22 Million Reasons Not to Give Clients Financial Advice
Every lawyer knows that the vast majority of cases settle, and often on the courthouse steps.
So it was no big surprise that Cadwalader Wickersham & Taft settled a malpractice case against the firm on the eve of trial. However, the $22 million price tag was a bit of surprise.
How does a reputable law firm get stung with a big malpractice award? Let's just say there are 22 million reasons lawyers shouldn't give financial advice to clients.
Red Zone, an investment entity, claimed Cadwalader gave bad advice on a contract. The company alleged an amendment was supposed to limit fees for financial advice by UBS Securities to $2 million.
Attorney Dennis Block said he advised Daniel Snyder, who ran the company, not to accept the amendment because it could be read not to cap the fee. Snyder said that never happened.
UBS sued for fees and won $10 million, leading to the malpractice case against the law firm. The Red Zone won a $17.2 million verdict, but the law firm won an appeal.
As a second trial approached, however, Cadwalader settled. An adverse pre-trial ruling on expert witnesses probably had something to do with it.
Of course, there is a difference between giving contract advice and financial advice. But sometimes it's a close call, especially for attorneys.
There are ethical and legal considerations and consequences for lawyers. When in doubt, they should bring in real financial advisers.
Crossing the line between legal and financial advising can be costly. In at least one case, it cost about $22 million.
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