Wednesday, September 22, 2021

Assistance To A Friend

A fully stayed one year suspension has been ordered by the Ohio Supreme Court based on findings of incompetence and a business transaction with a client

Polly-Murphy was an associate with the firm of Cooke Demers, L.L.C., from December 2014 until April 25, 2019. She performed creditors’ rights work for institutional-lender clients.

During her tenure with Cooke Demers, Polly-Murphy provided legal assistance to a friend in connection with the creation of Advanced Health Brands (“AHB”), a company that was developing transdermal patches. Polly-Murphy had a 1 percent ownership interest in and was an officer of AHB. She also provided legal services to Nutriband, Inc., a health and pharmaceutical company focused on transdermal and topical technologies for product development that entered into an agreement to acquire AHB. Polly-Murphy prepared a share exchange agreement on behalf of AHB in connection with that acquisition, and based on the terms of the acquisition, she acquired an ownership interest in Nutriband. Although it was Polly-Murphy’s responsibility to inform Cooke Demers of any clients that she undertook to represent, she did not inform the firm that she was performing legal services for those companies. Nor did she employ the firm’s standard practices for establishing those companies as new clients.

Before Nutriband acquired AHB, Nutriband’s CEO asked PollyMurphy to furnish a legal opinion in response to an inquiry from the United States Securities and Exchange Commission (“SEC”). The applicability of United States Food and Drug Administration (“FDA”) regulations to AHB’s transdermal patches was central to the SEC inquiry. On April 24, 2017, Polly-Murphy furnished a legal opinion to Nutriband stating that AHB’s transdermal patches did not require approval from, and were not otherwise regulated by, the FDA—but her opinion was legally wrong.

In May 2017, shortly after Nutriband’s acquisition of AHB closed, an SEC attorney e-mailed Polly-Murphy regarding its investigation of Nutriband. In December 2017, the SEC issued a subpoena to Polly-Murphy directing her to produce documents related to the Nutriband investigation. Polly-Murphy cooperated, providing the SEC with documents and two sworn declarations regarding the legal opinion that she had provided to Nutriband about the FDA’s regulation of its transdermal patches.

 In addition to her April 2017 legal opinion, from the fall of 2017 through the spring of 2018, Polly-Murphy prepared 10 to 12 “144 letters” for  Nutriband on Cooke Demers letterhead, authorizing Nutriband shareholders to sell their restricted shares. See Securities Act Rule 144, 17 C.F.R. 230.144. In early May 2018, Nutriband’s CEO sent a text message to Polly-Murphy indicating that she would be receiving a payment for her past legal work, and on May 29, he made a direct deposit of $5,000 into Polly-Murphy’s personal bank account. Polly-Murphy did not inform Cooke Demers that she had received that payment.

On December 31, 2018, an attorney representing Nutriband wrote to Polly-Murphy and Cooke Demers seeking the preservation of documents in anticipation of a malpractice suit based in part on Polly-Murphy’s faulty opinion regarding FDA regulation of transdermal patches. Prior to receiving that letter, Cooke Demers had no knowledge of Polly-Murphy’s activities on behalf of AHB or Nutriband—or her cooperation in the SEC investigation.

On April 25, 2019, Cooke Demers terminated Polly-Murphy’s employment after conducting a detailed investigation. Nutriband commenced litigation against Polly-Murphy and AHB shareholders in Florida and New York, alleging fraud and seeking a return of its shares, in part because AHB’s transdermal patch “does not work and has failed to get FDA approval.”

On December 26, 2018, the SEC issued a cease-and-desist order, finding that Nutriband had made misleading statements regarding the FDA’s jurisdiction over its products in six public filings and imposing fines of $25,000 against Nutriband’s CEO and CFO. Cooke Demers and its partners entered into a nconfidential agreement with Polly-Murphy, settling all of their claims arising from the legal work that she had performed for AHB and Nutriband.

A dissent favors an 18 month stayed suspension with conditions. (Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2021/09/a-fully-stayed-one-year-suspension-has-been-ordered-by-the-ohio-supreme-court.html

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