Dechert and K&L Gates are being sued by former client Reserve Management Co. for alleged malpractice in the advice the firms provided about the composition of the money-market fund’s board. Dechert advised the firm from 1997 to 2002; K&L Gates from 2003 to 2005. Throughout those periods, the board didn’t have sufficient independent directors as required by the Investment Company Act of 1940 and SEC regulations.
Reserve Management claims it spent $4 million to avoid SEC charges and other liability for the improperly comprised board, which was discovered by the unidentified firm that took over from K&L Gates in 2005. By the way, if Reserve Management sounds familiar, you’re probably remembering when its Reserve Primary Fund, the oldest money-market fund, “broke the buck” in September 2008. This case has nothing to do with that, although we’ll probably be hearing plenty about that in the near future, considering the company has reported that the SEC is planning to file charges and Massachusetts has already filed an administrative complaint.
Dechert and K&L Gates will hope to be as successful as Dorsey & Whitney recently was.
Sort of. According to the Eighth Circuit,
“Demonstrating that an ethics rule has been violated, by itself, does not give rise to a cause of action against the lawyer and does not give rise to a presumption that a legal duty has been breached.”
So they may have committed some ethics breaches, but at least they’re off the hook for the $4 million in judgments resulting from a host of claims brought in lower federal and state courts. Dorsey represented an investment bank that packaged some loans to a Native American casino that was a “huge failure” (the first in history?). The case seems to be pretty interesting, with Dorsey trying to keep a client that was facing a claim based on Dorsey’s own alleged missteps, and ultimately deciding it could do so (I guess the thinking goes, who better to defend this client than us, because we’re the ones who supposedly made the mistake, we’re going to want to discredit it… I’m pretty sure that would be the wrong answer on the MPRE, though.)
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