Stripped of Counsel, iPayment Names New Lawyers in Fraud Case

Nashville, Tenn.-based iPayment Inc. this morning said it has appointed White & Case as its counsel of record in litigation in U.S. Bankruptcy Court in Los Angeles, in which it and certain of its officers and directors are defendants against allegations of fraud. The processor also repeated earlier assertions it has made concerning the lawsuit, maintaining “this complaint and the underlying allegations are without merit” and insisting it “intends to vigorously defend against them.” White & Case has been advising iPayment in the litigation. The company sustained a setback in the case yesterday when Bankruptcy Judge Vincent Zurzolo, agreeing with arguments made by plaintiffs' attorneys, disqualified its counsel of record, Greenberg & Bass. The judge ruled the firm had violated rules of professional responsibility and the California Business and Professions code because the firm was representing iPayment after having formerly represented ITSV Inc., the plaintiff in the current case. “This is but the first step toward the eventual defeat and exposure of iPayment's fraudulent activities,” said Robert J. Young, principal of Pratter & Young, a plaintiff's counsel. All other motions in the case were continued until Jan. 14. In the suit, filed in August, a bankruptcy trustee alleges iPayment's accountants engaged in fraudulent evaluation of the company's shares as part of a scheme to defraud creditors and investors before a public offering of the company's stock in March 2003. Accounting firms Ernst & Young and Arthur Andersen as well as other entities were named as defendants along with iPayment. The processor handles credit and debit card payments at the point of sale and on the Web for 100,000 small merchants. It has pursued an aggressive strategy of acquisition in building its merchant portfolio. Its latest acquisition was Transaction Solutions LLC, a Pittsburgh-based independent sales organization acquired in September.