Trials & Litigation

Federal judge nixes receiver's suit, says law firms aren't 'insurers of good behavior' by clients

A federal judge in Georgia has dismissed a lawsuit brought by a receiver against an Atlanta law firm, finding that attorneys have no duty to blow the whistle on their clients.

On the contrary, except in very limited circumstances, lawyers are bound by a duty of confidentiality to their clients, U.S. District Judge Thomas Thrash wrote in his opinion. He dismissed the suit against Page Perry last week and said the firm had done the right thing concerning its representation of a failed investment adviser, Lighthouse Financial, Courthouse News reports.

The company’s majority owner and former manager, Benjamin DeHaan, pleaded guilty last year to a count of wire fraud. However, the law firm was retained in an advisory role and had no duty to report wrongdoing to regulators, the judge said. Nonetheless, he noted, when problems eventually surfaced, the firm’s lawyers persuaded DeHaan to allow them to report to the Securities and Exchange Commission that a theft of client funds had occurred.

“No rational client would seek compliance advice from a lawyer, knowing the lawyer would be obligated to report the client to regulators if the lawyer detected less than complete compliance with every relevant regulation,” Thrash wrote. “The plaintiff’s theory would convert private corporate lawyers representing financial advisers and other regulated industry participants into unwilling government auditors required to utilize information gained in the course of their representation to the potential detriment of their clients, all in the name of protecting the corporate client from itself.”

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