Receiver Claims Law Firm’s Malpractice Caused Investor Losses
The Receiver for the Fund run by a convicted
Ponzi-schemer sued the Fund’s law firm for more than $10 Million, claiming that
the law firm’s malpractice allowed the Ponzi scheme to continue. The Receiver argues that the law firm drafted
the Limited Partnership Agreement with more than 30 signature lines for limited
partners. Because the Fund was created
to invest in securities futures, the law firm should have advised registration
as a commodity pool operator. Such
registration would have required the Fund sponsor to deliver GAAP financial
statements (prepared by an independent public accountant) to investors and the
CFTC. The Receiver argues that such
financial statements would have limited the damage to investors.
OUR TAKE: This case will test the lawyer-client privilege
doctrine because, presumably, the law firm will argue either that it did
recommend CFTC registration or it was not engaged to provide regulatory advice.
It is also unclear whether the law firm’s advice should be held responsible for