Digital Capital Management, a US-based crypto fund manager, has dragged law firm Faegre Baker Daniels to court under the charges of legal malpractice.
First reported by Bloomberg Law, the law firm has allegedly provided “erroneous” legal services relating to the launch and set up of the crypto fund.
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Per the plaintiffs, which also include the fund’s founder Timothy Enneking, the Indiana-headquartered law firm provided “inaccurate analysis and advice” to its predecessor Crypto Asset Management about the registration process of a digital asset fund under the Investment Advisers Acts of 1940.
A costly error
Following the law firm’s advice, the crypto fund did not register as an “investment company” with the United States’ Securities and Exchange Commission (SEC), however, in September 2018, the market regulator charged the fund for violating the same.
In late 2017, the fund managers raised $3.6 million for investment in digital assets and also advertised the company as the “first regulated crypto asset fund” in the country, per SEC’s charges.
Though the firm and Enneking neither admitted nor denied the charges brought by the regulator, they agreed to a cease and desist order along with a fine of $200,000.
According to the court filing, Faegre Baker Daniels advised that “crypto assets are not securities,” and based on that, it structured the fund manager in an “erroneous” way.
“Defendant provided inaccurate analysis and advice that resulted in damage to the Plaintiff,” the lawsuit stated. “Defendant breached that duty by providing legal advice, opinions, and services that fell below the standard of care of an ordinary, reasonable lawyer.”
Now, the plaintiffs are seeking compensatory damages for its loss, which includes incurred fees and costs, damages for reputational loss, and lost profits along with other consequential damages. They are also demanding restitution of all attorneys’ fees paid to the law firm.