Law.com reports that a shareholder has filed a malpractice action against Brown Rudnick and a partner for fraud and malpractice. A major aspect of the case is the fact that the partner's wife had a significant equity investment in the corporation that allegedly had an influence on the partner's legal advice. The article quote an ethics expert as follows:
Anthony Davis, a partner at Hinshaw & Culbertson and a legal ethics columnist for the New York Law Journal, said state ethics rules do not bar lawyers from holding interests in clients but set forth stringent client disclosure requirements. Even when the rules are followed, he said, such investments "hang like swords over the heads of lawyers" in any litigation charging attorney misconduct.
"In a lot of ways, the rules are a trap for lawyers. They make it appear these [investments] are permissible," said Davis. "But when things blow up, the client can always argue they didn't understand the implications."
Bob Peroni and I have written a long article detailing the risks inherent in equity investments in clients.
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