Risk Update

Conflicts Conversation — Interview: In Discussion with A Law Firm Conflicts Expert (Sponsor Spotlight)

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This month’s sponsor thank you features the PDF summary and expanded commentary of a soon to be released audio podcast discussion with conflicts expert Scott Goodwin at Aurora North.

Their discussion explores: current conflicts trends, the pressures facing conflicts teams, the opportunity for innovation in staffing model and technology. Here’s a direct link to the PDF article: “In Discussion with A Law Firm Conflicts Expert” —

  • “Firms need to get work done and consistently get more and more work and business in the door — and that dynamic can create more pressure on the conflicts process, for example. At the same time, firms definitely intellectually understand the critical importance of effective risk management. That includes evaluating not only ethical risks, but reputational and financial risks. But there are tensions there as well.”
  • “Another area we see firms focusing on is restructuring Conflicts teams. That function has evolved over the years.”
    “These are among the reasons why some firms invest in creating more rigorous conflicts approaches, increasingly organizing teams in a centralized model… I’d also note that not every lawyer has the same level of knowledge and training on conflicts. How much time in law school is spent mastering conflicts? There’s some. But it might have been covered in a day, and the knowledge of every lawyer in the firm may not cover the latest developments, thinking, or decisions on the topic.”
    “Rather than wholesale, department-wide change, it’s often incremental. Usually those resources start by taking on the duties of reviewing conflicts reports generated by their colleagues, and then helping to resolve potential issues.”
    “That’s a great first step, which helps shift the burden away from the billing lawyers, and brings the benefits I outlined earlier, in terms of cost savings and risk management.”
    “I think a key emerging area is Artificial Intelligence and intelligent use of data… But it does work, and can really reduce the burden on conflicts in terms of having to manually review hits and result on reports to evaluate which are true conflicts or issues requiring greater review. I really think adoption of this approach and these AI tools is the future of conflicts.”
Risk Update

Disqualification News — Hidden Documents? Unwaivable Conflict?

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Judge Boots Defense Firm From Medical Malpractice Case Over Fraud Allegations” —

  • “A Fulton County judge has disqualified defense firm Peters & Monyak from defending a medical malpractice case that sparked a mistrial in February after the firm’s possible role in the withholding of a key piece of evidence became an issue.”
  • “On Friday, State Court Judge Eric Richardson ruled that the firm had an unwaivable conflict with the defendants and would need to step aside.”
  • “Lead plaintiffs attorney Lloyd Bell said he had not initially sought to cast suspicion on the defense firm’s involvement in the handling of the medical records, but that its decision to involve itself in the production of documents before the lawsuit was filed and its subsequent insistence that all records were produced placed the firm squarely in the middle of the case.”
  • “Bell’s team then filed a motion to disqualify the firm, ‘arguing that the allegation of negligence or fraud against [it] creates an inherent conflict of interest between defendants and their counsel.’ Peters & Monyak opposed the move and Payne signed a conflict waiver hoping to keep them aboard, hiring Balch & Bingham partner Benjamin Brewton to review the case.”
  • “The allegations that the firm fraudulently concealed documents ‘necessarily raises the issue of a direct and personal conflict of interest between defense counsel and their clients,’ he wrote. The firm ‘attempts to side step the potential conflict of interest issue by asserting that it will never take the position that defendants withheld anything—thereby nullifying any potential conflict,’ he said.”
  • “‘This contention is unavailing, however. Regardless of whether [Peters & Monyak] refrains from accusing their clients of fraudulently or negligently withholding documents, the implication would remain should [it] hold fast to its denial of any alleged fraudulent concealment or inadvertent failure to produce the document on its part,’ Richardson wrote. ‘Thus, a conflict arises by implication.'”
Risk Update

Looking at Lateral Risk — Lateral/Merger Moves Creating Conflicts, Conflicts Causing Lateral Changes

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Lateral move creates disqualifying conflict. Decision issued September 8, 2020: “Goren v Barnett” —

  • “From 2010 to approximately 2013, the law firm of Amstein & Lehr LLP (Arnstein & Lehr) represented the Regional Center as securities counsel in various matters related to its EB-5 program administered by the United States Citizen and Immigration Services.”
    “In 2017, Amstein & Lehr merged with Saul Ewing LLP. Saul Ewing represents Lela Goren in this matter, both individually and derivatively on behalf of the Regional Center.”
  • “In support of their motion, the Defendants submit certain invoices (the Invoices) from Amstein & Lehr from 2011-2013 for work on matters that related to Ms. Goren’s allegations in this case… At least three Amstein & Lehr attorneys who worked on these matters for the Regional Center are now partners at Saul Ewing.”
  • “The Invoices submitted by the Defendants establish that the subject matter of Amstein & Lehr’s prior representation of the Regional Center in connection with the Operating Agreement and finder’s fee arrangements is substantially related to the issues in this case and that Ms. Goren’s interests are materially adverse to those of Gary Barnett and the Regional Center.”
  • “In addition, Saul Ewing’s representation of both Ms. Goren and the Regional Center presents a concurrent conflict of interest because it would require the firm to argue that the same transactions that it previously advised the Regional Center to undertake were part of the fraudulent scheme alleged by Ms. Goren.”
  • “Finally, the former Amstein & Lehr attorneys’ conflicts of interest are imputed to the entire firm of Saul Ewing under Rule 1.10 (a) of the Rules of Professional Responsibility, therefore no lawyer in the firm may undertake the representation.”

Paul Weiss Antitrust Leader Launches Own Firm” —

  • “Jonathan Kanter, the former co-chair of the antitrust group at Paul, Weiss, Rifkind, Wharton & Garrison, has left the firm to launch his own law practice in Washington, D.C.”
  • “A spokesperson for Paul Weiss said Kanter left the firm ‘due to a complicated legal conflict that would have required him to discontinue important and longstanding client representations and relationships.'”
  • “In recent years, he’s represented Altice USA, which took a part in the ultimately unsuccessful challenge to the blockbuster T-Mobile-Sprint merger, and also Monsanto, in its 2016 acquisition by Bayer. Kanter declined to comment on the record about his move on Monday.”
Risk Update

Conflicts Allegations — Trump Towers + Law Firm Tenants = Attention; McDonalds + NLRB Conflicts Concerns

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The conflicts alleged in this piece are well beyond the scope of the law firm-ethical variety we typically cover, though there are firms noted: “‘One of the Most Significant Potential Conflicts of Interest in American History’: How Everyone From Foreign Governments to Federal Contractors Is Quietly Lining Trump’s Pockets” —

  • “Why would anyone, much less an entity that serves as an arm of the Qatari government, bother outfitting an empty office space in an expensive San Francisco skyscraper? Consider who owns the building. The lobby features signs for Vornado Realty Trust, the publicly traded firm, with innumerable shareholders, that has a 70% stake in the tower. The other 30% belongs to a single man: Donald J. Trump, the president of the United States… Trump’s 30% share of the rent in the two office towers amounts to an estimated $99 million annually, or roughly 52% of the commercial rent flowing into the Trump Organization.”
  • “Trump, in other words, personally holds 30% of the space the Qataris are leasing. Strip away the layers and it boils down to just the sort of arrangement the founding fathers feared. A foreign government, it seems, has been paying the president of the United States for more than a year. With so many other scandals brewing, this one has managed to go entirely undetected—until now.”
  • “By law, the president has to disclose every company that pays him, but he does not have to reveal who, in turn, pays those companies. That means that Trump, who holds his commercial real estate portfolio through a web of entities, does not have to disclose who his tenants are. It’s a massive loophole in federal disclosure laws, one that allows the president to accept money from entities all over the world without ever having to tell federal ethics officials who is paying him.”
  • “Then there were law firms who served as tenants while lobbying on behalf of various foreign clients, including some with disastrous reputations.”
  • “Jones Day helped Huawei, the Chinese technology company that Trump labeled a national security risk, with issues before the White House while also paying the president an estimated $1.5 million a year.”
  • “Venable LLP, a firm renting space inside 1290 Avenue of the Americas for an estimated $12.2 million a year, lobbied the Treasury Department and Congress on behalf of Russian state-controlled bank Sberbank, weighing in on bills designed to expose corruption around the Kremlin and combat Russian interference in elections.”
  • “A spokesperson for Venable suggested that connecting its rent payments to its lobbying efforts requires ‘an incredible leap of logic.'”
  • “Fair enough. But it’s still remarkable that a Trump tenant was apparently pushing Vladimir Putin’s agenda in Washington. And because of lax disclosure laws that leave the details of these transactions secret, it took more than three years into Donald Trump’s presidency for anyone to notice.”

McDonald’s joint employer victory could be marred by potential conflict of interest” —

  • “The House Committee on Education and Labor subpoenaed the National Labor Relations Board on Tuesday for alleged ethical violations involving a December ruling that found McDonald’s not liable for violations committed by franchisees, resulting in a roughly $170,000 settlement from the chain’s franchisees to employees. Fight for $15 and other labor groups accused the chain of firing workers for engaging in union activity in 2012.”
  • “NLRB board member William Emanuel was asked not to participate in the case since he worked for a law firm that helped McDonald’s franchisees looking for legal assistance in response to employee protests. But Emanuel was involved in the process, which House Education Committee spokesperson Josh Weisz told The Washington Post violated an executive order that bars board members to be involved in decisions ‘directly and substantially related’ to former employers or clients.”
  • “The House Committee on Education and Labor is also investigating Emanuel’s participation in the NLRB’s decision to clarify the joint employer rule in February. The updated terms of the rule insulate franchisors from being held liable for labor infractions committed by their operators.
Risk Update

Risk Roundup — AML Fine for Top Law Firm, Facebook Confidentiality Breach & State AG Commissioner’s Moonlighting

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SRA fines leading firm for money laundering check failures” —

  • “Well-known law firm Taylor Vinters has been fined by the Solicitors Regulation Authority (SRA) for failing to undertake proper money laundering checks on millions of pounds paid into its client account.”
  • “The agreement said that, from October 2014 onwards, Taylor Vinters acted in 161 matters for 88 clients, who were overseas nationals purchasing off-plan property plots in London.”
  • “Taylor Vinters had what it described as its ‘quadruple lock’ process, which required a form of photo ID, confirmation of address, copy of the client’s bank statement (or other bank confirmation) and an online anti-money laundering check. It would enquire as to the client’s source of wealth on an exception basis, when deemed appropriate. In relation to these matters, an employee or manager of the firm only met half of the clients in person – for the rest, the firm received the money before any or all of the customer due diligence had been done.”
  • “The firm admitted failing to conduct: adequate customer due diligence before the receipt of funds into its client account; adequate ongoing monitoring, including source of funds checks; and adequate enhanced ongoing monitoring as required by the money laundering regulations.”

UK Firm Employee Banned For Identifying Client On Facebook and Overbilling” —

  • “A former employee at U.K. law firm DAC Beachcroft been issued with a work restriction order by the Solicitors Regulation Authority for identifying the name of a client on Facebook and for overbilling his working hours.”
  • “In a notice posted on the SRA’s website on Friday, the regulator said that Howell had ‘breached client confidentiality by identifying the name of a client in a post on Facebook, and in a second post commenting on a case being conducted for that client.'”
  • “The regulator added that Howell had failed to act in his clients’ best interests and in a way that maintains public trust in him by ‘spending excessive time dealing with clients’ matters and recording billable time in excess of what was reasonable.'”

Mississippi’s full-time state AG commissioner still works second job as lawyer” —

  • “Despite holding a full-time, statewide elected position, Agriculture Commissioner Andy Gipson continues to practice law and is representing companies before another state agency.”
  • “Gipson, who receives $90,000 a year from taxpayers as agriculture commissioner, said he has taken ‘a significant reduction in pay’ from the law practice because of his limited work. He said his legal work doesn’t pose any conflict with his elected office, and that he limits his law practice and manages his time well, giving taxpayers their full due as commissioner of agriculture and commerce.”
  • “While Mississippi’s weak ethics laws and enforcement don’t appear to prohibit Gipson’s side work or representing a private company before a state agency, an ethics expert said it could easily be questioned by the public.”
  • “‘It’s not unusual or uncommon for a state or local official to still continue private employment after they are elected or appointed,’ said John Pelissero, a senior scholar in government ethics with the Makkula Center for Applied Ethics at Santa Clara University. ‘But the problem comes in when their private actions, in this case as a private attorney, seem to be at odds with serving the public interest.'”
  • “‘What we have here is at least the appearance of a conflict of interest, which could be judged as unethical, if in representing private clients before this other commission he’s putting private interest of the client ahead of the public.'”


Risk Update

Risk Webinar — Virtual Risk Round Table (Focus on: Laterals, OCGs & Audit Letters)

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I’ve very much enjoyed the virtual risk round table events presented by my friends at InOutsource. While remote, the attendee discussion and exchange has been real, revealing, collaborative and constructive.

They have a third scheduled for October: “VIRTUAL ROUND TABLE: Navigating Today’s Pressing Risk Challenges” —

  • October 1st at 1 pm Eastern.
  • Focus on: Lateral intake processes and navigating challenges of lateral lawyer on-boarding
  • Discussion of compliance with Outside Counsel Guidelines
  • Exchange on navigating audit letter processes
  • and other peer exchange

Registration link.

Risk Update

FinCEN Files Leak & AML Implications — Looking for Law Firms in the Mix

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Hat tip to my wife, who texted me yesterday (from the passenger seat of our car, as we drove back from a bit of safe, secluded outdoor time with the little ones) as news broke about the FinCEN leak. For general detail, see Buzzfeed’s original reporting: “Dirty money pours into the world’s most powerful banks.”

While the meat of the story to date focuses on banks, I was curious about any mentions of law firms finding their names in print, and discovered at least a few passing references (text checked and searches conducted all from safer confines, not in motion): “The FinCEN files: The billion dollar a month money trail” —

  • “Up to a billion dollars a month went through an international money-laundering network whose Russian operators charged those using the service a 5 per cent fee, according to a classified US report seen by The Irish Times.”
  • “The network of bank accounts was used over a number of years to move enormous amounts of capital out of Russia and into the West, and the banks involved included one near Moscow that had a cousin of the Russian president, Vladimir Putin, as one of its directors.”
  • “The leaked report from the Financial Crimes Enforcement Network (FinCEN), an agency in the US Department of the Treasury, lists 54 “network controlled shell entities” that were the nominal owners of core bank accounts through which the billions of dollars flowed.”
  • “The money laundering network was operated by four named Russian businessmen and may have existed from as early as 2011, according to the undated FinCENreport, which appears to have been written in late 2016 or early 2017.”
  • “Another document in the Lota Sales file, dated June 2008, stated that a London solicitor, James Pearson, of Pearson Lowe solicitors, 48 Queen Anne St, London, had certified the Lota Sales documents that had been sent to the bank. The law firm has since been sold and efforts to contact Pearson, who is now believed to be retired, were not successful.”
  • “The [Quinn] family said that it had put in train a scheme to prevent the IBRC seizing the portfolio, but that it had in turn been double-crossed by those it had engaged to frustrate the State-owned entity’s efforts. The IBRC told the courts it did not accept what the family was claiming.”
  • “In 2013, it emerged that two payments totalling €265,527 that had been made in 2011 to the Dublin law firm Eversheds, which was acting for the family in the case, had come from a company in New Zealand called Corlex Sales LLP.”
  • “In an affidavit in June 2016, one of the IBRC liquidators, Kieran Wallace, said the payments from Corlex were among a number made to the Quinn children that had come from ‘unusual sources’.”
  • “‘The plaintiffs [the IBRC] have been unable to identify who the beneficial owners of the company are,’ he told the court, three years after the payments from Corlex had first been disclosed to the IBRC.”
Risk Update

IP / PTAB Conflicts Allegation — An Innovative, Novel Conflicts/DQ Attempt

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Does your Heart Break for this Patentee?” —

  • “In its argument, Snyders suggested that it should receive some particular treatment from the court because of a potential conflict of interest with Dir. Iancu. Prior to joining the USPTO, Iancu was in private practice and represented St. Jude in a parallel proceedings. Although Dir. Iancu has recused himself from the case, Snyders argues that the Director’s conflicts are not so easily erased.”
  • “Rather, an attorneys conflicts regularly extend to subordinate employees as well. Here, the Arthrex remedy comes into play because the court in that case gave more direct authority supervisory to the PTO Director. The following argument comes from Snyders’ brief:
    • The concept that disqualification of an attorney may extend to that attorney’s subordinate employees is well established. For example, the American Bar Association’s Model Rules of Professional Conduct recognize a conflict where representation of a client is materially limited by an attorney’s personal interest. See Model Rules of Prof’l Conduct R. 1.7(a)(2) (2016). Those rules also recognize that disqualification of an attorney due to a personal conflict may be imputed to fellow employees where the employees would be materially limited due to their loyalty to the attorney.”
  • “The Federal Circuit found the argument here ‘without merit . . . the Deputy Director’s role sufficiently removes any potential taint of the Director’s conflict.’ The Court did not address the particular issue here regarding the heightened supervisory authority of PTAB judges coming-out-of Arthrex.”

I was curious about “Arthrex” and found: “Arthrex Update: New Amicus Briefs and USPTO Petition” —

  • “The petition sets forth US Inventor’s position that the CAFC was correct in holding that Administrative Patent Judges (APJs) are unconstitutionally appointed, but incorrect in its remedy, i.e. ‘abolition of APJ tenure protection’, because it does not ‘change anything about the character of APJ validity decisions that might downgrade APJ employment status from principal officer to that of inferior or non-officer.'”
  • “US Inventor suggested an alternate remedy for consideration by the Supreme Court: “sever[ing] the statute so that patentability determinations continue as Congress intended, only with APJs downgraded to making advisory patentability decisions”, thereby making APJs inferior or non-officers. According to US Inventor, “all that would need to happen under this alternative remedy…is severance of the part of the statute that makes final written decisions on patentability binding.” In conclusion, US inventor requested that the Supreme Court grant certiorari to consider the correct remedy and at least retroactively convert APJ decisions into advisory and non-binding decisions.

If this is up your risk alley, see also: “One Way or Another, Arthrex Promises to Put the PTAB on Trial


Risk Update

Anti-money Laundering News — SRA Probing Major UK Law Firm (Including Allegation of “Secret Transfer” of Money)

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Regulators investigate elite London law firm Mishcon de Reya” —

  • “One of the UK’s most prestigious law firms is being investigated by regulators who have spent at least two years examining it, sending investigators into its central London offices.”
  • “The Guardian has established that the Solicitors Regulation Authority (SRA) is conducting a complex investigation into Mishcon de Reya, involving forensic and anti-money laundering investigators.”
  • “One of the reports is understood to have related to an HM Revenue and Customs investigation into transfers of Premier League football players, while the second detailed allegations about the firm’s work for clients connected to an elaborate €100m (£89m) fraud.”
  • “The ongoing investigation into Mishcon de Reya is understood not to have reached any conclusions or made any adverse findings against the firm or any of its partners or solicitors.”

For those curious about the Premier Leage football matter: “Newcastle United investigated over ‘systemic abuse of tax system‘” —

  • “Newcastle United are under investigation over alleged ‘extensive’ tax evasion on player transfers, court papers have shown.”
  • “Details of the allegations have emerged as the club failed in a legal challenge against search warrants issued to HM Revenue and Customs during Operation Loom, which saw dawn raids by HMRC on premises including St James’ Park as part of a £5m tax investigation involving Premier League and French clubs. The papers show HMRC investigators suspect Newcastle, owned by the billionaire Sports Direct tycoon Mike Ashley, of involvement in an elaborate scheme to evade income tax, VAT and national insurance.”
  • “The vast majority of that money was then allegedly ‘secretly transferred’ via a law firm to companies linked to Ba and unlicensed agents. The companies named are Sarl Ba Corporation, France-based Quatorze Management, Silkee Management in Enfield, north London, and Panama-based Zumbada Ventures Corporation.”


Risk Update

ABA on Audit Letter Response + New OCG Data — Recently Published (August 2020) ABA Statement

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One more on the theme of audit letter responses. Turns out the ABA Business of Law Section published an update just last month, probably most of interest to those who really want to go deep on this particular issue: “The ABA Statement on Audit Responses: A Framework that Has Stood the Test of Time” —

  • “This article summarizes key developments in the preparation of audit response letters concerning loss contingencies since the American Bar Association Statement of Policy Regarding Lawyers’ Responses to Auditors’ Requests for Information was published in 1976. These developments illustrate both the utility of the framework set forth in the ABA Statement and the responsiveness of the American Bar Association through the Business Law Section Audit Responses Committee (and predecessor committees) to issues arising under the ABA Statement and changes in accounting and auditing standards and practice.”
  • “Since adoption of the ABA Statement and SAS 12 over forty years ago, we have seen an increased emphasis on the quality of loss contingency disclosure, an expansion of private litigation and SEC enforcement actions against accountants and other professionals, a new regulatory regime for the accounting profession established by the Sarbanes-Oxley Act of 2002, the development of new technologies to facilitate the audit letter process, and a substantial change in the standard auditor’s report to require disclosure of critical audit matters.”

Hat tip to Simon Chester at Gowling WLG for writing in with some additional data as well. He reports:

  • “In my Outside Counsel Guidelines database, fully 31% of the clients say that they will not accept any charges for preparation of audit response letters – even though if one is aware of a contingent liability that meets the test, it may take many hours to settle how to report that so that it can be disclosed properly”
  • “My experience has been that all too often CPAs tend not to mention law firms’ reports, I assume on the basis that the amounts are not material or too contingent.”
  • And he notes
    The Texas recommended process is significantly complex.