Jan 17th 2013
By Frank Byrt
A high-profile court case in Boston, now in its second week, raises questions about where accountants and financial advisors fiduciary responsibilities for clients end.
Popular novelist Patricia Cornwell, author of a series of crime novels about fictional investigator Dr. Kay Scarpetta, is suing a New York accounting and wealth management firm that served as her financial manager for almost five years, alleging negligence and breach of contract which cost her and her company millions in investment losses and unaccounted for revenues.
Cornwell, who reported eight-figure annual earnings during the period, said she fired the firm after discovering in July 2009 that her net worth and that of her company, was a little under $13 million, the equivalent of only one year's net income. She also claims in the lawsuit that the firm had borrowed several million dollars and lost millions by moving her from a conservative investment strategy to high-risk one without her permission, and that those financial issues were so distracting they caused her to miss a book deadline that cost her $15 million in non-recoverable advances and commissions.
Anchin, Block & Anchin LLP, a New York accounting and wealth management firm, and Evan Snapper, a former principal in the firm, have denied Cornwell's claims and during opening statements at the trial, their attorney James Campbell described Cornwell as "a demanding client" who "tends to push off responsibility and assign blame when things go off track," according to an Associated Press report.
Anchin and Snapper claim there is no money missing from Cornwell's accounts and that any investment losses were caused by the financial and housing crisis at the time. They also claim that the fees they charged her were reasonable for the services they provided, including many personal ones.
In the lawsuit, Cornwell acknowledged that she struggles with bipolar disorder, an illness she said has contributed to her belief that she needs other people to manage her business affairs and investments, and said Anchin was aware of her illness. "I do what I do when and how I do it," she allegedly wrote in an e-mail to Snapper and read by Campbell to the jury.
Cornwell lives in Concord, Massachusetts, with her longtime partner, Staci Gruber, a neuroscientist who is an assistant psychiatry professor at Harvard Medical School.
She has said in interviews that among her collection of vehicles are a helicopter, a Ferrari, and several Harley-Davidson motorcycles.
A lawyer for Anchin said Cornwell's spending habits included $40,000 a month for an apartment in New York City, $5 million for a private jet service, and $11 million to buy properties.
David Milton, senior lecturer of personal financial planning at Bentley University in Waltham, Massachusetts, said after a reading case reports that in his view, "from a legal standpoint, I'm sure they provided all of the financial statements and all the information they were supposed to," but an advisor can't stop someone from spending his or her own money. "I've run into this in the past with clients who can't control their spending. When they say they want a check for $50,000 you have to give it to them. That's their legal right.
"Ethically, if I knew a client was bipolar, I would try to convince them to put their money into an irrevocable trust and appoint someone as a trustee who would make decisions for them to avoid this kind of issue," Milton said.
But many CPA firms or financial advisors who manage cash and have check-writing privileges for clients face similar challenges, he said, which ultimately means "anyone can get sued."