 statement. Griffith's financial statement of November 25, 1981 does not disclose any contingent liabilities while his statement of August 5, 1983 lists contingent liabilities of $9,248,982. Griffith admitted that he had at least one contingent liability on November 25, 1981  to Wells Fargo ( see note 28, supra ). The Trial Panel found his failure to list the contingent liabilities to be a part of the overall violation of the Disciplinary Rules prohibiting dishonesty and misrepresentation. On this narrow issue we find in favor of Griffith. The format of the financial statement does not purport to show whether the maker had contingent liabilities. If the bank receiving the statement desired that information, it could have made further inquiry. We agree with the following statement by the Trial Panel: The Accused states that much of the information reported on his financial statements was generated by Wolf or other people who had greater knowledge of the condition of the various business enterprises in which he was an investor or better knowledge of the appropriate manner in which to value assets than he. The Accused's statement is true, however, the Accused's own personal knowledge was such that he knew the values provided to him by other people were not accurate and the Accused is responsible for the accuracy of the financial statements prepared for him and submitted by him. We find by clear and convincing evidence that Griffith's conduct in connection with his financial statement of November 25, 1981 violated former DR 1-102(A)(3) and (4).