Bancrédito Holding Sues Law Firms Over Legal Missteps Resulting in Massive Fine

Bancrédito Holding Sues Over Legal Mismanagement

Bancrédito Holding Corporation (BHC) has recently filed a lawsuit that has caught significant attention due to the serious implications it bears for the financial and legal sectors. The corporation, which is the sole shareholder of Bancrédito International Bank & Trust Corporation, is suing three prominent international law firms: McConnell Valdés LLC, Holland & Knight LLP, and McDermott Will & Emery LLP. This lawsuit stems from alleged negligent representation which led to a staggering fine of $15 million.

The action was prompted by the recent dismissal of criminal charges previously levied against Julio Herrera Velutini, the founder of Bancrédito. Following the dismissal, Luis Zapata, the CEO of BHC, emphasized that parties who failed to safeguard the bank's interests must be held accountable for any damage caused to the bank’s reputation and financial standing. He stated, “Those who acted with negligence, rather than protecting the interests of the bank and its shareholders, should answer to the law, just as Bancrédito has at all times.” This statement sets a critical tone for the ongoing legal drama surrounding the institution.

The lawsuit, filed in the Eleventh Judicial Circuit Court of Miami-Dade County, accuses the law firms of severe professional negligence during pivotal negotiations with the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department. The claims outlined in the lawsuit detail how the legal counsel allegedly led the bank to abandon valid defenses by coercing it into accepting a Consent Order that contained misleading admissions regarding the bank’s compliance programs.

In particular, the allegations stipulate that the law firms had previously provided assurance to the bank regarding its Anti-Money Laundering (AML) compliance programs and the Bank Secrecy Act (BSA). They had declared these programs adequate while indicating that certain reports were unnecessary. However, upon FinCEN's investigation, the same firms purportedly backtracked on their earlier positions. The lawsuit’s documentation asserts that the lawyers are culpable for not presenting robust arguments available at the time and for advising the bank to accept inaccurate facts.

The lawsuit highlights specific instances where one of the law firms sent a joint opinion letter to Puerto Rican regulators, which contradicted their later advisement. It stated, “No reasonable lawyer would have advised the bank to accept a Consent Order that claims the bank's compliance programs deteriorated over time when their prior evaluations had concluded that they were sufficient.” This makes the case particularly potent, as it reveals potential conflicts and ethical oversight within legal advisory roles.

Further complicating matters, BHC has also pursued legal action against Driven Administrative Services, which had assumed directorial roles for the bank during its liquidation phase. This suit, currently under appeal in Puerto Rico, accuses the service provider of breaching its fiduciary duty by entering into the Consent Order based on this allegedly negligent legal advice. The legal filing contends that with the repayment of all depositors being completed in early 2023, the remaining assets should revert to the bank and its shareholders. However, claims have emerged that Driven retained or sold artworks valued in excess of $22 million, a move that seemingly does not reflect any outstanding obligations to depositors at the time.

With both lawsuits in play, the implications for Bancrédito and the accused law firms could be profound. The unfolding legal battle raises critical questions about the accountability of legal advisors in corporate governance and the stringent adherence to ethical practices within the financial industry. As the case progresses, stakeholders will be keenly observing how these legal entanglements will resolve and what precedence they may set for future law-firm-client relationships. The outcomes could potentially reshape legal standards within the banking and finance sectors, especially concerning compliance and risk management.