By Frank Byrt
Best-selling mystery writer Patricia Cornwell won a $50.9 million judgment February 18 after a federal court jury in Boston unanimously found that her former accounting and business management firm, and a former principal in that firm, acted negligently and in breach of fiduciary duties in managing the finances of her and her partner, Dr. Staci Gruber.
Cornwell is the author of a popular series of crime novels about fictional investigator Dr. Kay Scarpetta.
Lawyers for the New York accounting firm Anchin, Block & Anchin LLP and Evan Snapper, a former principal in the firm, blamed Cornwell and Gruber's losses on the economic downturn and the couples extravagant lifestyle, which included ownership of a helicopter, collections of expensive motorcycles and cars, and expenditures to maintain multiple residences, among other things.
Anchin had served as Cornwell and Gruber's financial managers for almost five years. Cornwell alleged that in that time, Anchin's negligence cost the couple millions in investment losses and unaccounted for revenues, in part, by putting Cornwell and Gruber's investment portfolio into higher risk investments without telling the couple.
"We are deeply gratified by this victory," Cornwell said in a press release issued by Cornwell Entertainment after the trial. "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 seven-week trial was "extremely painful and expensive" to go through, said Cornwell, who lives in Concord, Massachusetts, with Gruber. "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."
In a prepared statement, Anchin Managing Partner Frank Schettino said, "We are disappointed with the outcome of this case. 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."
Professor Eli Bortman, a law professor with a focus on accounting and tax issues at Babson College in Babson Park, Massachusetts, told AccountingWEB, "The lesson to be learned here is not one of law or accounting; the lesson to be learned is one of common sense. [Cornwell and Gruber] turned over their entire affairs to this outfit and there were no controls put on them." If Cornwell and Gruber insisted on such an arrangement, they should have hired an independent third party to review the financial statements being produced by their advisor on a regular basis, he said.
Bortman said it's hard to determine how the jury came up with the $50.9 million judgment without a review of court documents. "There were quite a number of claims in the pretrial memorandum."
Boston University School of Law Professor Tamar Frankel, a financial fraud expert, told AccountingWEB that in financial management arrangements such as this one, financial advisors should have "no conflict of interest when giving advice. Focus on the clients."
Frankel said that if an advisor is hired to manage a wide range of personal and business financial affairs for a client, then that advisor has far greater responsibilities and duties than say, preparing tax returns or managing a portfolio. "The equation is that the higher the power you have, the greater your responsibilities are."