An investor agreed to invest an amount of money, 2X, in a startup through a convertible note. At the end of two years, the investor had the option of receiving back the monetary amount of his note with accrued interest, or converting his note into equity at a pre determined rate. The terms of the deal were that the investor would invest X up front, to allow the company to acquire a particular asset, and the remaining X upon the company's successful acquisition of this asset, which everyone involved agreed was key to the deal.
The company failed to acquire the key asset, and in this contingency, the terms of the contract called for the company to return X to the investor. The company notified the investor's lawyer of this fact, but the lawyer falsely told the client that the asset had been acquired, and asked the client to forward the remaining X. The client failed to do so, which would have been a "default" had the asset, in fact, been acquired.
The lawyer also represented to the company that he had reviewed the finances of the investor (he had not), and that the investor was an "accredited investor" as defined by the SEC, who could invest in unregistered securities, even though this was not the case.
After two years, the client sued for the return of X, which the company had spent. The company counterclaimed for the remaining X by saying that it would have survived if the investor had invested the whole amount. Because of certain jurisdictional and procedural issues, this set of lawsuits will take years to resolve.
Did the lawyer violate a fiduciary duty by telling the client that the asset had been acquired when, in fact it had not been, and if so, what are the consequences to the lawyer?
What responsibilities did the lawyer have under "know your customer" or similar legislation to verify the client's ability to invest as an accredited investor? And to what extent is the lawyer liable for the relevant mispresentations?
Normally, malpractice is not held against the lawyer unless the client wins the underlying case against the company. Is this true here, or are the lawyer's lapses so egregious and so material to the issues involved that the lawyer can be found liable regardless of the outcome of the investor-company litigation?