April 3 (Bloomberg) -- Two Kentucky lawyers were found guilty of stealing from a $200 million fen-phen diet-drug injury-lawsuit settlement fund established for their clients.

William Gallion and Shirley Cunningham Jr. were convicted today on all nine counts including wire fraud and conspiracy by a federal court jury in Frankfort, Kentucky, after a seven-week trial. The men face as much as 20 years in prison and fines of $250,000. The panel of seven women and five men deliberated for 11 hours over two days before reaching a verdict.

The men had contracts entitling them to fees of as much as one-third of the award to 440 Kentucky citizens who said they were harmed by the once-popular diet drug combination. The lawyers tried to keep more than twice that amount, prosecutors said. Gallion and Cunningham didn’t tell clients the size of the settlement and misled them about how much they would get.

Lawyers for Gallion and Cunningham argued that they were innocent, inexperienced in handling large awards in class-action suits and made mistakes. They sought to blame Cincinnati lawyer Stan Chesley for many of the men’s decisions. Chesley, who hasn’t been charged with a crime, advised the pair on the fen- phen settlement for a $20 million fee and testified at the trial after accepting an immunity agreement from prosecutors.

Lawyers for Gallion and Cunningham, who were disbarred last year, said they will appeal. The men were taken into custody after the hearing until their sentencing, which was set for July 27 by Judge Danny Reeves. Cunningham waived to his son as he was led from the packed courtroom.

Appeal Grounds

“We really feel that there are many legal issues that need to be looked at on appeal,” Steven Dobson, the lawyer for Cunningham, told reporters following the verdict. “I’m so disappointed for him and his family.”

Jo Ann Cox, a retiree who attended every day of the trial, said she was delighted with the verdict.

“It’s been a long trial, and I’m so glad the jury came to see the truth,” she said. Cox blames her heart aneurism on fen- phen, which she said she took for about six months and has cost her tens of thousands of dollars in medical bills.

It’s the second time Gallion and Cunningham were tried in the matter. A federal judge in Covington, Kentucky, declared a mistrial in the first proceeding in July after jurors deadlocked 10-2 in favor of acquittal. The same jury acquitted a third attorney, Melbourne Mills, after his lawyer argued that he was too impaired by alcoholism to participate in the sheme.

More Charges

Prosecutors filed the latest indictment against Gallion and Cunningham in September, adding eight counts of wire fraud and a forfeiture claim for $94.6 million against the lawyers. The jury will decide the amount of forfeiture, if any, in a separate deliberation on April 7.

A group of former clients who won $42 million in a lawsuit against the two men claimed the pair used stolen money to buy a share in Curlin, a racehorse that won the 2007 Preakness Stakes.

The case is U.S. v. Gallion, 07-CR-39, U.S. District Court, Eastern District of Kentucky (Frankfort).

To contact the reporter on this story: Cary O’Reilly in Frankfort, Kentucky, at caryoreilly@bloomberg.net.

Last Updated: April 3, 2009 16:56 EDT