Oh Brother: Financial Advisor Targeted for his Sibling’s Fraud
A financial advisor was recently named in a multi-million dollar malpractice matter in Texas arising from the alleged fraud of his brother. The financial advisor – the managing partner of DEW Wealth Strategies, LLC – allegedly allowed his brother to use the firm’s offices. Innocent enough, right? But according to the complaint, the brother and a company he owned, Gateway Special Opportunities Fund LLC, backed out of providing the plaintiff with millions in funding for a large condominium project in California. The brother ultimately agreed to pay the plaintiff $30 million after conceding he misrepresented the financial position of his company and the plaintiff secured a $30 million judgment. When the plaintiff could not collect on the judgment he found a new target: he is now pursuing fraud and related claims against the financial advisor.
The plaintiff alleges that the financial advisor allowed the brother to operate out of his offices, thereby lending “an air of credibility, stability and financial strength” to Gateway. Moreover, according to the plaintiff, DEW intentionally misled the plaintiff about Gateway’s solvency and trading platform. Plaintiff is seeking to recover $30 million from the financial advisor.
The Texas lawsuit should be of interest to professionals providing financial, legal or other advice. In many states, a professional’s potential liability is not limited to claims brought by former clients. Rather, a third-party who reasonably relies upon the professional may have standing to pursue a malpractice claim. The situation becomes increasingly dicey because an engagement letter usually does not exist between the professional and the third-party. Any professional must tread carefully whenever third-parties may rely upon their advice and should ensure appropriate limitations are provided along with any information that is given to third-parties.