Risk Update

Financial Risk — Law Firm Insider Trading Warning, AML News & Panama Papers Lawyers

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200 law firms suspended in UAE for failing to comply with anti-money laundering procedures” —

  • “A total of 200 law firms in the UAE that had failed to comply with anti-money laundering procedures have been suspended from practicing for one month.”
  • “The Ministry of Justice has also called upon law firms to take necessary measures against money laundering and terrorist financing, Wam reported. The necessary legal measures are outlined in Federal Decree 20 of 2018 with regard to money laundering, executive regulations, and relevant ministerial decisions. The decree is part of the UAE’s efforts to address the risks associated with financial crimes.”
  • “The Ministry emphasised the importance of law firms’ role in combating money laundering, as well as the need for lawyers to assume their role in fighting such crimes. Lawyers must also handle clients carefully, report suspicious transactions, and maintaining proper records, the Ministry urged. It added that it had taken recent action against non-compliant lawyers, in addition to the law firm suspensions.”

FCA: Working from Home Heightens Insider Trading Risks” —

  • “In an October 12 speech, the Director of Market Oversight for the Financial Conduct Authority (FCA) emphasized the need to adapt insider trading controls to account for changes in working conditions due to COVID-19 restrictions.”
  • “The Director’s speech started by discussing that global economic conditions have heightened the need for companies to raise capital, and that the UK has seen a significant portion of this activity, with the FCA citing the fact that ‘the UK saw a greater volume of follow-on equity issuance than the next 7 major European bourses combined.'”
  • “While this situation presents novel issues for firms and professionals, the FCA emphasized the need for firms to adapt and implement effective insider trading controls. The Director emphasized, ‘[a]t a time where capital raising activity is vital to fuel much needed economic activity, we must be crystal clear that behaviours that risk disrupting that activity will not be tolerated.'”
  • “In addition to capital raising, the rise in mergers and acquisitions has presented new challenges. The FCA warned that firms must ensure they have appropriate controls in place to protect against inappropriate activity with respect to mergers and acquisitions.”
  • “The FCA highlighted concerns that home work arrangements could present difficulties in ensuring insiders are appropriately keeping information from partners or flatmates that now share workspaces. While these concerns have always existed, the extent of the current at-home worksite may increase those risks: ‘It is absolutely the case that this risk has always existed, but when the separation between work and home life is perhaps harder for some people to navigate, it may be all the more important and acute.’ This line may be harder to draw in a COVID-19 world.”

Germany seeks arrest of Panama Papers lawyers” —

  • “Germany has issued arrest warrants for the founders of Panamanian law firm Mossack Fonseca more than four years after the publication of Panama Papers, an investigation led by the International Consortium of Investigative Journalists.”
  • “The spokesperson said that the warrants related to probes that began in 2014 when authorities obtained a subset of data from Mossack Fonseca. The data provided ‘evidence of criminal offences in over 600 cases,’ the spokesperson said.”
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Risk Update

Financial Dealing, Financial Conflicts — Transaction Matters, Malpractice Allegations & Auction Algebra

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Ohio Board of Professional Conduct (Opinion 2020-10): Law Firm Concurrent Representation of Adverse Clients in the Same Transaction” —

  • “A conflict of interest arises from a lawyer’s concurrent representation of directly adverse clients in the same transaction. A law firm cannot avoid the imputation of a conflict of interest arising from the concurrent representation of two clients in thesame transaction by screening separate lawyers assigned to each client.”
  • The steps proposed by the law firm in order to represent the two clients underscore the inherent nature of the conflict of interests that exist in the concurrent representation of two or more firm clients in the same transaction. The key features of the law firm’s proposal to resolve the conflicts, a combination of client consent and the screening of two groups of assigned lawyers, is not provided for in the Rules of Professional Conduct as a method to ameliorate conflicts arising from concurrent representation in the same law firm. The firm’s proposal would require a departure from the rules governing the imputation of conflicts that the Board is reluctant to endorse. For the foregoing reasons, the Board concludes that the law firm’s proposed concurrent representation of the two adverse clients in the same transaction is not permissible.

Which reminds me of the take taken overseas by the SRA in auction scenarios, worth a read for those curious about information barriers, multi-sided walls (and anyone seeking an LSAT-like logic problem involving A, B, C and D): “Conflict of interest (Published: 29 October 2019)”

  • “Your firm is acting for a company (A), which is participating in an auction process to acquire another company (B). The firm pre-emptively obtained informed consent from A, in writing, to the firm acting for other potential bidders, should the firm be approached to do so. Your firm has subsequently been asked to act for a financier (C), who is providing the financing needed by another potential bidder (D) for B should D’s bid be successful. Is your firm able to accept C’s instructions?”
  • Nevertheless, it would be best practice, before accepting instructions from C, to make it clear that your firm (a) is free to act (and may already be acting) for other bidders/their financiers, (b) would use a separate legal team to represent C and (c) would put information barriers in place to prevent C’s confidential information being shared with the legal team acting for A and vice versa.

O’Melveny Can’t Keep $9M From Bankrupt Co., 9th Circ. Told”

  • “Aletheia Research and Management’s bankruptcy trustee asked the Ninth Circuit Tuesday to reverse a judgment allowing O’Melveny & Myers LLP to keep over $9.4 million it was paid for legal services, arguing the trial judge erred in finding his bankruptcy claims had been resolved in an arbitration over malpractice claims.”
  • “The appeal is the latest chapter in a hotly contested lawsuit that the liquidating trustee for the defunct Aletheia launched against its former law firm in 2014. The trustee sued O’Melveny after Aletheia was pushed into Chapter 7 bankruptcy in 2012 and alleged O’Melveny violated the firm’s fiduciary duties and the federal Bankruptcy Code, which prohibits fraudulent conveyances.”
  • “O’Melveny represented both Aletheia and its former CEO Peter J. Eichler Jr. for years in their legal battles with the company’s former business partner, money management firm Proctor Investment Managers LLC, and the U.S. Securities and Exchange Commission. During that time, two O’Melveny attorneys left the firm and began working as in-house attorneys for Aletheia, before later returning to O’Melveny once the company went bankrupt in 2012, according to court documents.”
  • “The trustee claims in his suit that the firm was aware of, and ignored, its conflict of interest in representing both Aletheia and Eichler in a contract dispute with Proctor, and should be forced to cough up the $4 million it was paid for legal services related to the dispute. In total, the trustee sought the recovery of more than $9 million paid to the firm from 2009 through 2012.”
  • “… But the trustee urged the Ninth Circuit Tuesday to reverse the ruling and argued that regardless of whether the malpractice claims are viable, the law firm’s services were not reasonably worth the amount of money the firm received. ‘Even had O’Melveny provided perfect and non-conflicted services that provided $500,000 of value to Aletheia, such services were not reasonably equivalent to the more than $9.4 million of fraudulent conveyances that O’Melveny received,’ the brief says.”
  • “Golden also argued that leading up to its bankruptcy, O’Melveny was improperly receiving payments and ‘enjoyed the benefit of insider-like status’ at a time when other creditors were going unpaid. The trustee added that O’Melveny’s legal counsel used “sleight of hand wording” and misrepresented its arguments in its efforts to beat the bankruptcy claims before the trial court.”
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Risk Update

Ransom Risk — Seyfarth Shaw Hit with Ransomware Attack

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International law firm Seyfarth discloses ransomware attack” —

  • “International law firm Seyfarth Shaw announced on Monday [October 12] that it was the victim of a ransomware attack over the weekend… The incident occurred on Saturday, with the company describing it as a ‘sophisticated and aggressive malware attack.’ The timing is typical for cyber attacks, ransomware in particular, as companies have fewer employees working weekends.”
  • “In its notification about the attack, Seyfarth Shaw says that as far as they know, ‘a number of other entities were simultaneously hit with this same attack.'”
  • “The company states that its monitoring systems caught the unauthorized activity and the IT department was quick to stop the spread.”
  • “‘Our clients remain our top priority, and we will continue to do everything necessary to protect their confidential information and continue to serve them. We are coordinating with the FBI and are working around the clock to bring our systems back online as quickly and safely as possible'”

Firm Statements on the Matter:

  • October 19: “All of the firm’s critical systems are now restored and fully operational, and we remain confident that none of our client or firm data was accessed or removed. We continue to work with leading forensics experts to complete the forensic investigation of the incident.”
  • October 15: “After locking down our systems over the weekend, our team of experts has worked tirelessly the past few days and done everything necessary to protect our clients’ and our firm’s confidential data and prevent its destruction and removal. We still have no evidence that any client or firm data was either accessed or removed. We are now in the restoration phase and have been able to bring our email system fully back online. We will continue to work through the weekend, and, based on the progress we have made so far, we expect to have full restoration of all of our critical systems by early next week.”
  • October 13: “Our team continues to work around the clock to resolve this incident. As reported earlier, we have found no evidence that any of our client or firm data was accessed or removed. We will update this page as we have more information. Thank you for your continued patience.”

Seyfarth Cyberattack Spotlights Gaps In Law Firm Security” —

  • “In Seyfarth’s case, the firm was able to stop the attack soon after detection, but not until after many of its systems, including email, were encrypted by malware, according to the firm. Such encryption means Seyfarth cannot access its files without the decryption keys, and the firm either has to pay the attacker to regain access or restore its data from a backup.”
  • “A September report by Coalition, one of the largest providers of cyber insurance services in North America, showed that the first half of 2020 has been particularly hard for many organizations, with 41% of all claims paid out related to ransomware attacks, noted Anne Hasenstab, an Oregon-based executive risk practice leader for Ward Insurance.”
  • “Coalition’s report also showed that the frequency of ransomware attacks against its policyholders rose 260% in the first six months of 2020, while the average ransom demand increased 47% from previously recorded numbers.”
  • “The shift to remote work — and the increased dependence on online technology — means that when systems are held hostage, ‘it does put companies at a significant level of misery,’ Hasenstab said. She and other experts encourage law firms to incorporate infrastructure changes into their cybersecurity policies, considering the technical differences when conducting assessments or testing.”
  • “As for how to prevent cyberattacks, Hasenstab recommends that law firms of all sizes implement multifactor authentication for important information and create ‘a culture of inclusion’ that puts cybersecurity in the firm’s risk management portfolio, including cyber insurance.”
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NBI / Conflicts Job — New Opportunity for the Right Risk Expert

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Every industry has had to adapt the way it recruits talent. At the Bressler Risk Blog, we thought we’d do our part by experimenting with our very first risk job posting.

Last week, I was catching up with an old friend, Rodney Miller, Director of Business Information Governance at Alston & Bird. He mentioned that he’s on the hunt to grow his NBI/Conflicts team (which has continued to be very busy).

Rodney is open to bringing on the ideal candidate onto the team remotely, regardless of where they’re based.

  • You can see the specific job posting here
  • And read more about professional life at Alston & Bird on their excellent careers page, where I learned that Alston has been ranked by Fortune as one of America’s ‘100 Best Companies to Work For’ for 21 consecutive years

I’ve known Rodney for many years and can confidently endorse him as a manager and leader. He’s just a solid and nice guy, who does what I think all good managers should do — work to both drive and empower his team to succeed, and share the spotlight when they perform. To illustrate that, I asked him a few questions and thought I’d share the highlights.

Rodney says that professional development is a core part of working on the risk team at Alston & Bird:

“With our firm’s commitment to being a great place to work, we also want to make sure that our staff members are motivated and set up for success. Each risk team member has their own professional development plan. They have aspirations and things for reach for, and a strong appreciation of the importance of what they do, what they bring to the table, and how to grow, present and create opportunities for themselves.”

Last year, Rodney introduced a training program covering conflicts searches, analysis and reporting, as well as presentation and communication skills:

“Each analyst has the opportunity to develop his or her presentation skills in front of an audience — a real confidence booster which translates into more confident conversations with our lawyers… Our conflicts analysts have a stronger appreciation for what our lawyers are looking for, and are highly motivated and focused on delivering exactly what they need.”

And it’s just nice to see how this firm recognizes the importance of the conflicts department, as well as their commitment to excellence:

“I’m proud of the way we’ve professionalized and raised the profile of the conflicts department within the firm. It’s not just a group of folks providing your report of conflicts, it’s so much more involved than that. Each member of the team understands that they are very important spokes in the wheel, tied to new business intake, outside counsel guidelines, and all the restrictions that come into play. All of this is exciting to them, and to me.”“In the end, it comes down to trust. Our conflicts review committee can trust that every conflicts analyst on the team has a foundational understanding of conflicts searching and how it impacts the firm’s business.”

Does this sound like a good fit for you or someone you know?

If so, get in touch with Alston & Bird directly, or pass this on! (And tell them BRB sent you.)

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Risk Update

More Risk News — Risk Webinar Summary, Firm Fraud Allegations

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A few weeks ago I had the pleasure of moderating a webinar featuring a panel comprising Michael Misiewicz, assistant general counsel in the legal department at JPMorgan Chase, and two risk consultants from Wilson Allen. Those consultants, Patrice Kennard and Mike Madden, have published an excellent summary of the exchange: “Evolving Law Firm Risk: Inside the Minds of Clients and Firm Management” —

  • “What do law firm management and client leaders consider to be the most effective conflicts and risk policies, practices, and priorities? We sought to answer that question during a recent panel session Wilson Allen hosted that brought together conflicts and risk experts from both sides of the client and law firm equation.”
  • “Misiewicz shared that, with conflicts waiver requests being only one of many things on his plate on any given day, he’s looking for law firms to make his client experience as easy as possible. How? Consistency – especially in the procedural aspects of waiver requests:
    • Designated Contacts – less is more; your client’s work is easier with a regular point of contact
    • Communications – it is helpful for your client to be speaking with someone fluent in conflicts
    • Format – follow the terms enumerated in your client’s services agreement”
  • “A centralized model is the best way to protect a law firm from such risks because it employs an established, consistent methodology using firm-wide checks and balances. Centralization streamlines conflicts, and the benefits extend to conflicts subprocesses such as the firm’s client waiver requests.”
  • “With centralization, staff members perform analysis that keeps the big picture in mind. As the panel agreed, from a law firm perspective, a centralized conflicts team becomes the subject-matter expert on conflicts clearance, unlike a lawyer who may need to clear conflicts only periodically.”
  • “Staffing under this model is a gift that keeps on giving. Centralized conflicts career paths offer job satisfaction and professional development opportunities that can encourage longevity. It’s to a firm’s advantage to retain institutional knowledge and develop people armed to help the firm transition through changes, like adding new conflicts procedures for new practice areas.”
  • “Making a case for investment is about bringing the benefits to the attention of senior management. In a partner-driven firm, it isn’t easy to justify a significant expenditure that erodes into partners’ capital. From an equity partner’s point of view, it’s about return on investment. Thus, making a case requires being able to demonstrate what kinds of benefits a product can offer.”

For more detail on the “making the case for investment in risk” thread of the discussion, see the complete summary.

Next up, not a conflicts matter, per se. But the latest from the reputation risk category, via the New York Times: “Berkshire Hathaway Says Blue Chip Law Firm Aided Fraud” —

  • “Berkshire Hathaway may have found a way to get back some of the hundreds of millions of dollars it lost after buying a seemingly solid German pipe maker that turned out to be on the verge of going bust.”
  • “The conglomerate, led by Warren E. Buffett, is suing Jones Day, the law firm that represented the owners of the pipe maker when it was sold to a Berkshire Hathaway subsidiary in 2017. The lawsuit, filed late last month, accuses Jones Day of helping to trick Berkshire Hathaway into paying five times what the German company was worth.”
  • “‘The fraudulent transaction would never have occurred without Jones Day’s substantial assistance,’ according to the lawsuit, filed in U.S. District Court in Houston on behalf of Precision Castparts, a Berkshire Hathaway subsidiary that makes components for aircraft. The lawsuit accuses Jones Day of withholding documents that would have exposed Wilhelm Schulz’s perilous financial state and calls the firm a ‘co-conspirator’ in a ‘massive fraud.'”
  • “The [NY arbitration] panel found in April that Mr. Schulz and other managers had used false sales invoices, computer hacks and phantom customers to make Wilhelm Schulz look healthier than it was and hoodwink Precision Castparts into paying a grossly inflated price. The deal was a rare misstep for the organization run by Mr. Buffett, who is considered one of the savviest investors in the world.”
  • “Normally a law firm’s communications with clients would be considered privileged, offering a degree of protection to Jones Day. The firm has asked a Texas court to seal the case on those grounds. But Precision Castparts argues that lawyer-client confidentiality cannot be used to cover up fraud under German or United States law.”
  • “In addition, the claims against Jones Day are based on files discovered in Wilhelm Schulz offices after the acquisition, according to the lawsuit. Finders keepers, in other words.”
  • “Jones Day also did not disclose a report by the consulting firm KPMG, commissioned by Schulz, which concluded that the company faced an “imminent liquidity crisis,” according to the lawsuit. Nor, the suit says, did Jones Day inform Precision Castparts that a German lawyer had warned Wilhelm Schulz managers that they were legally obligated to declare bankruptcy.”


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Risk Update

Risk News — Waiver Debate + Disqualification, New Judicial Ethics Opinion

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McGuireWoods Out Of Hartford Suit For Conflict Of Interest” —

  • “An Indiana federal judge dropped McGuireWoods LLP from a trade secret suit brought by a Hartford insurance unit against OneCIS Insurance Co., ruling that the firm can’t represent OneCIS without Hartford’s consent because Hartford is also a McGuireWoods client.”
  • “U.S. District Judge Debra McVicker Lynch granted Hartford Steam Boiler Inspection and Insurance Co.’s bid to disqualify McGuireWoods from representing its adversary party OneCIS, finding Friday that Hartford has never agreed to a conflict waiver as a client of McGuireWoods.”
  • “Without consent, attorneys are not allowed to represent a client when ‘the representation of one client will be directly adverse to another client,’ the judge said, terminating attorneys A. Wolfgang McGavran, Meghaan C. Madriz and Yasser A. Madriz from representing OneCIS in the suit.”
  • “McGuireWoods previously argued that Hartford “prospectively waived conflicts” for issues not related to the legal work the firm does for Hartford. The judge disagreed, saying that waiver only applies in matters when Hartford is not involved as a party.”

And, “Judicial Ethics Opinion 20-89: A judge may not mail congratulatory letters to a graduating high school class” —

  • ” Our core concern is the likely public perception of such activity as political in nature, and a possible appearance that the prestige of judicial office is being used to advance the judge’s purely private interests.”
  • And the NY Courts website has a quiz on judicial ethics, for those who like testing.
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Risk Update

Conflicts and Relationships (Lateral Edition) — Real-world Disqualification Stories and Examples

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Yesterday’s update on conflicts stemming from personal relationships had me digging for related examples. And that meant seeing what Bill Freivogel had in his risk roster of record. While more in the realm of a lateral rather than personal relationships, there were a few interesting stories that were news to me and worth sharing, starting with: “Hinker v. County of Cape May, 2020 WL 205901 (D.N.J. Jan. 13, 2020)” —

  • “Law Firm P represents Plaintiffs. Law Firm D represents Defendant. Firm P assigned Lawyer to represent Plaintiffs. Lawyer contacted Firm D about employment there. Firm D made Lawyer an offer.”
  • “Shortly after the offer, lawyers at Firm D realized that two matters, including this one, created conflict issues. Thus, Firm D withdrew its offer. Lawyer had a melt-down (our phrase). He begged Firm D to resolve the conflict issues so he could join Firm D after all. He even wrote disparaging descriptions of the size and merits of this case.”
  • “Lawyer left Firm P but did not join Firm D. Plaintiffs moved to disqualify Firm D. In this opinion the magistrate judge denied the motion. The pivotal issue was whether Lawyer had become ‘associated’ with Firm D within the meaning of New Jersey Rules 1.9 and 1.10. In a fact-specific analysis the judge concluded that Lawyer had not become associated with Firm D, and, thus, Rules 1.9 and 1.10 did not apply.”

Bill also flags this writeup by law professor Keith Swisher, from a few years ago: “DQ Case of the Week: Negotiating to Work for the Opposing Firm” —

  • “An associate represented the debtor-in-possession in a Chapter 11 bankruptcy, and essentially two secured creditors had claims to virtually all of the debtor’s assets. The firm representing one of the secured creditors gave the associate a job offer, which the associate accepted on March 11, 2015. The associate failed to disclose the accepted offer to his supervising attorney until April 20, 2015.”
  • “Furthermore, “[b]etween March 11, 2015 and June 5, 2015, [the associate] continued to sign and file all pleadings on behalf of the Debtors. ‘It was during this time that the debtor and creditors entered into a settlement agreement, divvying up the debtor’s previously liquidated assets among the secured creditors and stipulating to dismiss the bankruptcy case.'”
  • “On June 5, the associate moved to withdraw (without disclosing the conflict), and on June 15, the supervising attorney ‘filed a Supplement to Application for Employment of Attorneys [under 11 U.S.C. 327], for the first time informing the Court of [the associate]’s acceptance of an employment offer with [the secured creditor’s law firm].’ The U.S. Trustee in response filed a motion to disqualify and to deny all compensation to the debtor’s firm.”
  • “The court then noted that ‘accepting a position at a law firm representing one of the largest creditors in a case where one represents the debtor must be disclosed, [and] . . . the connections between the firms and the parties at a minimum created the appearance of impropriety.'”
  • “The court therefore concluded that, ‘under § 327(a) and Rule 2014(a), there is no question [the associate] and his firm . . . had the fiduciary duty and responsibility to disclose [the associate]’s move to [the secured creditor’s firm]. It is also undisputed [they] failed to do so for over three months. The failure to disclose the connection between [the associate] and [the creditor’s firm] warrants denial and disgorgement of fees and expenses.'”
  • “The court proceeded to penalize the associate’s former firm by denying all compensation for work done on and after March 11, 2015 (the date on which the associate had secretly accepted the offer of employment), even though the supervising attorney did not know about the conflict until over a month later.[4] The court refused to disqualify the firm, however, reasoning in essence that the associate ‘created the conflict here, and he has left’ the debtor’s firm (and the creditor’s firm has apparently been screening the associate since his arrival).”
  • Text of decision available here.




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Risk Update

Relationships Conflicts — New ABA Opinion on Relationship Conflicts (Intimate Relationships, Friendships, and Acquaintances)

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“Brothers and sisters, I have none. But that man’s father is my father’s son,” one of my own father’s favorite riddles for me growing up came to mind as I came across: “ABA Issues Opinion Addressing Conflicts Arising out of Relationships with Opposing Counsel” —

  • “Thus, ABA Formal Opinion 494 (July 2020) (here) should be of interest. A comment to the Model Rules had explained that a ‘lawyer related to another lawyer, e.g., as parent, child, sibling or spouse, ordinarily may not represent a client in a matter where that lawyer is representing another party, unless each client gives informed consent.'”
    • “A personal interest conflict may arise out of a lawyer’s relationship with opposing counsel. Lawyers must examine the nature of the relationship to determine if it creates a Rule 1.7(a)(2) conflict and, if so, whether the lawyer reasonably believes the lawyer will be able to provide competent and diligent representation to each affected client who must then give informed consent, confirmed in writing.”
    • “To assist lawyers in applying Rule 1.7(a)(2), this opinion identifies three categories of personal relationships that might affect a lawyer’s representation of a client: (i) intimate relationships, (ii) friendships, and (iii) acquaintances.”
    • “Intimate relationships with opposing counsel involve, e.g. cohabiting, engagement to, or an exclusive intimate relationship. These relationships must be disclosed to clients, and the lawyers ordinarily may not represent opposing clients in the matter, unless each client gives informed consent confirmed in writing.”
    • “Because friendships exist in a wide variety of contexts, friendships need to be examined carefully. Close friendships with opposing counsel should be disclosed to clients, and, where required as described in this opinion, their informed consent obtained.”
    • “By contrast, some friendships and most relationships that fall into the category of acquaintances need not be disclosed, nor must clients’ informed consent be obtained. Regardless of whether disclosure is required, however, the lawyer may choose to disclose the relationship to maintain good client relations.”

Additional commentary and illustration from professional responsibility lawyer Brian Faughnan: “The ABA comes through with another quality ethics opinion” —

  • “Most importantly, it appropriately centers the analysis where it fits in the Model Rules: it is an issue involving RPC 1.7(a)(2) – material limitation conflicts arising from a lawyer’s own personal interests. The opinion stresses that ordinarily such conflicts are not imputed to others at the firm. And it lays out reasonable categories to help guide lawyers in their thinking about these issues.”
  • “It also makes the point that while, most of the time, the obligation on the lawyer is disclosure to the client and moving forward only if the client is willing to waive the conflict, there can be situations where the conflict is, itself, not waivable.”
  • “The opinion posits a relationship between two lawyers that is so close that the lawyer could never get comfortable filing a well-founded motion for sanctions against the other lawyer on behalf of a client as an example of a situation where the conflict may not even be waivable.”
    And that entire genre of thought has, over the years, been very helpful to me in talking lawyers through situations, both in their real practice, and just as an educational tool at seminars. I, like many other ethics CLE speakers, have used lots of hypotheticals to tease out ethics issues and one that has always been fun to discuss involves something like this scenario:

    • You are at lunch with opposing counsel on an appellate matter who is a close friend and former colleague. Unprompted, he says, “I bet you can’t wait to see what I’ve got in store for you in my response brief. Well, you’ll have to wait a bit because I’m going to take every day allowed for me before filing so you won’t get your hands on it until a week from tomorrow.” You know, because you just checked it before coming here, that his deadline for his brief is actually tomorrow. What do you say?
  • “This scenario usually prompts a good discussion and there is always someone in the crowd willing to say that they would tell their friend to, at least, go back and double check their math on the deadline. The problem, of course, is that doing that without first talking to your client to get approval would be extremely ethically dicey. The easiest way to drive that point home to lawyers is to ask them if, since the personal relationship with opposing counsel is so important to them, they secured informed consent from their client at the outset with respect to how the lawyer’s personal interest in their close friendship with opposing counsel could materially limit the representation.”
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Risk Update

Verein Conflicts Considerations — Resource + Commentary

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Always nice to send a ping out and get a response with these updates. Hat tip to Max Welsh, law firm risk management consultant and educator, for the commentary and added links he shared on LinkedIn, following our earlier story on the Gartner/Norton Rose conflicts allegation. Here’s what he has to say, and a link to his LinkedIn post and thread for anyone looking to continue the dialogue.

  • “This one involves Norton Rose, which is organized as a Swiss verein, with the conflicting relationships belonging to separate firms within Norton Rose’s verein structure.”
  • “In looking for another conflict situation involving a verein (the Dentons US/Canada case involving an allegation of conflict in representing and being adverse to The Gap), I found a great article by Cassandra Burke Robertson on how courts and regulatory authorities should approach the imputation of conflicts of interest in the verein context. The article is available here [Conflicts of Interest and Law-Firm Structure].”
  • “Professor Robertson argues that determining whether a conflict of interest exists – that is, whether confidentiality and loyalty truly are at risk – in the verein context ‘requires an analysis of the particular facts and circumstances at hand.’ I certainly agree.”
  • “However I think that’s true outside of the verein context in evaluating the imputation of conflicts of interest. As Professor Robertson points out, the nature of law firms and the concepts of client confidentiality and loyalty have changed dramatically and the imputation of a conflict might make sense in certain circumstances (a 30-lawyer, one-office law firm) but not in others (a 1,000-lawyer firm spread across the world).”
  • “Of course, the question is: Who gets to conduct ‘the analysis of the particular facts and circumstances at hand’? If the conflict arises in litigation, it’s the court (and you hope you have a judge who understands conflicts). But what about in other matters? Our regulatory system isn’t set up to handle that type of evaluation. Do we let the lawyers/firms or clients decide? There’s significant bias in those positions. What do you think?”


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Risk Update

Concerning Conflicts — More on Unfolding Adjacent Industry (Accounting Audit v Consulting Conflicts Considerations & Changes)

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From the continuing “it’s interesting to see how others are navigating conflicts” department, comes: “Conflict of interest rules cause headaches for Big Four auditors” —

  • “Deloitte, EY, KPMG and PwC must submit plans to their regulator this month for the ring fencing of their audit practices from their consulting arms.”
  • “The move is designed to eradicate conflicts deemed to have been so harmful to ensuring company bosses are held to account by auditors fearful of endangering lucrative consulting contracts by asking too many difficult questions.”
  • “A third of audits by the top seven firms failed to meet the watchdog’s standards in its latest industry review.”
  • “However, the audit divisions are not the only ones that have to manage awkward, and potentially untenable, conflicts of interest. Further splits 
are expected even if they are not forced by regulators.”
  • “‘It is an open secret that all these businesses are looking to restructure in some way because the conflict situation is just a complete nightmare,’ says one leading insolvency lawyer.”
  • “A firm that is asked to act as liquidator for a bust company faces a difficult balancing act, explains the boss of a leading accounting firm. Before accepting the appointment, a firm must ensure not only that it was not the collapsed company’s auditor, but that acting as liquidator would not place it in conflict with an existing client. A bust company could owe money to six or seven banks, he says.”
  • “Conflicts that stop parts of the Big Four taking on work are not the only gripe of partners in the divisions worst affected. Some feel they could also earn more money elsewhere.”
  • “London law firms have faced a similar threat, with some of their highest billing partners being poached by US-based firms which offer their star performers an ‘eat what you kill’ remuneration model, rather than the more socialised profit pool of more traditional firms.”
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