Breaking and associated brands will be offline for scheduled maintenance Saturday May 8 3 AM US EST to 12 PM EST. We apologize for the inconvenience.


Thank you for sharing!

Your article was successfully shared with the contacts you provided.
A New York state judge has granted Akin Gump Strauss Hauer & Feld’s motion to dismiss several claims filed against it by a former hedge fund client, but has permitted a fraud claim to go forward. In February, James McBride and Kevin Larson, the principals behind the Veras series of funds, sued Akin Gump, claiming the firm advised them that the trading of mutual fund shares after the market close was a legal practice. The funds, which had $1 billion in assets in 2003, were then investigated for “late trading” by the New York attorney general’s office and the Securities and Exchange Commission. Veras wound up paying more than $36 million in penalties before shutting down. McBride and Larson each paid $750,000 and were barred from the industry. Their lawsuit had asserted 11 causes of action against Akin Gump, but Manhattan Supreme Court Justice Bernard Fried ruled Sept. 27 in Veras v. Akin Gump that five of the causes of action, including negligence, negligent misrepresentation, and breach of fiduciary duty, were duplicative of Veras’ legal malpractice claims. The judge permitted Veras to proceed, however, with a claim that Akin Gump committed fraud by concealing conflicts of interest in the course of representation. Fried said there were questions of fact as to whether the conflict waiver Akin Gump obtained was valid. In a written statement to Legal Times, Sheila Turner, a spokesperson for Akin Gump, stated: “We are pleased that the court granted Akin Gump’s motion to dismiss nearly half of the causes of action in the complaint. The remaining allegations of wrongdoing in Veras’ complaint are without merit. At all times, Akin Gump acted ethically and in its clients’ best interests. Akin Gump is forcefully defending this case, and we are confident we will prevail.” FIRMS FACE INCREASING FIRE The Veras case is one of several recent disputes that have cropped up between investment funds and their lawyers. In addition to the suit against Akin Gump, top private equity firm Thomas H. Lee has sued Mayer Brown for $245 million for allegedly misrepresenting the financial shape of commodities brokerage Refco prior to Lee’s acquisition of a controlling interest. New York-based Seward & Kissel is also a defendant in a $200 million lawsuit brought by institutional investors who lost money when one of the law firm’s hedge fund clients went under. There are a number of reasons investment fund clients may be more willing now to bite the hand that lawyers them when things go wrong. For one thing, there is almost always a lot of money on the line, and given the nature of their business, investment fund principals experience losses in a more visceral way than, say, corporate executives. “It’s up close and personal,” says Leslie D. Corwin, a partner at Greenberg Traurig specializing in business disputes involving law firms. When fund principals’ expectations of making massive amounts of money are thwarted, he says, they cast around for people to blame. Law firms are more in the line of fire because they play a much bigger role at investment funds than they do for corporate clients. Even though funds may control companies with large in-house legal departments, they sometimes lack even a general counsel themselves. They therefore develop unusually close relationships with outside lawyers, and feelings can be unusually hard when things do not go well. “Hedge funds are oftentimes run as if they are small businesses, so every decision matters a lot more to the proprietor,” says Barry Barbash, head of the funds practice at New York’s Willkie Farr & Gallagher. “The client relationships are more intense and can become more confrontational.” Barbash says the hectic nature of the hedge fund business creates many stressful and difficult situations for lawyers. Fund managers often call wanting to know right away if they can make a trade or not, leaving the lawyer feeling responsible for the outcome. “I feel a lot of times like the closer on the mound,” Barbash says.
Anthony Lin is a reporter with the New York Law Journal , an affiliate of Legal Times . Portions of this story ran in an earlier edition of that paper.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.