Faegre Baker Daniels is being sued by a former client in the cryptocurrency industry who claims the law firm provided erroneous advice that led to allegations of federal security laws violations and a $200,000 fine by the U.S. Securities and Exchange Commission.
Digital Capital Management LLC filed the lawsuit Dec. 31 with the Circuit Court of Cook County, Illinois. The company and its founder, Timothy Enneking, claim Faegre committed legal malpractice by providing legal advice, opinions and services that fell below the standard of care “of an ordinary, reasonable lawyer.”
The plaintiffs are seeking damages of an unspecified amount in Crypto Asset Fund, LLC, Digital Capital Management, LLC, and Timothy Enneking v. Faegre Baker Daniels LLP, 2019L014386.
Faegre declined to comment on the legal action. The plaintiffs’ attorneys at Katten & Temple LLP in Chicago did not respond to a request for comment.
According to the six-page complaint, Crypto Asset Fund and Crypto Asset Management, the entity formed to manage the fund, hired Faegre Baker Daniels in June 2017. The law firm was enlisted to provide guidance on regulatory compliance with the Investment Advisors Act of 1940.
However, the plaintiffs contend Faegre’s advice – that Crypto Assets were not securities and that the Crypto Asset Fund and the fund’s business should be structured accordingly – was erroneous.
After the fund by Crypto Asset Management was launched, the SEC notified the plaintiffs an inquiry had been started. Faegre continued to represent the plaintiffs, which included Enneking following the firm’s advice and voluntarily giving an interview to the SEC in late January 2018, according to the lawsuit.
The plaintiffs claim, “In the course of the representation, (Faegre) provided inaccurate analysis and advice” and “failed to exercise reasonable care and skill in performing those legal skills for Plaintiffs to register and sell Fund shares.”
In September 2018, Crypto Asset Management was charged with misrepresentations and registration failures as part of the SEC’s first-ever enforcement action that found a registration violation by a hedge fund manager based on investments in digital assets. The Securities and Exchange Commission entered an order finding that CAM offered a fund that operated as an unregistered investment company while falsely marketing it as the “first regulated crypto asset fund in the United States.”
Crypto Asset Management and Enneking agreed to the SEC’s cease-and-desist order and censure without admitting or denying the findings against them. They also agreed to pay a penalty of $200,000.
The plaintiffs assert that as a result of Faegre’s negligence and breach of professional duty, they sustained damages of more than $75,000. They are asking for damages in addition to pre- and post-judgment interest, along with any other relief the court determines is just.