Lawyers Who Drafted Private Offering Memo Sued By Florida Investors
A group of disgruntled investors have filed a lawsuit in Broward County against the law firm that helped create the offering memorandum for a failed dot-com company, Fundster.com. According to the Daily Business Review (“DBR”), a group of investors from Plantation, Florida sued law firm Edwards Wildman Palmer LLP, based in Boston, after Fundster.com and its founder Mark Johnson filed for bankruptcy.
According to DBR, Fundster.com’s business premise was to help college students use social networks to connect them with potential sources of tuition funding, including friends, family, social organizations and scholarships. The investors, Cirrus Capital Management, LLC, invested a total of $750,000 in the company. One of the disgruntled investors, Gene Tonn, told DBR that the investors uncovered conflicting claims regarding the ownership of Fundster’s software technology and that Fundster had not been trademarked and had no patent for its technology.
The investors allege in the Complaint that attorneys at Edwards Wildman who were involved in drafting Fundster’s private offering memorandum did not conduct adequate due diligence and made material misrepresentations concerning the proprietary technology and intellectual property. The law firm denies the allegations.
The attorney who represents Johnson, Fundster’s founder, told DBR that an additional $1 million was needed to get Fundster up and running, but the existing investors refused to approve the additional investment by a new investor and the deal fell apart. Johnson claims that without the additional capital, the only option was to file for bankruptcy.