Fen-phen 3 stay in jail, pending financial reports

By Jim Warren

COVINGTON, Sep. 12, 2007 (McClatchy-Tribune Regional News delivered by Newstex) --

Suspended attorneys Shirley Allen Cunningham Jr., William Gallion and Melbourne Mills Jr. will remain in jail, a federal judge ruled yesterday, at least until they can provide financial reports detailing how much they received in a disputed 2001 fen-phen settlement and what happened to the money.

U.S. District Judge William Bertelsman said during a detention hearing that he needs the financial information in order to determine whether the three defendants would be likely to flee or obstruct justice if he releases them from custody. Bertelsman said that once he has the reports in hand he will call another hearing to consider whether to release Mills, Gallion and Cunningham or keep them in jail pending their trial on one count each of conspiracy to commit mail fraud in connection with the $200 million fen-phen settlement.

The ruling just before noon yesterday wrapped up a hearing that began Monday morning and at times featured some sharp exchanges between the judge and attorneys for the three defendants.

The defense yesterday argued that Bertelsman's decision in keeping Mills, Gallion and Cunningham in custody was a misinterpretation of federal court rules on the release of defendants. The three should be released immediately, the defense contended, based on testimony from multiple character witnesses who testified that there was little or no risk the defendants would run away or constitute a public threat if set free. The attorneys added their clients were willing to put up personal property as bonds if the court wished.

Mills' daughter, Nancy Mills Drake of Lexington, took the stand and pledged that if her father were set free she would take responsibility for seeing that he was on hand for any future court proceedings.

But Bertelsman rejected the pleas, ordering the defendants to remain in the Boone County Detention Center. He said, however, that he would be willing to let them go free during daylight hours so that they can work on preparing their financial reports, as long as U.S. marshals accompany them.

Cunningham, Mills and Gallion are facing a whirlwind of legal issues over their handling of funds from the fen-phen class-action settlement, in which they represented 440 clients who claimed to have suffered heart damage as a result of taking the diet-drug combination.

The case has generated national attention in large part because of the racehorse Curlin, who was third in the Kentucky Derby, second in the Belmont and the winner in the Preakness. Cunningham and Gallion bought the horse at Keeneland in 2005 for $57,000. They later sold 80 percent ownership to three partners for a reported $3.5 million.

A special judge has ruled that the three lawyers kept more of the settlement money than they were entitled to and has ordered them to pay their former clients at least $42 million. Gallion and Cunningham have petitioned the Kentucky Court of Appeals to stay that decision. The three also could face up to 20 years in prison each under the federal indictment, which alleges that they conspired to keep $65 million in fen-phen settlement money that should have gone to their clients.

Cunningham, Mills and Gallion maintain they did nothing wrong. They contend that Kentucky's rules on class action lawsuits are unclear and that they relied on Boone Circuit Judge James Bamberger, who presided over the original fen-phen class action suit, to set the fees they received. Bamberger has resigned to avoid possible disciplinary action in connection with the case.

During the detention hearing, defense attorneys objected several times that Bertelsman was allowing questions and testimony on matters not at issue in the session. But the judge overruled them.

Cunningham's attorney, Stephen Dobson, also questioned Bertelsman's conduct on other matters, particularly his comments yesterday about two property transfers Cunningham had made. Bertelsman suggested the transfers could have been a fraudulent attempt to place assets beyond the government's reach. Bertelsman noted that concealing assets could constitute obstruction of justice.

Dobson objected that there was no evidence Cunningham had done anything wrong, arguing that some of Bertelsman's comments had been "unprecedented" and might suggest bias.

"This is an unprecedented case," Bertelsman replied.

Dobson said afterward he was disappointed that the defendants would remain in custody, asserting that "essentially every witness" had testified that the three men could be released without risk.

"No evidence was introduced that they have obstructed justice," Dobson said.

Lexington attorney Angela Ford, who represents the former clients of Mills, Gallion and Cunningham, said she was pleased with the outcome.

"We expressed concern that the victims should be protected, and it sounds as though he (Bertelsman) is going to ensure that they have some protection," she said.

Reach Jim Warren at (859) 231-3255 or 1-800-950-6397, Ext. 3255.

Newstex ID: KRTB-0115-19514177