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Hays v. Page Perry, LLC

26 F. Supp. 3d 1311 (2014)

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Hays v. Page Perry, LLC

United States District Court for the Northern District of Georgia
26 F. Supp. 3d 1311 (2014)

Facts

Lighthouse Financial Partners, LLC (Lighthouse) was a financial advisory service. Benjamin DeHaan, Lighthouse’s former manager and majority owner, spent several years misappropriating funds from Lighthouse’s clients and later pled guilty to wire fraud. The fraud involved representations to federal and state regulators that Lighthouse was not taking custody of clients’ funds and that the funds were being transferred via a pass-through account to qualified broker-dealer custodians. DeHaan, however, was misappropriating funds from the pass-through account for his personal use. Page Perry, LLC (the law firm) (defendant) represented Lighthouse in connection with its regulatory filings and informed DeHaan on at least three occasions that Lighthouse might not be in compliance with custody regulations. The Securities and Exchange Commission filed a civil enforcement action against DeHaan and Lighthouse, which resulted in the freezing of Lighthouse’s assets. S. Gregory Hays (plaintiff) was appointed as receiver for Lighthouse and sued the law firm for legal malpractice, arguing the law firm knew or should have known Lighthouse had custody of client funds, posing a risk of theft and triggering an obligation to notify regulatory authorities. The law firm moved to dismiss the complaint.

Rule of Law

Issue

Holding and Reasoning (Thrash, J.)

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