ESG Capital Partners, LP v. Stratos
United States Court of Appeals for the Ninth Circuit
828 F.3d 1023 (2016)
ESG Capital Partners (plaintiff) sought to buy pre-IPO Facebook shares from Troy Stratos (defendant), a con artist posing as "Ken Dennis" and claiming to run a legitimate securities company connected to a Facebook-affiliated billionaire; Stratos hired attorney David Meyer of Venable LLP, who helped create a shell company for the fraudulent sale and was copied on all of ESG's emails to "Dennis." In a phone call, Meyer personally assured ESG's managing agent that "Dennis" was legitimate, the sale was valid, and he would provide deal documentation - assurances that induced ESG to wire nearly $3 million into Venable's trust account (later transferred to Stratos's personal account the same day), and ultimately more than $11 million total for nonexistent shares. ESG sued Stratos, Venable, and Meyer for federal and state securities fraud; the district court dismissed the claims against Venable and Meyer for insufficient pleading, and ESG appealed.
Whether an attorney who makes representations about securities to a potential buyer has a duty to be truthful in those representations, even where the seller is the attorney's own client.