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Action against New York firm for negligently handling securities registration work involving a reverse triangular merger. 

Our client in this case was a high tech company that engaged the services of a New York based law firm to handle a reverse triangular merger (essentially a buyout) between our client and another high tech company.

The law firm handled the merger and drafted the merger documents, which included a provision that required our client to apply for and have approved, within 90 days of the merger, a stock registration for the shareholders of the acquired company. The share price of the acquiring company (our client) was at an all time high and the shareholders of the company that was being acquired wanted to be able to sell their stock as soon as possible.

Following close of the merger, as required by SEC rules, the allegedly negligent law firm filed a form 8-K, but improperly filed it as an "Item 5", instead of an "Item 2". The incorrect filing was not caught in time, and created serious difficulties for our client to do the required stock registration as a "shelf registration". It further set in motion a series of delays and problems which ultimately led to the our client’s inability to meet the 90 day registration requirement. In the intervening six months, the stock price of our client fell substantially, causing the shareholders of the acquired company to lose significant value in the shares they were to receive. The delay put our client in breach of its merger agreement and exposed it to substantial claims for damages due to the drop in stock price in the intervening period. Our client paid approximately $4,000,000 to settle the shareholder claims, partly in cash and partly in stock. (No lawsuits were ever actually filed by the shareholders).

We claimed legal malpractice against the defendant law firm based on the negligent filing of the 8-K, and then the firm’s negligent advice to our client on the remedial action to be taken. (The firm recommended that a waiver of the late filing be requested from the Securities and Exchange Commission. Experts retained on the case advised us that this would have had almost a zero chance of success).

The allegedly negligent law firm contended that the 8-K filing was not wrong, but even if there was a mistake, there were several other potential parties (including the company's accountants and another law firm that did the securities registration work) which were at least partially (if not wholly) responsible for the problem filing and subsequent delay.

The firm also claimed that because the stock of our client rose for a short while after the registration finally went effective, there were no damages to the damaged shareholders because they could have, but did not sell when the stock price rose. The firm also claimed that our client’s settlements with the shareholders was unreasonable and excessive and could have been disposed of through a motion to dismiss or summary judgment.

Settled between the parties, prior to any action being filed for $1,625,000.00