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Nelson Mullins Riley & Scarborough has settled a case brought by 15 offshore investors for whom the firm served as an escrow agent. The group sued the Columbia, S.C.-based firm last year alleging that it breached its fiduciary duty by allowing funds to be transferred to a private company. The plaintiffs asked for $6 million in damages, plus attorney fees and litigation expenses. First Empire Corp. v. Nelson Mullins Riley & Scarborough, 2001-CV-43514 (Fult. Super. filed Oct. 1, 2001). The case arose in 1996, when a publicly traded company, Struthers Industries Inc. decided to issue convertible debentures in an effort to raise up to $10 million. According to the complaint, Struthers hired J.P. Carey Enterprises Inc., an Atlanta-based investment firm, to raise the funds by marketing and selling the debentures to offshore investors. As part of the transaction, the complaint says, the funds would be deposited into escrow accounts and would remain the property of the investors until specific conditions were met. Nelson Mullins agreed to serve as the escrow agent and executed an escrow agreement on Nov. 20, 1996, with the investors, Struthers and J.P. Carey. The complaint says Nelson Mullins was authorized only to release the funds to Struthers in accordance with the escrow agreement. All 15 plaintiffs sent between $75,000 and $1.25 million to Nelson Mullins. The funds totaled more than $6 million. The plaintiffs contend that Nelson Mullins “committed serious and startling errors” in its handling of the funds. For one, the firm allegedly transferred the funds to a privately held company called WINCO in violation of the escrow agreement. It also allegedly released the funds prior to receiving all the documents required by the agreement and before the completion of the offering. Finally, according to the complaint, the firm failed to return the funds to the investors. In their complaint, the investors say Nelson Mullins’ breaches of the escrow agreement were “of such magnitude and severity as to constitute gross negligence if not willful misconduct.” Also, the plaintiffs contend Nelson Mullins breached its fiduciary duty to the investors. In its answer, filed Dec. 28, Nelson Mullins denies that it breached its contract or fiduciary duty. Daniel S. Reinhardt of Troutman Sanders represented Nelson Mullins. Last month, Everette Doffermyre Jr., of Doffermyre Shields Canfield Knowles & Devine for the investors, filed a notice of dismissal with prejudice because the parties reached a settlement. Doffermyre would not comment on the case, and Reinhardt could not be reached by press time.

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