Appeals Court Says ‘See No Evil’ Approach Can’t Shield Law Firm in Investor Suit
A “see no evil, hear no evil” approach can’t shield a law firm from an aiding-and-abetting claim in an investor suit, a New York appeals court has ruled.
The appeals court reinstated the claim against Lum, Drasco & Positan, formerly known as Lum, Danzis, Drasco & Positan, the New York Law Journal reports. The court said the investor plaintiffs, who lost $1.9 million in a real estate investment company that turned out to be a $22 million Ponzi scheme, had adequately alleged lawyers at the firm had actual knowledge of the fraud.
The plaintiffs had claimed Lum Drasco lawyers were aware that the men actually running Cobalt Multifamily Investors had criminal histories, yet failed to disclose that information in the initial private offering memoranda, the story reports. The suit claims the law firm later made the disclosure in a backdated amendment.
The law firm had contended any knowledge of misrepresentations in the offering memoranda didn’t amount to actual knowledge of a Ponzi scheme. The appeals court rejected the argument.
“To say that defendant attorneys merely furnished legal services to help solicit investments in the Cobalt Multifamily entities, and did not have knowledge of the fraud they helped perpetrate, is drawing distinctions based on gradations of knowledge that are simply not tenable,” the opinion said. “This court cannot and will not endorse what is essentially a ‘see no evil, hear no evil’ approach.”