An Orange County lawyer agreed in court papers filed today to plead guilty to two felony charges related to a scheme in which he took more than $2 million awarded to employees of a company he sued in a class action and lost almost all of the funds while day trading in the stock market.
Sandeep Baweja, 39, of Irvine, was named in a criminal information filed late yesterday in United States District Court in Los Angeles. The information charges Baweja with one count of wire fraud and one count of obstruction of justice. Today, prosecutors filed a plea agreement in which Baweja agreed to plead guilty to the two charges, which carry a statutory maximum penalty of 30 years in federal prison.
Baweja was the sole proprietor of Baweja Law Group (BLG), which was based in Los Angeles until August 2008 when BLG relocated to Irvine.
According to court documents, Baweja filed a class action on behalf of current and former real estate agents of ZipRealty, Inc. in May 2007. The complaint filed in United States District Court in Santa Ana (Lubocki, et al. v. ZipRealty, Inc., SA CV07-2959-SJO) alleged that ZipRealty denied class members certain sales commissions, refused to reimburse business expenses, and made unlawful wage deductions. In the fall of 2007, Baweja reached a settlement with ZipRealty in which the company agreed to pay $3.55 million to compensate class members and to pay for attorney’s fees and other costs. On March 10, 2008, United States District Judge S. James Otero finalized the judgment in the case, which prompted ZipRealty to pay the $3.55 million settlement, a quarter of which went to attorney’s fees for Baweja and his co-counsel. Baweja’s share of the attorney’s fees was $660,000. The balance of the settlement – approximately $2,525,000 – was to be paid to approximately 800 class member claimants on a pro rata basis.
After the settlement money was deposited into a bank account that Baweja controlled on behalf of the class, Baweja set up his own online stock brokerage account and began transferring most of the settlement proceeds into that trading account. Although he had no experience as a trader in the stock market, Baweja used the misappropriated funds to day trade securities on margin. During the course of the scheme, Baweja concealed his activity from class member claimants entitled to the money, Judge Otero, an administrator hired to oversee processing claims, his co-counsel, and ZipRealty and its attorneys. By December 2008, the value of Baweja’s stock account had shrunk to approximately $55,000, meaning that Baweja had lost virtually all of the settlement money that he had held in trust for his clients.
After ZipRealty paid the settlement, claimants to the money began complaining that they were not receiving their portions of the settlement. ZipRealty brought the matter to the attention of Judge Otero, and Baweja responded by telling the court that he was making disbursements from the settlement. However, Baweja failed to tell the court that about $121,500 of the settlement had been disbursed to only 46 of the approximately 800 claimants and that the delay in distribution of the settlement was due primarily to lack of funds caused by Baweja’s unsuccessful day trading activities.
In December 2008, Baweja self-reported to the court and to law enforcement authorities that he had lost his clients’ money.
Baweja is expected to make his first court appearance later this month.
The case against Baweja was investigated by the Federal Bureau of Investigation.
CONTACT: Assistant United States Attorney Richard E. Robinson
Major Frauds Section
Release No. 09-118