Legal Malpractice

Blue Sky Law Case against NY Law Firm

By (Andrew Lavoott Bluestone)

This front page article from the NYLJ tells of a new type of legal malpractice case originating in a securities law suit, by a non-client, stretching the bounds of privity:

"A federal judge in Manhattan has ruled that a lawsuit brought under Oregon "Blue Sky" law may proceed against the New York law firm Seward & Kissel for allegedly aiding and abetting securities fraud by a client hedge fund.

Aider and abettor claims against lawyers or accountants in securities fraud cases are barred under federal law. But Southern District Judge Harold Baer has ruled they are permissible under a state securities fraud statute, or Blue Sky law.

The suit by Oregon-based investor Howard Houston stems from Seward & Kissel's representation of Wood River Partners, a hedge fund that collapsed in 2005 after a sharp decline in the stock of Endwave Corp., the small technology company that comprised more than 60 percent of the fund's holdings.

Mr. Houston claims he invested $2.75 million in Wood River based on offering documents and marketing materials that stated Wood River would pursue a diversified investment strategy. He claims Seward & Kissel helped Wood River perpetrate fraud because the law firm drafted some of the documents and allowed its name to be used in the fund's prospectus"

Full post as published by New York Attorney Malpractice Blog on December 31, 1969 (boomark / email).