Law Firm Sued for Legal Malpractice for Providing “Erroneous” Advice on Launching Crypto Fund


  • Faegre Baker Daniels sued by Digital Capital Management and founder Timothy Enneking
  • Plaintiff alleges “inaccurate analysis and advice” that “Crypto Assets are not securities”
  • “Top firms give the least attention to industries facing the toughest regulatory issues,” – Jake Chervinsky

Illinois-based Faegre Baker Daniels LLP is being sued for legal malpractice by Digital Capital Management that accused the law firm of providing “erroneous” legal services relating to the launch and operation of a fund dealing in crypto assets.

According to the complaint filed by the company on Dec. 31, these assets are associated with cryptocurrencies, initial coin offerings (ICOs), blockchain ecosystems, and related digital asset and technology opportunities.

The complaint alleges that the law firm provided “inaccurate analysis and advice” to Crypto Asset Management (CAM), Digital Capital’s predecessor on how to register under the Investment Advisors Acts of 1940.

As a result, the SEC in 2019 took enforcement action against CAM and its founder Timothy Enneking, another plaintiff in the lawsuit. Jake Chervinsky, General Counsel at Compound Finance tweeted,

Least attention to industries facing the toughest regulatory issues

The SEC alleged that the company raised over $3.6 million from 44 investors in 15 states for its fund. The fund though met the definition of an “investment company,” it didn't register with the SEC as one, states an SEC cease and desist order.

An investment company is an issuer that is “is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities,” states the Investment Company Act.

The plaintiffs allege that Faegre Daniels advised them that “Crypto Assets are not securities” and to structure the Fund’s business accordingly which was “erroneous,” the company says.

Then the SEC issued a cease and desist order and CAM and Enneking agreed “without admitting or denying the order's findings,” to pay a $200,000 civil money penalty to settle the claims the complaint said.

Plaintiffs are now seeking compensatory damages, including the fees and costs incurred, lost profits, reputational harm, and other consequential damages, restitution of all attorneys' fees paid to the defendant, and any other equitable relief the Court may deem appropriate. Overall on this matter, Chervinsky tweeted,

 

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