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The ex-wife of a prominent Atlanta tech entrepreneur has accused him, and his New York lawyer, of mismanaging their children’s trust fund, loaning more than $2.8 million to her ex-husband’s company. In a suit filed Monday in Georgia’s Fulton State Court, Madelyn R. Adams says her ex-husband, Timothy F.S. Cobb, used their two sons’ trust fund money to make improper loans or investments in his company, edaflow Corp. Cobb founded edaflow, an online apparel retailer, in 1999. According to the suit, edaflow has defaulted on $1.6 million in loans from the trust. Two loans totaling $775,000 were converted to now “worthless” equity in edaflow, the suits claims. About $436,000 of trust money was “transferred” to other enterprises in which Cobb had an equity interest, including ehatchery, and Angel IV-Ethos, according to the suit. Adams also accuses Pillsbury Winthrop, a San Francisco-based firm with nearly 900 lawyers, of legal malpractice for failing to supervise Cobb’s attorney, partner David A. Crichlow, when he provided legal services to the trust. Adams v. Pillsbury Winthrop, No. 01VS026472A (Fult. State filed Dec. 17, 2001). According to the suit, Crichlow was an investor in edaflow while he served as trustee of the children’s fund and approved loans of trust money to the company. SUIT CALLED ‘FRIVOLOUS’ Cobb has been a prominent figure in Atlanta’s high-tech community since he and Jeff Levy co-founded webXL in 1996. That company later became RelevantKnowledge Inc., which was sold to Media Metrix in 1998. An attorney as well as chairman and chief executive of edaflow, Cobb says the suit is “frivolous” and an attempt to embarrass him. He adds that it’s unfortunate that his ex-wife — the two divorced last year after eight years of marriage — is suing him when they’re trying to raise their young children. Cobb says he’s confident he’ll prevail in court. Greenberg Traurig partner Ernest L. Greer, based in Atlanta, will represent him, Cobb says. Crichlow said Tuesday afternoon that he had not been served with the suit and had no comment. Crichlow resigned as trustee of the children’s trust Nov. 7, 2000. Adams replaced him. Pillsbury and Crichlow violated a fiduciary duty to their client, the children’s trust, “by allowing their business judgment on behalf of a client to be influenced by Crichlow’s pecuniary interest in edaflow,” according to the suit. Attached to the complaint is the affidavit of Frank J. Beltran, an Atlanta lawyer who says he represents clients in legal malpractice cases. Beltran takes Crichlow to task for violating the “prudent investor rule.” Crichlow failed to abide by his duties of reasonable care and loyalty to the trust and the Cobb children, Adams alleges. The complaint asks that the court require the defendants to refund nearly $2.8 million to the trust and requests punitive damages. Cobb formed the trust in 1996 for his son, Harrison Avery Adams Cobb, now 6, and later added his other son, Timothy Fitzgerald Stephenson Cobb Jr., now 2. At the time, Cobb transferred 350,000 shares of webXL stock into the trust’s corpus. The trust named Crichlow, then an associate with Pillsbury Winthrop, as trustee, and the agreement barred Cobb from borrowing trust property “either directly or indirectly.” But Crichlow allowed the trust to lend money to edaflow, a company controlled by Cobb and in which Crichlow had an interest, the complaint says. In late November 1999, the trust’s portfolio was valued at about $6.5 million. In December 1999, Adams alleges, Crichlow and Cobb started “making imprudent and unsuitable investments on behalf of the Trust in order to benefit Cobb, Crichlow and the entities in which they held equity interests.” From then to October 2000, Crichlow authorized the trust to transfer about $2.4 million to edaflow. And the trust also transferred about $436,000 in cash to other companies in which Crichlow or Cobb had ownership interests, including angel investment funds. Those investments would not have been made by any reasonable fiduciary, the complaint says. It adds that the two men conspired to transfer the money to meet the capital needs of companies in which they had invested. “If they had had access to venture capital and if they had had revenue, they wouldn’t have needed to take money from the trust,” says Adams’ attorney, David N. Lefkowitz of The Lefkowitz Firm in Atlanta. Cobb and Crichlow’s actions amounted to “a classic conflict of interest, not even a close call,” he adds. The complaint says edaflow is now “experiencing financial difficulties” and can’t repay the trust.

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