Faegre Baker Daniels is being sued for legal malpractice by a company that says the firm provided “erroneous” legal services relating to the launch and operation of a fund set up to acquire and manage crypto assets.
These are assets associated with cryptocurrencies, blockchain ecosystems, and related digital asset and technology opportunities, according to the Dec. 31 complaint filed by Digital Capital Management.
The complaint alleges that the law firm provided “inaccurate analysis and advice” to Digital Capital’s predecessor, Crypto Asset Management, LP, regarding how to register under the Investment Advisers Acts of 1940.
As a result, the complaint alleges, the SEC in 2018 brought an enforcement action against Crypto Asset Management and its founder, Timothy Enneking, another plaintiff in the lawsuit.
The SEC alleged that the company raised more than $3 million for its fund, Crypto Asset Fund LLC, to invest in digital assets. Although the fund met the definition of “investment company,” it didn’t register with the SEC as one, an SEC cease and desist order said.
According to the Investment Company Act, an investment company includes any issuer which “is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities.”
The suit against Faegre Daniels alleges the firm advised the plaintiffs that “Crypto Assets are not securities” and to thus structure the fund’s business “accordingly.” The advice was “erroneous,” the complaint says.
Crypto Asset Management and Enneking were censured by the SEC and agreed, “without admitting or denying the order’s findings” to pay a $200,000 civil penalty to settle the claims, the complaint says.
Causes of Action: Legal malpractice.
Relief: Compensatory damages, including for fees and costs incurred, reputational harm, and lost profits, other consequential damages, restitution of all attorneys’ fees paid to Faegre Baker Daniels.
Response: Faegre Baker declined to comment.
Attorneys: Katten & Temple LLP and The Law Offices of Jeffrey N. Goldberg, PC represent the plaintiffs.
The case is Crypto Asset Fund LLC v. Faegre Baker Daniels LLP, Ill. Cir. Ct., No. 2019-L-014386, 12/31/19.