Cooley Hid Tech CEO Fraud From Company, Bankruptcy Trustee Says

Cooley LLP is facing a new round of malpractice accusations related to a messy bankruptcy fight, this time from the court-appointed trustee in the case.

The firm’s lawyers concealed fraud by a Carbon IQ executive from the tech company and its shareholders, according to a complaint filed Friday in an Ohio federal court. James Coutinho, the trustee in Carbon IQ’s bankruptcy proceedings, said the lawyers violated their ethical duties while representing Carbon IQ and CEO Ben Cantey.

“This case shows what happens when lawyers try to serve conflicting interests,” Coutinho said in the complaint.

The firm didn’t immediately respond to a request for comment. The complaint comes some two months after a Carbon IQ board member sued Cooley in New Jersey, alleging fraud and malpractice claims.

Cooley partner Michael Tu learned of fraud allegations against Cantey as early as June 2022, while the firm was defending Carbon IQ and Cantey in a suit by a co-founder, according to Coutinho.

The co-founder claimed Cantey forged business documents and had been investigated by the Texas State Securities Board for fraud in a previous business venture. Cantey later admitted to falsifying business records to shareholders, paying himself large commissions, and failing to pay taxes in an Oct. 7 email to Cooley partner Matt Hallinan, according to an exhibit attached to the complaint.

Cooley lawyers allegedly withheld that information from shareholders and continued to assist Cantey as he tried to obtain additional investor financing. Coutinho cited a September 2022 email in which the lawyers said they were “trying to avoid” calls from board members regarding potential fraud and requests for documents. Those calls turned into multiple shareholder lawsuits against the company, according to the complaint.

“This created a clear conflict of interest that caused substantial harm to Carbon IQ and its shareholders,” Coutinho said.

The company filed for Chapter 11 bankruptcy in December 2022. The proceeding was converted to a Chapter 7 liquidation in February 2023.

Coutinho is asking the court for money damages and an order halting the payment of fees to Cooley.

Discovery is necessary “to reveal the full extent of defendants’ knowledge regarding Cantey’s misconduct and the full extent of Defendants’ actions to conceal or aid Cantey’s misconduct,” Coutinho told the court.

Coutinho, a partner at Allen Stovall Newman & Ashton, is acting as bankruptcy trustee in Carbon IQ’s Chapter 7 bankruptcy case in the U.S. District Court for the Southern District of Ohio.

“If lawyers represent a corporation and learn that the CEO may be committing fraud, the lawyers can’t ignore the issue,” Cooper Elliott partner Bart Keyes said in an email. “They have to protect the corporation, and this case shows just how devastating the consequences can be if they don’t.”

The case is Coutinho v. Cooley, LLP et al, S.D. Ohio, No. 1:24-ap-01050, filed 12/06/2024