Fund manager David Gorton sued a U.S. law firm for fraud after its lawyers convinced him to buy into a carbon-credit investment that they had an undeclared financial interest in, according to a London lawsuit.
Gorton, who runs a joint venture with Brevan Howard Asset Management, was advised to invest to gain “significant tax relief” by Alastair Wilson and Menna Bowen, who were then at McDermott, Will & Emery, attorneys for the co-founder of DG Partners LLP said in suit filed at the U.K. High Court.
“In acting for and advising Mr. Gorton, Mr. Wilson and Ms. Bowen were, as qualified lawyers, aware of their regulatory and fiduciary obligations to him,” Gorton’s lawyers said. “In the circumstances, they knew that the representations were false, or were reckless as to whether they were true or not.”
The London office of McDermott provided tax advice to Gorton from 2004, and advised him to invest in a series of companies that created and traded carbon credits managed by Carbon Capital Ltd. Gorton signed up to invest 38 million pounds ($51 million) in several LLPs, including an initial 7.6 million pounds.
Gorton, 54, founded his fund with Robert Standing at JPMorgan Chase & Co. before striking out on his own in 2002. His firm managed more than $4 billion in 2008, but assets plunged following losses during the financial crisis. The money manager entered a joint venture with Brevan Howard Asset Management in 2010 to manage the fund but obtained full control of the firm last year.
Investors would be entitled to borrow up to four times their cash contribution for the purposes of their investment and they could be eligible for tax relief on 80 percent of the total value of their investment, according to the suit, which was filed Nov. 14 and made public this month.
McDermott is “aware of the claim made against us in relation to two former employees who had left us by 2009. The firm doesn’t comment on ongoing matters,” a spokesman for the firm said. Gorton alleges the law firm is vicariously liable for the fraud.
Wilson and Bowen, who left the U.S law firm “stood to, and did, profit,” from the investments as they had financial interests in the carbon companies they never disclosed to Gorton, his attorneys said.
HM Revenue and Customs probed the tax affairs of the carbon companies in 2006, according to the suit. Gorton hasn’t received any of the tax relief he was said to be entitled to and may have to pay penalties on any relief he claimed.
Gorton has lost all of his initial 7 million-pound investment but can’t quantify the total loss and damage, lawyers said in the papers.
An HMRC investigation “has apparently revealed that sums invested in the carbon-trading LLPs had been diverted to accounts at EFG Private Bank in Switzerland for the personal use of individuals associated with CCL and Carbon Positive Trading Ltd.," Gorton’s lawyers said.
Wilson and Bowen, who now work at U.K. firm Gunnercooke, didn’t respond to requests for comment. Gorton declined to comment further on the suit.