SEC Filing Disputed – Law Firm Sued

In 1995, Gary Prince resigned as CFO of Integral Systems and pleaded guilty to conspiracy and making a false statement to the SEC regarding work at another company.  The SEC punished Prince with jail time, probation, a $50,000 fine and also barred him from ever practicing before the SEC as an accountant.

After the three year probation was up, Integral hired Prince back into a specially designed position.  The position was intended to keep Prince from serving before the SEC and the position was structured so that the SEC would not view him as practicing accounting before the SEC.  Integral Systems consulting with Venable law firm on how to structure this position so that no public filings needed to be made and the SEC would not see it as a violation.

However, in 2009 the SEC did file suit against Prince and Integral because they thought that the position was not structured in the proper way and Prince was in fact practicing before the SEC.  Prince fought this all the way to trial and 6 of the 7 counts against him were dropped by the judge.  However, one was not.

Prince is now suing Venable for their alleged failure to have adequately advised on the dangers of his role and the position Integral Systems made for him.

Making matters worse is the that the judge who dismissed most of Prince’s counts included in her statement that the attorneys at Venable had clearly had internal discussions over their concern about the position, but failed to address this with their clients.  In fact, the judge wrote:

“Venable attorneys never prepared any written document setting out what Prince could or could not do.  This is particularly troubling in light of several exhibits which show that Venable lawyers repeatedly raised concerns amongst themselves regarding the inherent risk involved in Integral’s choice to not disclose Prince.”

Prince is claiming that if the law firm would have advised more comprehensively, the position would have been altered to make sure the SEC did not have a problem with it.  $3M is being sought.

Practicing law is risky enough.  Practicing in certain areas of practice – including securities work is even more so.  It is important for firms to be confident and competent in the work they perform and open with clients as risks change.  Our firm, Calculated Risk Advisors, has seen many claims revolve around client expectations that are not managed appropriately.  Many of these disputes were a result of poor documentation, which seemed to be a factor in the case above.

Contact us to discuss other ways to protect your firm – whether through lawyer’s malpractice insurance or through sound risk management.