Peterson v. Winston & Strawn LLP

Gregory Bell’s mutual funds (the funds) invested most of the funds’ money in organizations run by Thomas Petters. The four directors of the funds lived abroad and delegated full control of the funds to Bell. Petters’s operation purportedly financed other businesses’ inventories. However, Petters’s operation was a Ponzi scheme. Bell admitted that he formally joined Petters’s scheme in 2008. Bell stated, however, that he was unaware of Petters’s scheme until 2008. In 2005, the funds hired Winston & Strawn LLP (defendant) to revise the funds’ mutual fund circular. The circular stated that the funds would verify the existence of the inventory invested in and would make sure that the businesses’ repayments were made directly to legitimate financial institutions. However, Bell informed Winston that Petters did not verify inventory or ensure direct repayments to financial institutions. Nevertheless, Winston prepared the revised circular that was distributed to prospective investors. After the collapse of the funds, Ronald Peterson (plaintiff), the funds’ trustee in bankruptcy, brought a legal malpractice suit against Winston, seeking damages. Peterson stated that Winston should have informed the funds’ directors of the fraud and made truthful assertions in the circular regarding the inventory verification and investment repayments. The district court dismissed the complaint based on the doctrine of in pari delicto, finding that Bell’s and the funds’ culpability was greater than Winston’s and that the funds therefore had no recourse against Winston. Peterson appealed.