Risk Update

Risk News — Standing Stops Conflict Call on Appeal, Continuing Crypto Crusades

Posted Dan Bressler

“Judge Dismisses Legal Mal Suit Against Cozen O’Connor for Second Time” —

  • “A federal judge has again dismissed a legal malpractice suit against Cozen O’Connor after an appeals court determined the district court improperly analyzed the plaintiff’s complaint the first time around.”
  • “This time examining Cozen O’Connor’s motion to dismiss as a merits-related standing issue, U.S. District Judge Nitza Quiñones Alejandro of the Eastern District of Pennsylvania determined Thursday that the plaintiff’s amended complaint failed to state a claim.”
  • “The plaintiffs, Adam Potter and Moxie HC, filed suit against Cozen O’Connor in 2020 over an alleged conflict of interest in selling several companies in which the plaintiffs owned 100% membership interest.”
  • “According to the Thursday opinion, then-Cozen O’Connor attorney Anne Blume advised Potter on the sale of his companies to another firm client. Potter claimed that Blume denied the existence of a conflict of interest surrounding the firm’s representation of both the buying and selling entities in the transactions.”
  • “After the deal’s close, however, the shareholders allegedly learned their company had been sold substantially below market value, and that confidential information Blume learned while working with Potter had been used to aid the purchaser.”
  • “But Alejandro ruled that because the terms of the asset purchase agreement stated the companies were to receive the purchase price, an allegedly unfair sale would harm the companies themselves. As shareholders, Alejandro held, the plaintiffs did not suffer direct harm and therefore did hot have standing to sue.”

“FTX’s Law Firm Hit With Queries on Work Before Crypto Collapse” —

  • “FTX’s legal troubles are reaching its law firm, Fenwick & West, which faces federal law enforcement subpoenas and a class-action lawsuit tied to the failed crypto exchange.”
  • “Bankruptcy counsel for FTX has discussed ‘federal law enforcement subpoenas to Fenwick’ with the law firm’s general counsel, Kathryn Fritz, according to a court document filed in March.”
  • “Fenwick is also among a number of companies targeted with a class-action lawsuit alleging the firm helped aid a massive fraud led by Sam Bankman-Fried, the FTX founder now facing 13 criminal charges. Services Fenwick provided were ‘central to SBF’s fraud,’ according to a February suit filed in Miami federal court on behalf of a proposed class of investors.”
  • “It’s awkward for any law firm to answer questions about actions for a client but particularly for Silicon Valley-founded Fenwick, which cemented its reputation as a go-to operation for the world’s top tech companies after it helped Steve Jobs incorporate Apple Inc. in 1976. The firm, whose clients have included Amazon.com Inc., Tesla Inc. and Meta Platforms Inc., nearly doubled its revenue in the five years leading up to 2021.”
  • “‘Any time you have even the hint of regulatory impropriety in the practice of law, you and the firm take a hit,’ said James Cox, a Duke University law professor. ‘It’s hard to say how long it lasts and how deep it is. But it’s certainly not a feather in your cap.'”
  • “Fenwick advised FTX and its sister trading shop, Alameda Research, on areas including trademarks, tax and litigation before the crypto exchange’s implosion into bankruptcy in November. It also helped set up US-based companies affiliated with FTX and Alameda.”
  • “Daniel Friedberg, once the Seattle-based chair of Fenwick’s payments practice, joined FTX in 2020 and would later become its chief regulatory officer. Former FTX general counsel Can Sun was a past Fenwick associate.”
  • “Fenwick has axed references to FTX on its website. The firm trimmed FTX from a list of prominent clients on its homepage.”
  • “‘Fenwick & West helped FTX to develop ‘compliance’ procedures designed to skirt FTX’s regulatory obligations or conceal its noncompliance,’ the class action suit, which seeks unspecified monetary damages from Fenwick, alleges. The complaint besides Fenwick targets 20 other third parties with an alleged FTX connection, including auditors and venture capital firms.”
  • “Finding a third-party such as a law firm liable for any underlying fraud is a steep hurdle, said Patrick Coughlin, a Scott & Scott lawyer who represented shareholders of Enron following its collapse.”