Nine law firms face $500 million in damages arising from the alleged aiding and abetting of a large securities scam. The scam was perpetrated by a now defunct, relatively well-publicized real estate investment firm (“Investment Firm”) that operated a Ponzi scheme targeting the retirement benefits of the elderly.
The man responsible for the scheme pled guilty to a 25-year sentence in late 2019. Now, through its bankruptcy trustee, the Investment Firm is reportedly suing its attorneys and claiming that they knowingly assisted in the fraud. According to the trustee, the law firms helped to conceal the scam and to mislead investors. The trustee has targeted offering documents, which were “false and misleading”, as well as opinion letters drafted by the defendant law firms.
While this suit is in its infancy, it will be interesting to see whether an in pari delicto defense may be viable. Moreover, another defense that comes to mind, is an attorney’s right to rely on a client’s representations. Counsel, of course, may not necessarily have an obligation to complete a forensic evaluation but can defer to a client. It will be interesting to see whether the defendants assert these defenses or others and, if so, whether the defenses have merit.