Best-selling novelist Patricia Cornwell has won a $50.9 million judgment against her former accounting firm Anchin, Block & Anchin LLP and a former principal at the firm who acted as her money manager.
Patricia Cornwell
(photo from Siren-Com)
Cornwell had sued the firm and former Anchin principal Evan Snapper, blaming them for bad financial advice, unsuccessful real estate deals and an overly aggressive investment strategy that cost her a sizable amount of her fortune (see Novelist Patricia Cornwell Blames Accountants for High Spending).
The lawsuit accused the firm of acting negligently and in breach of its fiduciary duties in managing the financial affairs of Cornwell and her partner, McLean Hospital neuroscientist Dr. Staci Gruber.
Cornwell accused the firm of improperly investing $89 million of her fortune and making illegal campaign contributions that attracted scrutiny from the FBI, according to the Los Angeles Times. She charged that the firm engaged in high-risk investment strategies without her approval.
Cornwell paid the firm $40,000 per month to manage her finances, renovate her Concord, Mass., estate and lease an apartment in Trump Tower in Manhattan for her. The firm blamed her financial losses on the economic downturn along with an extravagant lifestyle, including private jets, helicopters and expensive sports cars.
She sued the firm for negligence and breach of contract, claiming that her net worth had dropped to under $13 million even though she had earned eight figures each of the prior four years, according to The Guardian. She also blamed the firm for causing her to miss a book deadline for the very first time, leading to the loss of $15 million in book advances and commissions, when Anchin was unable to find her a quiet place to write during a lengthy renovation of her estate.
Anchin was also accused of excessive and unauthorized billing, failing to put the clients' interests ahead of its own, and gross mismanagement of Cornwell’s and Gruber’s money over four and a half years, which resulted in the loss of millions of dollars.
A jury in a Boston federal courtroom found in Cornwell’s favor on Tuesday following a seven-week trial. On her Twitter page, Cornwell tweeted, “Justice!” followed by, “Thank you and God bless tweety friends! Your support has helped more than you know," followed by, "I wish I could hug the jury!" and then “7 weeks for this jury. They are heroes. Thank you jury!”
“We are deeply gratified by this victory,” Cornwell later said in a statement. “This case was about a lot more than financial mismanagement. It is our belief that Anchin, Block & Anchin not only took advantage of us, they also tried to damage our reputations and put us in legal jeopardy.”
The trial was “extremely painful and expensive” to go through, Cornwell said, adding that “it would have been far easier to settle or walk away, but we felt we owed it to ourselves and to others who have been victimized by financial advisors to have our day in court.”
“We thank the jury for their diligent and thoughtful service,” Cornwell said. “A portion of the monetary verdict we receive will go to McLean Hospital for psychiatric research.”
The trial was held before U.S. District Court Judge George A. O'Toole, Jr. at the John Joseph Moakley U.S. Courthouse in Boston. Along with the $50.9 million judgment, under Massachusetts law, Judge O'Toole may also award Cornwell and Gruber payment of their legal fees and multiple damages in a subsequent proceeding.
Anchin managing partner Frank A. Schettino expressed dismay at the verdict. “We are disappointed with the outcome of this case,” he said in a statement. “In the days ahead we will be exploring our legal options including appeal of today’s verdict. For more than 90 years, the professionals at Anchin have built a reputation for honesty and integrity. The firm will endure despite today’s outcome. We are eager to return to our business and continue providing the highest level of professional services our loyal clients have come to expect.”
7 Comments
I think that on appeal the vast majority of this judgement will be overturned. What I've read about the case indicates that the "client" made ALL of the spending decisions and is wailing "my accountants let me be irresponsible (even though I bear all the responsibility of my decisions make someone else pay for my mistakes)." This case doesn't involve losses due to poor investments made at the advisers insistence or illegally taking money not due based on the fee arrangements, only making the accountant responsible for the extravagant life style (which she could pay for but left her short of money when the production fell off - non of which was the fault of the accountants).
Look at one of the complaints - "She also blamed the firm for causing her to miss a book deadline for the very first time, leading to the loss of $15 million in book advances and commissions, when Anchin was unable to find her a quiet place to write during a lengthy renovation of her estate." ---- Now what kind of reasoning says that the accountant is responsible to provide a facility for the client to work in. Is this a reasonable argument? I can't imagine a world where an accountant is responsible for that type of service. The plaintiff in this case was expecting to be free of ALL responsibility and seems to be a "problem child".
I certainly hope that the successor accountants look carefully at this suit and decline to engage in any type of service agreement.
The firm was probably at fault for taking on what appears to be additional work or tasks and no doubt there was a great deal of engagement creep as a result of trying to accommodate what was viewed as a profitable arrangement.
The best analogy I can see here is a criminal suing his attorney because they didn't stop them from robbing the corner store.
Posted by: SullivanAcctg | February 28, 2013 1:29 PM
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It is unconscionable that a CPA firm of this size, with their level of expertise, would be performing such engagements under the Anchin Block and Anchin LLP umbrella. How in the world this type of engagement is not being handled under a separate entity such as Anchin Advisors LLP is beyond belief. Now all of the equity Audit and tax partners are exposed to some level of liability because of this type of engagement? I can't believe that is how they structured this business.
Posted by: SJCCPAPC | February 20, 2013 1:03 PM
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MikeCPA, you are the only one in these comments that has it correct. Clearly she was a train wreck waiting to happen. But these clowns, I mean professionals could only look the money they were making or could make.
I have had corporate owner clients that I quickly discovered had sudden cases of convenient memory loss after large decisions were reached, then changed without my input. At that point, I insisted that another owner/employee sit in on all meetings and take notes so there would be two sets of notes of what happened. It would only take one bad move by the leader to immediately get turned on me with the comment something like "well, you sat there and approved it..."
And anyone that simply accepts a CPA's advice on investments gets exactly what they deserve.
Posted by: topbeancounter | February 20, 2013 11:42 AM
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Anchin should definitely appeal. The partner didnt steal any money. As for bad investment advice, I am sure they have an engagement letter that says either go to arbitration or linit your claim to what you paid us. I sure hope they reverse this. The publicity is terrible and , once again, puts the CPA in the position of being the deep pocket to cover clients' own mis deeds. She missed a deadline and that makes him liable?? She spent money like a drunken sailor and its his fault she has a depleted net worth? Nutty.
Posted by: maury997 | February 20, 2013 10:44 AM
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I agree with R36868 - the one part about that story that stuck out like a sore thumb was the blaming of the accountants for missing a book deadline because they couldn't find her a place to quietly work. It really depends on what type of agreement these people had, but it certainly wasn't "Financial planning/Money Manager" - this was a "We will do everything for you" type of outfit if that was truly in their scope.
As to the other complaints, I know nothing about the facts so I can't speak on them, but I hope the judge really looked at all the records because I can easily imagine that her expenses were quite up there, even if she was making eight digits.
Posted by: Zeo | February 20, 2013 10:33 AM
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Blame the accountants for missing deadlines and noise caused by a remodel? Seems like a case of Cornwell enriching herself at the expense of others. Why write books when a jury will hand over $50 million to spend on more private jets and Trump apartments? I assume a good CPA firm would spell out the engagement in an agreement signed by Cornwell. What weight did the judge and jury give to the engagement agreement?
Posted by: R36868 | February 20, 2013 10:21 AM
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CPAs were watching the so-called "financial planners" make more money than accountants made on their hourly fees, so they decided they wanted a cut of that action. When the AICPA changed the Code of Professional Conduct, this became a train wreck waiting to happen, for clients who regarded their accountants as trusted advisors, a trust that had been hard-earned over decades. I could not blame some clients for now regarding us like used-car salesmen, out to make a quick buck on them, with no insult intended to used-car salesmen. A major tenet of being a professional is to protect the public, including your clients.
Posted by: MikeCPA | February 20, 2013 9:25 AM
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