A California federal court refused to dismiss negligence and other state law claims against a law firm for allegedly helping its client commit federal securities law violations. See Donell v. Nixon Peabody, LLP, C.D. Cal., No. CV 12-04084 DDP (JEMx), 9/5/12.
In this suit brought by the receiver of a defunct investment firm, the court rejected the law firm’s constitutional arguments regarding the right to bring such claims as well as its jurisdictional and standing challenges. The lawsuit arose out of a SEC enforcement action against an investment firm, its principal and others. The receiver accused the law firm of assisting in the principal’s scheme of looting assets from the investment firm’s clients. The court found the receiver properly plead its complaint against the law firm, and found a sufficient basis for it preceding against the law firm given the alleged conduct. Intriguingly, one of the law firm’s partners was also indicted along with the main fraudster.
In short, law firms are clearly a target when fraudulent activity occurs. Law firms and their attorneys, therefore, must take precautions or trouble will follow them.