August 31, 2006
Are Lawyers Getting Away Unscathed?
An article in the Washington Post (here) makes the provocative point that lawyers have largely avoided the fallout from the recent rounds of corporate and accounting scandals, asserting that "lawyers serving fraud-ridden companies have emerged relatively unscathed." The article contrasts lawyers with the two large accounting firms, Arthur Andersen and KPMG, that have been involved in criminal cases, with Andersen forced out of business even though the conviction was later reversed by the Supreme Court. That may not be the best comparison, however. Andersen was prosecuted for obstruction of justice for shredding documents, not for its audit of Enron, and KPMG's deferred prosecution agreement involved the firm's direct work selling tax shelters to clients, a product much like any other, and not for its professional advisory role. The Milberg Weiss case is somewhat analogous to these accounting firm prosecutions, in that the subject of that prosecution is not work on behalf of clients but how the firm went about doing its business.
The recent options-timing cases may well put lawyers squarely in the sights of prosecutors, particularly in-house counsel at the companies involved in the questionable -- although perhaps not necessarily illegal -- transactions. William Sorin, former general counsel at Comverse Technologies, was charged along with two other executives for his role in the options back-dating, and the charges recite how he used his position to facilitate the awards and make them look legal. McAfee Inc. fired its general counsel, Kent Roberts, because of his involvement in an instance of options back-dating, and federal prosecutors subpoenaed the company for information related to his termination. At some companies being investigated, outside law firms drafted the compensation policies while partners at the firms served as directors of the corporations, even being involved in the now-scrutinized option grants. These lawyers are sure to be questioned by civil and criminal authorities, and are likely targets of those investigations.
Although lawyers were not caught up in the criminal prosecutions generated by some of the spectacular corporate collapses of recent years, the options-timing investigations will put the acts of legal counsel under a microscope. It will not be surprising to see more than a few lawyers involved as defendants in the various cases in the future. (ph)
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It's my opinion the DOJ and SEC collectively have been too soft on their peers (fellow attorneys and sometimes former colleagues) in the past. The same situation exists in all professions, however.
It's my opinion the SEC would be a lot less lax on the legal profession if Roel Campos were Chairman and Walter Ricciardi was head of enforcement. Cox has no previous regulatory experience. Campos was with the DOJ.
I base that opinion on how swiftly he (Walter) came down on Biogen-Idec's former General Counsel, Thomas Bucknum, last year for illegal inside trading. Ironically enough, Bucknum was represented by none other than Juan Marcellino (former DA of the SEC in Boston and 1994 Stan Sporkin Award winner). He was in command when the Putnam whistleblower on the mutual fund market timing mess was ignored and finally snitched to Tom Galvin.
It's my opinion that Linda Thomsen's been entirely too lax on Morgan Stanley because Gary Lynch is their General Counsel. Gary, as we all know, was once head of enforcement at the SEC and also a partner at the same law firm Ms. Thomsen once worked for prior to joining the Commission.
In my opinion, it's time for both the DOJ and SEC to stop playing favorites.
Posted by: SEC/NASD Super Enforcement Bull | Sep 1, 2006 1:20:30 AM
I think most of trials I have read about or been in court to watch concerning fraud, that (advisors to company) type lawyers are hardly mentioned and if so very small footnote about them by name or firm. Like CitiBank and other biggies they have one of those "Get Out of Jail Cards". Too bad Jamie Olis did not have one of those cards. When Jamie Olis turned around and looked for some backing from them -Poof- they all seemed to disappear when he was indicted. Jamie O. has been in prison since 20 May 2004.
His dad, Sleepless in Killeen,TX.
Posted by: Sleepless in Killeen, TX | Sep 1, 2006 6:32:08 AM
The answer to why lawyers are not prosecuted is simple, they are harder to convict. Especially, it is hard to convict them on charges arising out of mistated revenue recognition, understated expenses, and other accounting manipulations. Unlike auditing accountants, corporate accountants they do not normally participate in most accounting manipulations. Unlike CEOs, CFOs and Board members, they have no supervisory authority; no right to demand an accounting, & usually no obligation to inform themselves on whether the books are being diligently and truthfully prepared. Only when they are asked by management to investigate only then would they have a right to access the books, to question the accountants. Although they might be called in to examine the legality of transactions, they have no responsibility to audit the accounting aspects. Of course if the CFO, CEO, CAO shows them books that are blatantly corrupted they would have to point it out. Up until SOX, that is the extent of their responsibility. They were not required to report it up to the Board of Directors or out to the regulators. So how can you possibly convict the lawyer. You cannot adopt the tactics used against Lay and Skilling, they cannot be charged with a "knew or should have known" standard. Lawyers are being dumped on because they are lawyers, they provide a brake to corporate excesses. I think that the prosecution of Christiansen at Enron was pretty hard ball, she confessed early but still went to prison.
Posted by: Ronald X. Groeber, Ball State Univ | Sep 4, 2006 2:50:36 PM