Jonathan Bilyk Jul. 18, 2014, 11:36am

A Chicago lawyer accused of helping to defraud and cover up losses incurred by members of an area options trading firm will need to persuade a judge that an insurance company is obligated to pay for his defense.

On July 14, Schaumburg-based American Zurich Insurance Co. filed a complaint for declaratory judgment in Cook County Circuit Court against attorney Gregg M. Rzepczynski and options trading firm QTM Ventures LLC.

The company asserts the terms of the insurance policy it issued to Rzepczynski greatly limits the extent of any coverage it owes to him in the attorney’s dispute with QTM.

Chicago attorneys Jeffrey A. Goldwater, Michelle M. Bracke and Kelly M. Ognibene of Lewis, Brisbois, Bisgaard & Smith LLP submitted the suit on behalf of American Zurich.

The case arose out a series of allegations brought against Rzepczynski and a number of his associates over a trading scheme QTM contends resulted in large losses concealed amid a flurry of falsified financial reports and conflicts of interest that left its accounts unexpectedly depleted and left a firm run by Rzepczynski and his associates facing punishment from the Chicago Board Options Exchange (CBOE).

While the 2007-2008 trading had otherwise been "very successful,” QTM claims it was unaware Rzepczynski, who had represented it at one point, and his associate, identified as “would-be movie producer, stock investor and venture capitalist” Sigmund A. Eisenschenk, had actually drained its accounts while presenting QTM with reports indicating it still had $10 million on hand.

Rzepczynski and Eisenschenk, according to the complaint, were partners in the broker dealer firm of Resource Equities, through which QTM conducted business.

QTM claims Rzepczynski and Eisenschenk, who were signatories on its accounts, had used its  money to cover up losses in other accounts they held.

The plaintiff firm alleges that in addition to producing false financial reports, the two men also concealed a CBOE investigation of Resource.

Once the fraud was uncovered, the suit states Rzepczynski further interfered by allegedly drafting a sham agreement in which Eisenschenk promised to repay. Ultimately, Eisenschenk only used the agreement to buy time to flee the country, QTM asserts, noting that he has since died.

QTM sued Rzepczynski, Eisenschenk and others in 2008, and amended their complaint in 2010, alleging fraud, breach of fiduciary duty, unjust enrichment and conspiracy, among other counts, against the defendants.

This year, QTM sued in an attempt to collect from Eisenschenk’s estate, and in that suit accused Rzepczynski of legal malpractice and breach of duty by crafting a sham purchase agreement to allow shares Eisenschenk allegedly held in a pharmaceutical company to go unreported and out of reach of his creditors.

Rzepczynski has called on American Zurich to defend and indemnify him against the malpractice and breach of duty claims, under a policy he held through the insurer in 2008, at the time the original complaint was filed.

While QTM demanded American Zurich settle the matter for the aggregate coverage limit of $1 million, the insurance company contends coverage for the 2008 and 2010 amended complaint should instead be a $500,000 “per claim” limit.

American Zurich is seeking a declaration from the court that it actually has no obligation to defend Rzepczynski against the malpractice and breach of duty allegations QTM lodged against him in the 2014 collection action against Eisenschenk’s estate, as that action was brought five years after the policy Rzepczynski held had expired.

QTM is being represented in the underlying suit against Rzepczynski by Chicago attorneys Eugene E. Murphy Jr. and John N. Hourihane Jr. of Murphy & Hourihane LLC.

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