BISMARCK – More than 100 investors from around the world have joined a class action lawsuit alleging that a Bismarck law firm played a role in a Ponzi scheme that bilked people out of $62 million.

A complaint filed in U.S. District Court alleges that the Pearce & Durick law firm, which was the escrow agent for North Dakota Developments LLC, committed legal malpractice by failing to advise investors they were investing in unlawful securities.

In May, the U.S. Securities and Exchange Commission filed a civil complaint against North Dakota Developments and its owners, Robert L. Gavin and Daniel J. Hogan, alleging they had defrauded investors since 2012 for North Dakota oilfield housing projects that were never finished.

Investigative records indicate 980 investors from 66 countries invested more than $62 million in North Dakota Developments, according to the North Dakota Securities Department.

Investors thought they were buying an interest in housing for oil workers in the booming Bakken region, but the high returns they were promised never materialized and the developers are accused of misusing investor money.

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The class action case alleges that investors were required to pay legal fees to the Pearce & Durick firm for review of documents related to the investment deals.

That formed an attorney-client relationship between the firm and the investors, the lawsuit alleges, and the firm should have advised investors they were investing in unlawful securities.

"We think they should have alerted investors about a number of pretty serious red flags or outright violations," said securities lawyer Alan Rosca of Cleveland, one of several lawyers representing the investors.

But the firm denies that it represented the investors, and made that fact clear to investors when they signed their purchase agreements, said attorney Richard Thomas, who represents both the firm and Bismarck attorney Jonathan Sanstead, who is named in the case.

The firm's role as escrow agent was to distribute money from investors to the developer according to stages outlined in the escrow agreement, Thomas said.

If the allegations against North Dakota Developments are true, the developers misled the law firm about meeting those stages, Thomas said.

Thomas said the lawsuit is a consequence of the defrauded investors seeking recovery.

"We have now become a target. We don't believe that that action and activity is justified by the actual facts," said Thomas, of Arden Hills, Minn. "A lot of people were misled, including the firm, if the allegations against the principals prove true."

The firm has not yet filed an answer to the legal complaint.

Several investors from Singapore are named in the class action complaint, but the case has grown to include more than 100 investors from several countries, Rosca said.

The attorneys, which include co-counsel Mac Schneider of Grand Forks, are talking to 250 to 300 more potential clients from around the world, Rosca said. Many lost between $50,000 and $100,000 while others lost a few hundred thousand, Rosca said.

"You hear some really sad stories," Rosca said. "Life savings that are gone and medical situations that they can't take care of because the money is gone. It's really sad."

Rosca said the class action case does not allege any fraud or knowing misconduct by the firm or Sanstead, a former partner with the firm.

"The court will decide who's liable and for what," Rosca said. "I don't think the firm did anything intentionally wrong."

Additional class action cases are possible. The investors' attorneys are still reviewing evidence and may file lawsuits against additional defendants, said Rosca, whose practice specializes in representing defrauded investors.

"Schemes of this size, you can hardly perpetrate them alone," Rosca said. "Once you get above a certain amount, you really need a lot of professional infrastructure, for lack of a better term."

Meanwhile, the company that provides malpractice insurance for Pearce & Durick has filed its own lawsuit against the firm and Sanstead.

ALPS Property & Casualty Insurance Co. is asking the court to rule that it doesn't have a duty to cover claims against the firm and Sanstead.

Sanstead denies the allegations in that case and has cooperated fully with the Securities and Exchange Commission investigation, said attorney Tim Purdon, who is representing Sanstead in the insurance coverage case.

Sanstead is no longer with the firm and has started his own practice, Purdon said.

"His reputation speaks for itself in the legal community," Purdon said.

Phillip Cole, a Minneapolis attorney representing Pearce & Durick in the insurance coverage case, said the firm did not profit from the situation.

"They were a victim, just like these investors, I'm afraid," Cole said.