An article on Law.com, from the Fulton County Daily Report, entitled Smith Gambrell Entangled in Hedge Fund Scandal (Alleging legal missteps by law firm, bankruptcy trustee demands more than $80 million in damages), discusses the adversary proceeding of William Perkins, Ch. 11 Trustee v. Smith, Gambrell & Russell, LLP and C. Gladwyn Goins Adv. No. 08-6382 (Bankr. N.D. Ga., filed July 9, 2008).
The substance of the complaint (click here to download .pdf copy) is summarized in the article –
IMA’s bankruptcy trustee, William F. Perkins, told a federal court last month that the law firm and a former counsel from its Washington, D.C., office, C. Gladwyn Goins, represented IMA so poorly that they not only allowed the company’s founder, Kirk S. Wright, to embezzle from investors long after his wrongdoing could have been discovered but also "helped Wright to continue his criminal misconduct."
Those alleged legal missteps cost the company "tens of millions" of dollars, according to the complaint, which demands that the firm and its former counsel pay more than $80 million in damages, plus attorney fees and litigation costs. …
In a July 9 filing, the trustee for Wright’s former company claimed that Goins and his one-time firm breached their representation contracts with IMA by not carrying out some of their duties as attorneys and by being professionally negligent in how they dealt with the Securities and Exchange Commission.
The trustee also said that Goins and the firm breached their fiduciary duty to IMA "by placing their own interest in securing fees and expectation of future profits from a continued relationship with the IMA Entities ahead of their professional judgment and duties."
The article provides some additional background of Wright/IMA, the allegations against the firm, and comments on the nature of the claims from other lawyers not in the case.
Randolph Evans, a partner at McKenna Long & Aldridge who heads the firm’s financial institutions practice and handles legal malpractice and ethics issues, said, "There is a duty not to knowingly transmit information that you know is false. That’s a clear boundary. Another clear boundary is you don’t have to do the work of the investigating government entity, whether that’s the SEC or someone else. In between those two boundaries, the law is less clear."
He said the government has argued, citing the Sarbanes-Oxley Act, that lawyers have an independent obligation to verify the accuracy of the information they are sending to the SEC. But, he added, "I don’t think a court has gone that far yet."