Law Firm Sued for Legal Malpractice by Crypto Fund Management

On December 31, Faegre Baker Daniels was sued for legal malpractice  by a crypto fund manager, Digital Capital Management, that said “the firm provided ‘erroneous’ legal services relating to the launch and operation of a fund set up to acquire and manage crypto assets.” The suit, (Crypto Asset Fund LLC, et al. v. Faegre Baker Daniels LLP 2019-L-014386) was filed in Cook County Circuit Court. Plaintiff Crypto Asset Fund is represented by Katten & Temple.

The complaint alleged that the law firm gave “inaccurate analysis and advice… regarding registration under the Investment Advisers Acts of 1940  and other state and federal securities laws and the offering of Fund shares” to Crypto Asset Management, which is now Digital Capital Management.  Faegre BD advised that “Crypto Assets are not securities and to structure CAF’s and the Fund’s business accordingly.” As a result of Faegre BD’s alleged misguidance, in 2018 the SEC brought an enforcement action against Crypto Asset Management and its founder, plaintiff Timothy Enneking.

The SEC’s cease and desist order alleged that Crypto Asset Management raised in excess of $3 million for its fund, Crypto Asset Fund, to be used to invest in digital assets. The fund was enough to meet the SEC’s definition of an “investment company,” however, according to the order, Crypto Asset Management did not register itself with the SEC as an investment company. The SEC censured Crypto Asset Management and Enneking, who paid a $200,000 civil penalty to settle “without admitting or denying the order’s findings.” Faegre BD advised Plaintiffs during part of the SEC investigation, until May 2018, when new representation was sought by Crypto Asset Management.

Crypto Asset Fund has alleged legal malpractice against Faegre BD and sought compensatory damages for costs, harmed reputation, lost profit, and other resulting damages.