The Work

August 10, 2009 11:39 AM

Blank Rome Pays $20 Million to Settle Malpractice Case

Posted by Zach Lowe

It's hard not to think of Joseph Collins when reading this story today in the Legal Intelligencer, an Am Law Daily sibling publication, in which Gina Passarella writes about Blank Rome's decision to settle a malpractice case for $20 million.

As you probably know, Collins was the Mayer Brown partner convicted of helping Refco hide $2.4 billion in debt even though he testified he knew nothing about the scheme and relied on his client's word in preparing documents for the transactions, according to The New York Law Journal.

At the center of his case was the question of whether lawyers should be held accountable for advising companies on financial transactions that turn out to be fraudulent. (Of course, federal courts dismissed civil charges against Mayer Brown and Collins, ruling that such third parties could not be held liable in investor suits related to Refco's frauds).

In the more recent case involving Blank Rome, the firm served as longtime outside counsel to American Business Financial Services, a subprime mortgage lender that went bankrupt amid allegations that it conducted a huge accounting fraud to make the company appear more viable than it really was.

The trustee of the company's estate sued the company's financial advisers in 2006 and added Blank Rome to the suit last year. The suit claimed the advisers, including Blank Rome, knew about the fraud and helped ABFS pull it off. 

Blank Rome adamantly denied the charges, saying it relied upon information ABFS provided in the course of its work for the company, and that ABFS executives made all the final corporate decisions. 

Even so, the firm decided to settle for $20 million, citing the cost and uncertainties of protracted litigation.

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