Brother, Can You Spare $9 Million?

Gene Cauley needs cash. That much is clear.

As ArkansasBusiness.com reported on May 8, the Little Rock lawyer and real estate investor was called on the carpet by a federal judge in New York last month when he wasn’t able to come up with the last $9.3 million of a $65.9 million settlement that had been left in his custody since late 2006.

Called on the carpet?

Actually, U.S. District Judge Jed S. Rakoff said it was “not unlikely … that Mr. Cauley may have committed a crime or several crimes, that he may have committed disbarrable conduct in one or many ways.”

It’s not clear what happened to the money, except that it wasn’t where it should have been. Cauley, through his lawyer, John Wesley Hall Jr. of Little Rock, asserted his Fifth Amendment right against self-incrimination when Rakoff asked that question in a hearing on April 20.

It doesn’t appear that this money was ever in what’s known as an IOLTA account – it stands for Interest on Lawyers Trust Accounts. Those accounts are generally used for a mix of funds from various clients, and the interest they earn goes to support the IOLTA Foundation.

The settlement from a class action Cauley filed against The Bisys Group probably was supposed to be held in a single-purpose account, and the interest would have belonged to the clients on whom the principle would eventually be settled.

But Stark Ligon, executive director of the Arkansas Supreme Court’s Committee on Professional Conduct, said lawyers are required to safeguard client money no matter who earns the interest.

“The bottom line, no matter where you put it, IOLTA or non-IOLTA, you are responsible for it,” Ligon told “Whispers” last week.

The state does not routinely audit lawyer trust accounts, Ligon said, so Cauley may well have gotten away with what Rakoff inferred was “either misappropriated or otherwise misallocated” funds if he had been able to come up with the full $66 million by the time the last distribution was supposed to be made on April 8.

Hall said the last bit could not be “liquidated,” although he indicated that it could be available within 90 days. Take from that what you will.

Fog Lifts
Last fall, Arkansas Business agreed to Cauley’s demand (accompanied by a threat of legal action) that we stop trying to contact him for interviews or comments on any stories. So we’re on our own in trying to piece this thing together.

But something we found baffling now seems to make more sense.

On Dec. 1, we commented that it was “unusual” for a sitting director of a publicly traded company to sell every share of that company’s stock that he could – yet that’s what Cauley did. Between Oct. 29 and Nov. 21, Cauley sold more than $10 million worth of stock in Home BancShares Inc. of Conway.

While he was selling, his former law firm – now known as Carney Williams Bates Bozeman & Pulliam PLLC – joined in a motion to distribute the Bisys settlement to the plaintiffs, and such an order was issued on Dec. 3.

How much advance notice Cauley had of that motion is not known, and his former partner, Allen Carney, politely declined to answer.

Some of Cauley’s Home BancShares stock had been held for less than six months, and under the Securities & Exchange Commission’s short-swing profit rule, an insider must return to the company any profit made on shares bought and sold within six months.

Our math’s a little fuzzy, but that quick sale probably cost Cauley between $50,000 and $80,000 at a time when he really, really needed the money.

He resigned from the HBI board on April 3.

Coco Mountain
Just before Cauley started selling off his HOMB stock, one of his many real estate ventures – Coco Mountain Ranch LLC – broke ground on the second phase of the Mountain Ranch multiuse project in west Fayetteville.

We hear that some plat questions that were holding up progress are about to be resolved. And we see that Coco Mountain Ranch LLC filed a lawsuit against the project’s original developer, Tom Terminella, and then suddenly dropped it.

In the complaint, which was filed in U.S. District Court in Fayetteville on March 17 and dismissed last Thursday, Coco Mountain said it wanted back the $527,000 it paid Terminella for consulting services over a 10-month period starting in November 2007.

“Despite the payments by Coco to Terminella, Terminella provided minimal consulting services,” according to the complaint filed by Cauley’s former partner, Curtis Bowman.

The lawsuit alleges that Terminella has been “blackmailing Coco through threats of litigation and slander” with the purpose of obtaining money to finance “his other coercive litigation against Metropolitan National Bank.” (Terminella lost that one.)

And it also contains a threat in which a bit of news can be found:

“However, if Terminella takes action that results in the failure of Coco’s pending sale (approximately $700,000) to close, Coco will sue Terminella and his attorney for tortuous interference with a business expectancy and slander of title claims that are not dischargeable in bankruptcy.”

It’s not clear what the $700,000 sale involves — Coco Mountain paid $17 million for the entire Mountain Ranch project in July 2007 — but if Cauley can close that sale and get his money back from Terminella, he’ll be only $8.1 million away from making the Bisys plaintiffs whole.