Law Firms

9th Circuit reinstates investors' claim against Venable over client's alleged Facebook scam

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A sign announcing Facebook IPO is flashed on a screen outside the Thomson Reuters building at the opening bell in Times Square on May 18, 2012. lev radin /

A federal appeals court has reinstated a claim against the Venable law firm in a suit by investors who say the law firm’s client scammed them into paying $11.25 million for Facebook shares that didn’t exist.

The San Francisco-based 9th U.S. Circuit Court of Appeals reinstated claims by ESG Capital Partners on Monday, Bloomberg Big Law Business, Courthouse News Service and the Recorder (sub. req.).

The managing agent for ESG Capital Partners believed he was dealing with a man named Ken Dennis, who was represented by Venable, in its purchase of Facebook shares before its initial public offering. Dennis was actually Troy Stratos, who was represented by Venable in an unrelated suit alleging a $7 million theft.

The suit had alleged a then-Venable partner stated that Dennis had access to millions of Facebook shares, the sale is legitimate, and Dennis “is who he says he is.” The partner helped Stratos open bank accounts to hold investor funds after he was blacklisted at two banks, the suit had claimed.

Stratos was convicted of wire fraud and money laundering last year in connection with the Facebook deal, according to the Recorder.

The decision (PDF) by Circuit Judge Harry Pregerson reinstated federal and California securities-fraud claims, as well as state law claims for conversion, unjust enrichment, unfair competition, aiding and abetting fraud, and conspiracy to commit fraud.

A Venable spokesperson had no comment, according to the Recorder. Gibson, Dunn & Crutcher represented Venable. “While we respectfully disagree whether the complaint was properly pled, we will now vigorously challenge the merits of the allegations,” a Gibson Dunn spokesperson told Bloomberg.

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