Clark Smith Villazor LLP and one of its name partners are facing a lawsuit from a former client, Charlie Abujudeh, a convicted securities fraud defendant. Filed in New York state court on Wednesday, the suit alleges that the firm's mishandling of Abujudeh's case led to his arrest by the FBI and resulted in substantial financial penalties.

Abujudeh claims that the firm, represented by Patrick Smith, ignored his explicit instructions to cooperate fully with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) to settle the charges quickly. Instead, Abujudeh alleges that Smith and the firm pursued an adversarial stance to generate more fees.

Abujudeh's lawsuit details how, in 2021, he was persuaded to sign a new retainer agreement that converted the firm's hourly billing rate into a fixed fee of $175,000 and imposed an additional fixed fee of $825,000 for trial coverage. The agreement, according to Abujudeh, incentivized the firm to avoid settlement discussions to ensure higher fees from potential trials.

During a virtual SEC hearing in June 2021, Abujudeh alleges that Smith advised him to invoke his Fifth Amendment rights, contrary to his desire to cooperate. He also claims that Smith falsely informed him that the government and regulator were not interested in settlements, failing to pursue any negotiations with the DOJ or SEC.

The failure to cooperate, according to Abujudeh, led to his arrest by the FBI in July 2021, which occurred in front of his family. This arrest coincided with the SEC and DOJ filing suits against him for running microcap fraud schemes.

After retaining new counsel in August 2021, Abujudeh learned that Smith had never contacted the DOJ or SEC about a potential settlement. Abujudeh’s new counsel successfully negotiated with the DOJ, resulting in an agreement to avoid seeking incarceration or indictment. However, due to Smith's previous adversarial stance, Abujudeh was compelled to accept a plea deal.

Abujudeh ultimately pled guilty in May 2022 to conspiracy to commit securities fraud, paying over $5 million in fines and agreeing to a five-year penny stock ban from the SEC and a lifetime ban from the DOJ, significantly impacting his income.

The suit asserts counts of legal malpractice, fraud, and violation of New York Judiciary Law section 487, seeking damages and attorney fees.

Clark Smith Villazor LLP maintains that its representation of Abujudeh was ethical and aligned with their duties as legal counsel, asserting that the penalties against Abujudeh were due to his own conduct. The firm has stated its intent to vigorously defend against the allegations.

Abujudeh is represented by Craig A. Saunders of Munzer & Saunders LLP.

The case is Charlie Abujudeh v. Patrick Smith et al., case number 155174/2024, in the Supreme Court of the State of New York, County of New York.