A group of investors sued Texas attorney Gregory Jones in connection with a failed mining venture that they claim was nothing more than a Ponzi scheme.
The investors say they hired Jones before investing in two mining companies, Edwards Exploration and Edwards Operating LLC. The group sought Jones’ help in evaluating their potential investment. According to court records, Jones not only encouraged them to invest in the companies, he also claimed to know Spencer Edwards, the principal of both mining companies. Unfortunately for the investors, they say they that after relying on Jones and investing their money they learned that Edwards was running a Ponzi scheme.
The investors also claim that Jones paid himself a finder’s fee from their investment funds without their permission or knowledge. In filing the suit against Jones, the investor’s new counsel, Patricia LaRue, said, “We filed the lawsuit because he [Jones] caused our clients to lose money. They were damaged because he did not represent him in an ethical way. They didn’t give him permission to take their money.”
The investors seek $6.7 from Jones and his law firm.
Many legal malpractice cases occur when a lawyer misses a deadline or misapplies the law. This case involves claims of negligence and breach of fiduciary duty. Negligence occurs when a lawyer fails to exercise a proper level of care. If a lawyer agrees to handle a case, he or she must exercise a reasonable amount of care in performing the service.
Lawyers also have a fiduciary duty to act in the best interest of their clients. A fiduciary obligation occurs when the relationship with that party involves a special trust, confidence, or reliance on the fiduciary. Because clients place a high level of trust in their lawyers, most courts consider lawyers to have a fiduciary duty to their clients.
If the allegations of the complaint are true, Jones breached his fiduciary duty to his clients by taking some of their money without their knowledge and permission. If a lawyer is getting paid to advise his clients, he shouldn’t also be pocketing their money in the form of an undisclosed commission or kickback. That type of behavior is considered unethical and may help the investors recovering some of their losses.
The practice of law is mostly regulated by the states. Most state professional conduct rules say that lawyers must be transparent in their financial dealings with clients. Taking money without a client’s permission is almost always actionable.
In the typical Ponzi scheme, the scheme unravels when the fraudster behind the scheme runs out of cash. Suing the fraudster is often an exercise in futility because by the time the scheme unravels, the money is gone. Stockbrokers, investment advisers and sometimes banks can be held responsible for the losses, however, if they aided the scheme or failed to conduct proper due diligence. As this case points out, lawyers can also be sued if they gave poor advice or had a hidden financial interest in the scheme.
Unlike Ponzi scheme fraudsters, most lawyers also have legal malpractice insurance that can cover these losses.
The bottom line… lawyers, accountants, investment advisors and other financial professionals have a duty to look after the best interest of their clients. If a professional vouches for an investment and you rely on his or her advice, you may be able to get back your hard earned money if the professional failed to undertake reasonable steps and due diligence in providing that advice. The same is true if the professional had a hidden financial interest or was taking undisclosed commissions.
Lose money in a Ponzi scheme or other fraud? We may be able to help you get back your hard earned money. For more information contact attorney Brian Mahany at or by telephone at (direct). We have handled cases throughout the United States. Our minimum loss figure is $1 million in Ponzi cases but we may still be able to help in other cases depending on the unique facts of the case and the availability of insurance coverage.