Settlement funds gone astray

I wonder what will become of the story that broke over the weekend concerning the potential misappropriation of settlement funds from the American Family redlining case? As a matter of full disclosure, I was one of the attorneys for American Family (who, I suspect, has no legal stake in this controversy) and there are things about the settlement that I can't get into. But I have nothing to with this controversy and the only relationship I have with American Family today is policyholder.

What I can say is that this is potentially serious stuff. The settlement was largely what is sometimes called a "fluid recovery," i.e., a class action gets settled but the money doesn't go to compensate victims, but to support some program or initiative thought to be related to the wrong that has been alleged. In this case, some of the money was supposed to go to compensate people who had been the victims of the alleged redlining, i.e., a refusal to write insurance (or, more accurately, write it on the same terms) in the inner city.

Not surprisingly (at least to me), not enough "victims" could be found so the money that would have spent on that had to be shifted to another purpose and, in this case, the idea was to use the money to help organizations working on behalf of the African-American community. Perfectly OK.

But now the allegation is that the trustee of those funds, former circuit court judge Hal Jackson, paid the money out to certain individuals improperly. Those individuals had served as class representatives, but the settlement limited the recovery of class representatives to $10,000 each. One of the recipients was apparently former Mayor Marvin Pratt. Another was Felmers Chaney who used to head the local NAACP but who was not a class representative. The lawyers for the plaintiff class apparently advised against these distributions and alerted the federal government to the fact that they had been made.

No one has been charged with anything but in the papers seeking appointment of a receiver, the government has said that there are potential violations of federal criminal statutes.

I have always thought that fluid recoveries are susceptible to abuse because they tend to put money in the hands of people who are not clearly responsible to anyone. In this case, the plaintiff's lawyers appeared to have acted diligently to protect the integrity of the funds, but creating a bank for free lance do-gooding has temptations that are not always resisted. Marvin Pratt is quoted in the paper as saying that there was this money and they decided to give it to "the class members." Of course, his statement is wrong in that they gave it to the class representatives and some other guy. But, more fundamentally, has the inner city of Milwaukee become so prosperous that there was no good cause to which the money could have been dedicated?

Too often, fluid recoveries amount to someone with a lot of money throwing a lot of money at something to make it go away. I doubt that is generally a good way to solve real problems.

I am not saying that anyone has committed any crime. A subtext to all this seems to be that Judge Jackson is quite ill and may no longer have been up to serving as trustee.