Risk Update

Accounting & Consulting News — Governance, Risks and Re-organisations…

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PwC offloads govt consulting to private equity firm Allegro” —

  • “Trouble accounting firm PwC Australia is set to spin off its government consulting business — involving some 130 partners — to private equity firm Allegro for $1, under a deal which will see a new company, currently code named Bell, commit to only working for the public sector.”
  • “The deal, which was announced to some 2,000 PwC staff involved on Sunday, is being fast tracked in the hope that the new company will be able to retain hundreds of millions of dollars of annual consulting fees from state and federal governments, limiting the growing fallout from the PwC tax scandal.”
  • “The new company, which takes in partners involved in PwC’s government, health, infrastructure, and defence (GHID) and Risk Services consultancies, will market itself as a structure that rules out any conflict of interest by only working for government and public sector groups.”
  • “It is hoping this can create a point of difference from the other three big accounting firms in Australia.”
  • “It will not be doing any work for the private sector, to avoid the potential conflict of interest which saw some PwC staff use knowledge gained from its government advisory work on tax to generate fees from multinationals on how to get around the laws.”
  • “The PwC government team spoke with several groups but quickly settled on working with private equity group Allegro, which recently bought law firm Slater and Gordon.”
  • “None of the 130 partners involved in the new Bell group were involved in the potential leaking of information gained from PwC’s tax advisory work with the government on tax for the use of multinational clients.”

BDO to Convert to a Corporation, Replacing US Partnership” —

  • “BDO USA LLP will form a professional services corporation based in Delaware, converting from its current partnership on July 1, the accounting firm said Wednesday.”
  • “Under the new structure, BDO will benefit from certain advantages that ‘position our firm for ongoing success as we continue to grow and transform,’ it said in a statement. The firm will be known as BDO USA P.A.”
  • “The move will enable the sixth-largest US accounting firm to make faster decisions, without the backing of the full partnership, and to streamline its tax structure, among other perks.”
  • “Partnerships often rely on committees to vet strategies, but those efforts can stymie change, said Allan Koltin, a consultant who helps accounting and law firms to develop their business strategies.”
  • “Changing to a corporate structure lowers the tax on an entity’s retained earnings, brings simplicity for partners and makes it easier to attract investment capital, said Eric Sloan, a partner at Gibson Dunn & Crutcher LLP and co-chair of its tax practice group.”
  • “Under a partnership, income is taxed at the partner level and at the highest individual tax rate. But as a corporation, the firm’s earnings would be taxed at a lower corporate tax rate, Sloan said.”
Risk Update

Malpractice Matters — Annual Survey Shows Latest Law Firm Claims Trends and Insurer Risk Concerns (Spoiler Alert: #conflicts)

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Hat tip to Eileen Garczynski at Ames & Gough for providing a peek at the report highlighted in their recent news release: “U.S. Legal Malpractice Claims Unremitting as Law Firms Grapple With Economic Woes, Social Inflation, Attorney Migration” —

  • “Law firms throughout the U.S. continue to face escalating malpractice risks as economic conditions, attorney migration and emerging exposures trigger new lawsuits and social inflation drives up claim costs, according to a new study by insurance broker Ames & Gough.”
  • “In its 13th annual survey of lawyers’ professional liability claims, Ames & Gough examined the trend by polling 10 leading lawyers’ professional liability insurance companies that on a combined basis provide insurance to approximately 80 percent of the Am Law 100 firms.”
  • “Notably, seven of the 10 insurers surveyed had participated in a claim payout of more than $50 million in the past two years; three paid a claim of more than $100 million; and two paid claims between $150 million – $300 million.”
  • “For the third consecutive year, insurers surveyed saw the largest numbers of malpractice claims related to three practice areas: Trust & Estate; Business Transactions, and Corporate & Securities. In addition, insurers cited increasing cases arising from Insurance Defense and Tax work/matters; they also expressed growing concerns about Immigration law.”
  • “‘We’re seeing the largest generational transfer of wealth in history, so in terms of sheer volume alone it’s not surprising that Trust & Estate has become a significant source of lawsuits,’ said Eileen Garczynski, senior vice president and partner, Ames & Gough. ‘Among a lengthy list of best practices for managing potential exposures, law firms need to be diligent in documenting their communication with clients, adhere to confidentiality requirements, and make absolutely clear whom they’re representing in family matters and who is not their client.'”

Details of how to get a copy of the complete report are shared in their summary.

With leave to snapshot a few details in contains, I’ll note some details of interest:

  • This year, 80 percent of the insurers surveyed, identified Trust & Estate as the leading practice area for legal malpractice claims. Trust & Estate continues to see a large percentage of legal malpractice claims, largely due to three factors:
    1. Trust & Estate work inherently involves personal and sensitive matters, making it uniquely susceptible to the potential for client dissatisfaction.
    2. The sheer volume of transactions given we are witnessing one of the largest transfers of wealth in U.S. history.
    3. Trust & Estate lawyers provide a broad range of client services, including estate planning, tax advice, and estate administration.”
  • “There are also numerous risks affecting estate planning counsel, including ethical, financial, and litigation risks, as well as risks from non-client beneficiaries.”
  • “The duty to avoid a conflict of interest. Estate planning attorneys often work with entire families, couples, domestic partners, and even business partners. Likewise, it is not at all unusual for a third party (a spouse, child, family member or family friend) to initiate contact with a trust & estate attorney on behalf of an elderly or disabled client.”
  • “Failure to manage these conflicts can lead to accusations of favoritism, bias, or breaches of fiduciary duty. A firm needs to maintain rigorous conflict-checking procedures and ensure there is a strong disclosure in the engagement process with regard to who is the client; whom the firm will or will not be representing; and precisely what services will and will not be performed.”
  • “Litigation and dispute risks: Disputes often arise between heirs or beneficiaries, and legal practitioners may have to defend their clients in litigation or mediation. These proceedings can be costly, and a loss in court can also lead to reputational damage for a legal practitioner.”


  • Conflict of Interest remains the most frequently cited malpractice error. Year over year, conflicts of interest is the most cited legal malpractice error. This year, eight of the 10 insurers polled placed conflicts as either the first or second leading cause of malpractice claims. “
  • “Insurers are particularly concerned about firms that do not do appropriate conflicts checks because conflicts can create a real or perceived appearance of impropriety, and breach of the duty of loyalty
    to a client, thus damaging the reputation of the lawyer, the firm, and the legal profession overall.”
  • “Conflicts of interest are of continued concern as law firms seize opportunities for growth either through lateral hires or mergers and acquisitions. Unfortunately, the potential for conflicts arising from these expansion initiatives are often
    not addressed early enough in the process.”
  • “Furthermore, when conflicts are finally realized they are frequently overlooked or ignored. This underscores the importance of firms having systems in place to flag situations where conflicts may arise, establish protocols for avoiding them and appropriate procedures to investigate such circumstances.”
Risk Update

Supreme Conflicts — Allegations, Commentary and Analysis on Alito Accusations

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Justice Samuel Alito Took Luxury Fishing Vacation With GOP Billionaire Who Later Had Cases Before the Court” —

  • “In early July 2008, Samuel Alito stood on a riverbank in a remote corner of Alaska. The Supreme Court justice was on vacation at a luxury fishing lodge that charged more than $1,000 a day, and after catching a king salmon nearly the size of his leg, Alito posed for a picture. To his left, a man stood beaming: Paul Singer, a hedge fund billionaire who has repeatedly asked the Supreme Court to rule in his favor in high-stakes business disputes.”
  • “Singer was more than a fellow angler. He flew Alito to Alaska on a private jet. If the justice chartered the plane himself, the cost could have exceeded $100,000 one way.”
  • “In the years that followed, Singer’s hedge fund came before the court at least 10 times in cases where his role was often covered by the legal press and mainstream media.”
  • “Alito did not report the 2008 fishing trip on his annual financial disclosures. By failing to disclose the private jet flight Singer provided, Alito appears to have violated a federal law that requires justices to disclose most gifts, according to ethics law experts.”
  • “‘If you were good friends, what were you doing ruling on his case?’ said Charles Geyh, an Indiana University law professor and leading expert on recusals. ‘And if you weren’t good friends, what were you doing accepting this?’ referring to the flight on the private jet.”
  • “Justices are almost entirely left to police themselves on ethical issues, with few restrictions on what gifts they can accept. When a potential conflict arises, the sole arbiter of whether a justice should step away from a case is the justice him or herself.”

Justice Samuel Alito: ProPublica Misleads Its Readers” —

  • “In his Wall Street Journal op-ed, Justice Alito argued that he had ‘no obligation’ to recuse himself from any cases involving Mr Singer’s companies.”
  • “‘He allowed me to occupy what would have otherwise been an unoccupied seat on a private flight to Alaska,’ Justice Alito wrote. ‘It was and is my judgment that these facts would not cause a reasonable and unbiased person to doubt my ability to decide the matters in question impartially.'”

WSJ editorial board defends Alito, calls ProPublica report ‘non-scandal built on partisan spin’” —

  • “The Wall Street Journal’s editorial board defended Supreme Court Justice Samuel Alito and his previously undisclosed fishing trip with a GOP donor in an editorial Wednesday night, blasting ProPublica’s report as ‘a non-scandal built on partisan spin.'”
  • “‘Justice Alito is still on the Court so he is the big fish that ProPublica is attempting to catch and fillet,’ the board added. ‘We are defending the Court because someone has to. Someone has to stand up for judicial independence and an institution that is part of the bedrock of our constitutional order.'”
  • “Stephen Engelberg, ProPublica’s editor-in-chief, condemned the op-ed’s headline, ‘which the piece declared without anyone having read the article and without asking for our comment… We’re curious to know whether The Journal fact-checked the essay before publication,’ he told The New York Times.”

Supreme Court Struggle to Spot Conflict Laid Bare in Alito Trip” —

  • “New revelations about travel gifted to US Supreme Court justices highlight the tension between rules intended to ensure impartiality and the difficulty in sussing out conflicts.”
  • “Justice Samuel Alito is the target of ProPublica’s most recent reporting, which found he took a 2008 Alaska fishing trip with billionaire Paul Singer and didn’t recuse himself in a 2014 case involving his hedge fund.”
  • “But corporate disclosure rules aimed at parties in an appeal aren’t designed to get at personal conflicts of interest like the allegation around Alito and Singer, said Hogan Lovell’s Sean Marotta. Instead they are intended to flag financial conflicts, a problem even recent amendments have failed to completely address.”
  • “Alito said in a Wall Street Journal op-ed Tuesday that he wasn’t aware of Singer’s involvement in the 2014 case given the limited information provided to the justices in the mandated corporate disclosures, and that it would be ‘utterly impossible’ for his law clerks to track that down.”
  • “Some legal scholars say he’s right about the court’s ability to identify potential conflicts, particularly since they are done in-house.”
  • “Supreme Court conflicts checks are typically conducted within individual chambers, often by clerks and staff tasked with handling a variety of court business, Marotta explained.”
  • “Identifying business ownership of court participants isn’t just a problem for Supreme Court clerks and staff.”
  • “Currently all federal courts, including the Supreme Court, require nongovernmental corporations to note any parent corporation or any publicly held company owning 10% or more of the corporation’s stock.”
  • “But a December 2022 report from the judiciary’s Advisory Committee on Civil Rules notes that even that may not capture all the relevant parties.”
  • “The situation can be even trickier with limited liability entities, where ownership does not necessarily need to be disclosed in court filings and which are at the heart of the allegations involving Alito.”
  • “Other scholars, though, say there are steps the justices can take to help alleviate the problem. St. John’s University School of Law Professor John Barrett suggested on Twitter it would be easy to ‘ask anyone who gives you a gift to list their LLCs and LLPs, & then check cases against that.'”
  • “Marotta floated the possibility of a centralized office within the court to more effectively conduct conflicts checks than doing so in chambers.”
Risk Update

IP Conflicts News — International Imputation Conflict Concern, Lateral Hire Leads to Rejected Ethical Wall + DQ Push in Patent Matter, IP Theft Prosecution Unpacked

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Reebok Asks Court to Disqualify Hogan Lovells in Trademark Suit” —

  • “Hogan Lovells ignored the conflict of interest arising out of the firm’s prior seven-year relationship with Reebok, the company said in a memo on Friday. The firm worked on trademark matters, including the marks this suit hinges on, for Reebok in the EU between 2015 and 2022, according to the memo.”
  • “Reebok sued Autry International S.r.l for infringing multiple marks used on shoes in May 2023, in the US District Court for the District of Massachusetts. ‘Hogan Lovell’s representation of Autry violates its duties to Reebok as a former client and requires disqualification,’ Reebok said in a memo.”
  • “Reebok says that it doesn’t matter that Hogan Lovells worked on issues in Europe since the firm operates as one entity.”
  • “‘Hogan Lovells’ prior representations of Reebok in matters that are substantially related to the instant lawsuit create a conflict of interest that is imputable to the entire firm,’ the shoe company said in its memo.”

Viasat asks judge to boot Gibson Dunn from patent case after lawyer hire” —

  • “Satellite communications company Viasat has asked a federal judge to disqualify Western Digital’s lead attorney and her new law firm in a Texas patent case between the companies, arguing that the firm is ethically conflicted because it already represents Viasat in related litigation.”
  • “In a court filing made public on Thursday, Viasat said the conflict arose when Western Digital’s lawyer Kieran Kieckhefer left her former law firm Shearman & Sterling to join Gibson, Dunn & Crutcher in a move announced on Monday.”
  • “Viasat said in its disqualification motion that it has been a Gibson Dunn client since 2017 and that the firm represents it in another legal dispute over the same technology.”
  • “‘Either alone is enough justification to disqualify Gibson Dunn,’ Viasat said. ‘Together, the conflict — and risks that Viasat information is improperly used against Viasat — is overwhelming.'”
  • “Viasat said Gibson Dunn represents it in a separate lawsuit against Acacia Communications over related error-correction technology. Viasat won a $49.3 million jury verdict in that case in 2019. It said in the Thursday filing that a California state court awarded it nearly $100 million more last month.”
  • “According to Viasat, Gibson Dunn received confidential information in the Acacia case that is relevant to the Western Digital case, and both cases relate to the value of Acacia’s patent license.”
  • “Viasat’s motion said Gibson Dunn rejected its proposal for an ‘ethical wall’ blocking lawyers with conflicts from the Acacia case.”

Deloitte IP Theft Prosecutor Ousted Over US Atty Conflict” —

  • “A West Virginia federal judge recused the lead prosecutor in the case of two former Deloitte employees facing trade secret theft charges over their work for competitor Sagitec Solutions LLC, saying the prosecutor’s boss’ prior representation of Sagitec during an internal investigation of the allegations ‘creates a substantial conflict of interest.'”
  • “The order Monday from U.S. District Judge Irene C. Berger of the Southern District of West Virginia to recuse Andrew Cogar came at the request of David Gerald Minkkinen and Sivaraman Sambasivam, who were indicted on 13 counts in the district in August.”
  • “The Northern District of West Virginia began the investigation, but the U.S. Department of Justice recused the office because U.S. Attorney William Ihlenfeld, who was confirmed in October 2021, represented Sagitec while in private practice in 2019 and 2020. But Cogar, who works for the Northern District under Ihlenfeld, was allowed to continue working on the case under the supervision of the Southern District.”
  • “Minkkinen and Sambasivam argued Cogar’s involvement in the case ‘creates at least an appearance of impropriety and conflict,’ and Judge Berger agreed.”
  • “The indictment against Minkkinen and Sambasivam alleges they left Deloitte in 2013 to work for Sagitec as senior partners with the company’s unemployment insurance practice. Prosecutors say they and others conspired to convert Deloitte’s trade secrets from its proprietary unemployment system for Sagitec’s use.”
  • “While Ihlenfeld worked at Bowles Rice LLP, he was part of a team that produced an internal investigative report regarding the allegations against Sagitec before Minkkinen and Sambasivam were charged, and Sagitec provided that report to the government, Judge Berger said.”
  • “‘The report documents certain materials that the defendants and other employees used during their employment with Sagitec that may have originated with Deloitte. However, it concluded that the materials used did not constitute trade secrets and that no trade secrets were stolen from Deloitte,’ Judge Berger said.””Minkkinen and Sambasivam said Ihlenfeld’s role in authoring the report and interviewing them means he is likely to be called as a trial witness. That will put Cogar in a difficult position, the defendants argued.”
  • “The government opposed Cogar’s recusal, saying he does not have a conflict of interest and that prosecutors planned to call another attorney involved in Sagitec’s internal investigation instead of Ihlenfeld. That was not enough to persuade Judge Berger to allow Cogar to remain on the case.”


Risk Update

Law Firm Conflicts Clashes — Firm Withdrawal in “Side-switching” Conflicts Allegation, Very Late DQ Motion at Crux of Veritas Clash, Miami Mayor Maintains Law Firm Job While Pursuing Presidency

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Crowell & Moring will withdraw in Humana litigation after Walgreens alleges ‘betrayal‘” —

  • “Crowell & Moring is withdrawing from the representation of health insurer Humana after its litigation opponent accused the law firm of ‘unethical side-switching.'”
  • “Crowell lawyers disclosed their withdrawal in a June 12 brief arguing that there was no conflict of interest in its representation of Humana in litigation against Walgreens.”
  • “Walgreens made the accusation of ‘betrayal’ in a petition to vacate a $642 million arbitration award obtained by Humana for Walgreens overcharges.”
  • “Walgreens alleges that Crowell advised Walgreens in 2008 and 2009 on whether a pharmacy savings club would affect the ‘usual and customary’ prices that the pharmacy reported to insurers for reimbursement.”
  • “Then in 2017, Crowell sent a ‘pitch’ document to Humana arguing that Walgreens and other pharmacies had overcharged the insurer because the savings club prices were not treated as usual and customary. Humana hired to pursue litigation against Walgreens.”
  • “In the June 12 brief, Humana argued that Walgreens failed to file a motion to disqualify at the outset of the arbitration, instead holding its conflict claims as a ‘get out of jail free’ card if it lost in arbitration.”
  • “A separate lawsuit filed by Walgreens against Crowell in Washington, D.C., superior court alleges that the firm breached its fiduciary duty to Walgreens.”

Veritas Took Too Long To Seek To DQ Rival’s Atty, Court Told” —

  • “Freedom Legal Plans LLC has pushed back against Veritas Legal Plan Inc.’s bid to disqualify its lawyer and his firm, Weiss Serota Helfman Cole & Bierman PL, in a Florida federal lawsuit between the former partners, saying the attorney presents no conflict and, even if he did, Veritas waited far too long to raise concerns.”
  • “In fighting Veritas’ motion to disqualify Howard DuBosar and his firm from representing FLP against its suit, FLP on Friday played down DuBosar’s previous relationship with Veritas and said the company waived its right to contest his representation on multiple occasions by waiting so long to file the motion. Veritas is suing FLP for allegedly violating an agreement to market its programs and then directly competing with it.”
  • “Veritas didn’t bring a motion to disqualify DuBosar or the firm the first time around because the matter was dismissed without prejudice shortly after it had discovered the conflict, according to the company’s disqualification motion.”
  • “In its response, FLP does admit there were ties between its attorney and Veritas. In January 2016, Angelo Anzalone, Veritas’ principal, consulted DuBosar Sheres PA to analyze the enforceability of its noncompetition agreement, and on whether certain demands could be made or actions could be brought against various other nonrelated parties, it said.”
  • “DuBosar told Anzalone that the noncompetition agreement did not appear to be enforceable with regard to the potential disputes in question. FLP said Friday that based on a review of billing records, the ‘minimal and limited task’ was not billed for, and the work was done by another of DuBosar Sheres’ attorneys, Robert Sheres.”
  • “‘Following this minor service performed by Mr. Sheres, Anzalone requested that DuBosar Sheres, and later DuBosar Law Group, represent him in a personal transaction having nothing to do with plaintiff,’ FLP said, adding that ‘Howard DuBosar’s former law firm’s involvement with plaintiff merely involved his former law partner reworking a page of that agreement, so it would be facially enforceable.'”
  • “In June 2020, DuBosar Law Group PA joined Weiss Serota, and around mid-2022, FLP and the other defendants were referred to DuBosar for representation in the lawsuit. At that time, Weiss Serota performed the required conflict check, which did not flag any conflict issues, FLP said.”
  • “There were multiple instances in which Veritas waived its chance to file a motion to disqualify, FLP argued. That included waiting through almost the entire 2022 lawsuit without objecting to DuBosar and his firm’s representation.”

Miami Mayor to Keep Quinn Emanuel Job During White House Run” —

  • “Miami Mayor Francis Suarez plans to keep his job at a top law firm while running for president, saying he sees no conflict of interest.”
  • “Suarez has worked at Quinn Emanuel Urquhart & Sullivan since 2021, when the massive firm launched a Miami office across the street from City Hall in Coconut Grove. The firm, which brought in more than $1.6 billion in gross revenue last year, counts Twitter Inc.’s Elon Musk, Alphabet Inc.’s Google, and hedge fund giant Citadel as clients.”
  • “Citadel founder Ken Griffin gave Suarez’s state campaign $1 million, according to campaign filings, a move seen as hedging his bet on Florida Governor Ron DeSantis.”
  • “Suarez has come under fire for other conflicts of interest. A side job as consultant for a local real estate developer has led to multiple investigations, according to the Miami Herald, as the developer that hired him claimed, in internal company documents, to have paid Suarez $170,000 to help cut through red tape. Suarez has denied wrongdoing.”
  • “‘To the extent that the mayor’s regulatory noncompliance is entangled with the economic interests of campaign donors and often undisclosed private sector employers doing business with the City of Miami, his conduct raises very troubling questions of ethical candor, civic accountability, and government transparency,’ said Anthony Alfieri, a University of Miami law professor. “
  • “The firm said when it hired Suarez that the firm would take certain unidentified steps to avoid conflicts. Suarez is required by local ethics rules to avoid taking action as mayor that would ‘directly or indirectly affect’ the law firm, according to a 2020 memo issued by county officials in response to a guidance request from the mayor’s office.”
Risk Update

Lawyer Ethics, Errors and Issues — Lateral Conflicts Create Clash and Cost, Social Media Posts Cross Conflict Line, Ethics Rules Waived in Texas,

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Lawyer’s racist and anti-Muslim rants on social media entitle defendant to new trial, court rules” —

  • “The top court in Massachusetts has granted a new trial to a Black, Muslim defendant whose appointed lawyer expressed ‘vitriolic hatred’ and racism in social media posts… Some of the online posts on Facebook were apparently made from the courthouse.”
  • “The court concluded that Dew was deprived of his right to effective assistance of counsel because of the ‘conflict of interest inherent in counsel’s bigotry against persons of the defendant’s faith and race.'”
  • “The court said it couldn’t know with certainty whether Doyle’s actions during Dew’s representation were motivated by Dew’s interests. But ‘on the record before us, we cannot credibly assume that Doyle’s representation was not affected by his virulent anti-Muslim and racist views.'”
  • “Dew ‘has more than met his burden to establish that Doyle’s representation of him was impaired by an actual conflict of interest,’ the court said.”

Ethics rules waived for Texas AG lawyers defending boss, Ken Paxton, in impeachment trial” —

  • “The Texas attorney general’s office waived its own ethics rules when allowing six employees to take extended leaves to defend their boss, Ken Paxton, in his upcoming impeachment trial, according to agency records obtained by The Dallas Morning News.”
  • “A longstanding agency policy only allows attorneys to perform outside legal work in narrow circumstances, after a rigorous vetting process and without pay in order to avoid conflicts of interest.”
  • “First Assistant Attorney General Brent Webster granted an exception for the six staff in late May, and also promised the employees their jobs back after the impeachment proceedings end, the records show.”
  • “The House impeached Paxton for allegedly abusing the power of his office and accepting bribes, among other alleged misdeeds. The third-term Republican, who’s suspended without pay pending the outcome of a Senate trial, has cast the GOP-initiated proceedings as a sham meant to thwart the will of voters.”
  • “Shortly after the GOP-led House voted to impeach Paxton last month, the agency employees wrote to Webster that they would take leave to represent their boss in the impeachment proceedings. The state employees noted that they would like to use their paid leave until it’s exhausted, and then take an unpaid leave.”
  • “Hilton and Stone organized a law firm — Stone Hilton PLLC — on May 31, according to formation papers filed with the Secretary of State. They have since issued written communications regarding Paxton’s impeachment trial using that firm’s letterhead.”
  • “Webster determined in the letter that the staffers’ activity poses no conflict with their employment with the agency, that they can be paid for the outside work with non-agency sources, and that their ‘temporary absence will not disrupt or impede ongoing OAG operations in any manner.'”

McDermott Sued By Recruited Atty Over Client Conflicts, Pay” —

  • “Entertainment litigator Jeffery McFarland sued McDermott Will & Emery LLP and recruiter Watanabe LLC in California state court Tuesday for allegedly failing to disclose conflicts the firm had with his book of clients when it hired him in 2020, and for allegedly cutting his compensation arrangement from $3.25 million to $1 million.”
  • “In his Los Angeles Superior Court complaint, McFarland claimed that McDermott and Watanabe, which was involved in his move to the firm, ‘acted in concert’ and caused him damage via the ‘negligently undisclosed conflicts’ that McDermott had with his book of businesses when he agreed to join it in the summer of 2020.”
  • “The complaint alleges that McFarland scheduled meetings with McDermott and filled out a lateral partner questionnaire, or LPQ, to detail his client history and billings. During his interview, he said he made it clear that he was typically adverse to major studios except for NBC Universal, and that he also stressed that he didn’t know which clients would follow him, as he’d never moved as a partner.”
  • “McDermott allegedly told him that wouldn’t be an issue and ultimately made a ‘very attractive offer’ worth $3.25 million per year, the suit states. Under the terms, McFarland was to become an income partner for the rest of 2020, with his compensation prorated.”
  • “But McFarland claims he faced months of conflict issues between McDermott and the clients he sought to bring with him, and that he tussled with the firm over changes to his compensation structure in early 2021. McFarland says he left the firm on Sept. 1, 2021, just a year after he started.”
  • “…Tuesday’s filing reads. ‘In 2023, plaintiff learned for the first time that MWE claims to have provided information to Watanabe regarding the undisclosed conflicts at MWE and that Watanabe failed to provide that information to plaintiff in advance of him agreeing to the partnership at MWE.'”
  • “McFarland’s complaint makes claims for breach of contract, breach of implied covenant of good faith and fair dealing, negligence, accounting, common counts, concealment, and promissory estoppel.”


Risk Update

Lawyer Disqualifications Denied — Bank Doc Dust Up, Shareholder Suit Meets Discovery “Banking Privilege” Debate

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No Rule Violations: Judge Denies Motion to Disqualify Agency’s Attorney in Suit Against Shareholder, CFO” —

  • “A federal judge in Pennsylvania is allowing a Pittsburgh attorney representing On-Site Companionship Services Corp. to stay on a civil lawsuit filed against the agency’s sole shareholder and chief financial officer, denying the defendants’ claim that the lawyer violated rules of professional conduct by doing so.”
  • “In a June 16 opinion, U.S. District Judge Christy Criswell Wiegand of the Western District of Pennsylvania denied Steven Williams Jr. and Bernadette Ceravolo’s motion to disqualify opposing counseling representing the plaintiffs, On-Site Companionship Services, Steven Williams III, and Quinn Williams. The defendants argued that the attorney, Kenneth J. Hardin II, of Hardin Thompson, couldn’t represent the plaintiffs due to his involvement in the investigation involving Williams Jr. and Ceravolo and his prior dealings with the two defendants.”
  • “Williams and Ceravolo argued that such representation would violate Pennsylvania Rules of Professional Conduct 1.6 (confidentiality), 1.7 (conflicts of interest with current clients), 1.13 (organizational clients) and 3.7 (lawyers as witnesses).”
  • “The court disagreed, finding that the the defendants failed to clearly show a violation of the rules, or any attorney-client relationship between them. The defendants didn’t make any effort to show how that representation was ‘substantially related’ to the dispute regarding misappropriation, or that the firm would be able to use any confidential information from that representation in litigating the present matter, Wiegand held.”
  • “‘Consistent with Defendants’ representation that Mr. Williams Jr. worked with Mr. Hardin in his capacity as a constituent of the company, Mr. Hardin has submitted an affidavit unequivocally denying that he or his firm represented Defendants individually regarding the alleged misappropriation,’ Wiegand wrote. ‘From this record, the Court finds that any advice or assistance Defendants sought was for On-Site, not themselves individually, and that it would have been unreasonable for Defendants to believe that Hardin Thompson represented them individually in this matter (if they believed that Hardin Thompson represented them individually at all in this matter, which has not been established).'”

Leon Cosgrove Beats DQ Bid In Fla. Over Use Of Bank Docs” —

  • “A Florida federal judge has rejected a bid by former and current directors of a U.S. bank accused of operating under Venezuelan control to disqualify opposing counsel at Leon Cosgrove Jimenez LLC, finding that privileged documents the firm used are relevant to the allegations and that their content is unique.”
  • “U.S. Magistrate Judge Edwin G. Torres on Tuesday found that the banking directors’ request to disqualify the law firm for using documents from its regulator that they mistakenly disclosed during discovery was moot since the judge found that the banking examination privilege asserted by the regulator — the Office of the Comptroller of the Currency, an independent bureau of the U.S. Department of the Treasury — was not absolute. The OCC, which intervened in the case, is not a party to the suit.”
  • “‘The relevance of these documents to this case varies; however, the most obvious connection to [the banks’] claims is that the documents appear to evidence the OCC’s dissatisfaction with and criticism of the bank’s leadership during the relevant time period,’ Judge Torres said.”
  • “Judge Torres ruled that the information contained in the documents applies ‘sunlight’ to the bank’s allegations against its directors. ‘Moreover, on multiple occasions, the OCC expressed concern that the bank’s leader, defendant Gabina Rodriguez, was biased toward the Venezuelan government in a way that was contrary to the interests of the bank,’ Judge Torres said. We therefore find that the seriousness of this litigation calls for some sunlight into the way our federal government regulates our national banks.'”
  • “The judge rejected the OCC’s asserted banking examination privilege, finding that it is not steeped in statute or regulation and is not a doctrine recognized by the Eleventh Circuit or the U.S. Supreme Court. ‘It is a legal doctrine that has been created or adopted by courts whose cases do not bind our decision-making,’ the judge said.”
  • “Judge Torres said that in following the five-part framework created by a New York federal judge, the banking examination privilege may be overridden so the OCC documents can be used as evidence.”
  • “After rejecting the OCC’s argument that these documents are privileged, the judge said the bank directors’ bid to disqualify Leon Cosgrove for using the OCC documents is moot since their argument is based on the fact that the OCC documents are privileged.”
Risk Update

Risk Survey Input — AML & Client Due Diligence Survey Development

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I was pleased to catch up recently with my friend and colleague Marie-Claire Le Houerou and hear more about an interesting risk project she has in the works.

MC just celebrated her first anniversary at Intapp, having previously served as director of new business intake at Baker McKenzie for seven or so years prior.

One of the strategic projects she is managing is the development and running of a survey on a topic we’ve regularly covered on the BRB – firm policies, practices, and priorities around client due diligence and anti-money laundering.

(Actually, my understanding is that this will likely take the form of two surveys — one directed to regulated jurisdictions such as UK/EMEA, and another to unregulated jurisdictions such as US.)

I asked MC about her objectives and she told me: “My hope is to generate information and peer insight I always wanted in my roles as a client onboarding and risk professional.”

To help shape the questions and content covered in that exercise, I offered to put the word out to readers who might be interested in sharing their interests in and questions about these topics.

So if you have some input you’d like to share with MC, or just want to make sure you’re invited to participate in the survey itself, readers can reach out to her at: marie-claire.lehouerou@intapp.com.

Risk Update

Risk Potpourri — ILTA Security Survey, Client Conflicts in the PR World, SEC & Private Fund Conflicts Concerns, Big Four “Deep Seated” Conflicts Called

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ILTA just published: “Security at Issue: State of Cybersecurity in Law Firms” —

  • Law firms store some of the most sensitive information available regarding material business transactions (e.g., mergers, acquisitions, and tax returns), civil/criminal prosecution, and personal transactions (e.g., divorces and wills), and lawyers have an ethical responsibility to protect this data. Due to fears of losing this sensitive information and pressing court dates that often cannot be moved without system access, law firms are highly motivated to succumb to an attacker’s demands when their files are encrypted by ransomware, or they are threatened with the public exposure of that data.”
  • “Toward the end of 2021, nearly a third of law firms surveyed reported a breach within the year; and 36% reported past malware infections, according to an American Bar Association report.”
  • “Only 15.5% of responding firms of all sizes believed they had some security gaps, or that their security needed significant improvement; the rest believed they were relatively to extremely secure. This, unfortunately, does not track with either our experience from our assessments (which always yield some significant risk factors), the previously mentioned study that showed a third of firms suffered breaches in a single calendar year, or security gaps  uncovered throughout the survey. We believe this is a definitional problem by what is meant by ‘secure’ and what achieving true defensibility looks like.”
  • “Nearly three-quarters of respondents believed they were more or much more secure than their industry peers. This obviously defies mathematical logic; while we can possibly hedge our results with the likelihood that those taking the survey were more confident in their security (and thus more willing to participate), we find this still unlikely. We think it more likely that we are seeing a definitional glitch in what ‘average’ looks like.”
  • “The data shows IT professionals fear their users’ behaviors more than they fear the threat actors themselves, and believe these behaviors are the greatest challenge to their security. They also believe users are the biggest impediment to improvement through their resistance to change and education.”
  • “When asked what the top three threats to security are in the firm, the top response at 39.4% (and 40% in the ILTA Technology Survey) was user behavior and lack of training to prevent this harmful behavior. User behavior/training arose as a greater concern than ransomware or any threat actor tactic that would exploit these key drivers of organizational productivity.”
  • “Users are viewed as the greatest impediment to change. In our survey, 59% said user inconvenience was the greatest roadblock to implementing more stringent security controls (with cost being the second greatest concern).”

DeSantis-linked PR shop ditches PGA Tour amid LIV Golf merger blowback” —

  • “The Ron DeSantis-connected PR shop Clout Public Affairs has dropped the PGA Tour as a client, after it announced its plans to merge with the Saudi-funded LIV Golf.”
  • “The firm had been working with both the PGA Tour and the families of 9/11 victims who had been agitating against LIV Golf for its Saudi ties. It was one of a number of public relations or lobbying shops that had cashed in on the high-profile feud between the storied PGA Tour and the controversial upstart LIV Golf.”
  • “Clout Public Affairs, which had become embroiled in the legal battle between LIV and its client PGA, had been subpoenaed by LIV and accused the golf league of trying to track the 9/11 families.”

A fascinating and detailed review and analysis by Ropes & Gray, for those interested: “The Securities Litigation Review: SEC Enforcement: A Practical Guide For Private Fund Managers” —

  • “All private fund advisers, whether with venture capital, private equity, hedge, debt, credit, real estate, hybrid, or other focus, must stay attuned to this attention on the private fund industry by the Securities and Exchange Commission (SEC) and, in particular, to the actions of its Division of Examinations (EXAMS) – formerly, the Office of Compliance Inspections and Examinations – and the Division of Enforcement (Enforcement).”
  • “With more than 5,500 registered investment advisers (totalling over 35 per cent of all registered investment advisers) managing 50,000 private funds, with gross assets said to exceed US$21 trillion, and with an active SEC Chair, private fund advisers can expect the years to come to be replete with rulemaking and enforcement focused on the private fund industry.”
  • “In this landscape, EXAMS likely will sharpen its focus on conflicts of interest the SEC believes are inherent in the private fund industry and which, the SEC believes, contribute to the perceived problematic issues discussed in the Private Fund Proposed Reforms. These include, for example, those related to portfolio valuation and resulting fee calculations, as well as conflicts related to liquidity. A resurgence of SEC enforcement against private fund advisers is likely to follow.”
  • “One of the common themes discussed in SEC guidance – and seen in examinations and enforcement matters – is the SEC suggestion that the private fund industry presents unique regulatory challenges and conflicts of interest because of its business model.”
  • “The SEC has long suggested that this model results in conflicts beyond those faced by typical investment advisers. Indeed, in a February 2015 speech, the SEC said that nearly all SEC enforcement matters involve examining whether an adviser has a conflict of interest and, if so, whether the adviser eliminated or disclosed that conflict.”
  • “According to the SEC, conflicts of interest include situations where there is a ‘facial incompatibility of interests, as well as any situation where an adviser’s interests might potentially incline the adviser to act in a way that places its interests above clients’ interests, intentionally or otherwise.'”
  • “Notably, under this model, the SEC has suggested that a conflict of interest does not require that an investor be harmed by the conflict, or that the adviser intended to cause harm to the investor. It only requires the possibility that an investment adviser’s interests could run counter to those of its investors.”
  • “In the SEC’s view, fund documents often contain insufficient disclosure on material terms, for example on fees and expenses, including relating to their allocation and affiliated fees and expenses; valuation procedures; and investment strategies and protocols for mitigating certain conflicts of interest, including investment and co-investment allocation.”
  • “Private fund advisers should be aware of significant areas of enforcement that have accelerated in the new administration, including undisclosed fees and expenses, misallocation of expenses, valuation of investments as that relates to calculation of fees, inadequate disclosure of financial conflicts, and conflicted relationships with third parties.”

And professors Ian Gow (University of Melbourne) and Stuart Kells (La Trobe Business School) opine: “The Big Four firms are incapable of unwinding their own deep-seated conflicts” —

  • “The Big Four – PricewaterhouseCoopers, EY, Deloitte, KPMG – are the global behemoths of the professional services industry. With nearly 1.5 million staff and US$190bn in annual revenue, they dominate markets for accounting, auditing and tax-related advice.”
  • “The recent high-profile crash of Project Everest – EY’s $600m attempted demerger – saw that firm’s angry partners demand more effective governance structures to protect their interests.”
  • “EY’s Everest was an attempt to separate auditing, which is about transparency and integrity, from services such as tax minimisation advice that are less about the public interest and more about private profit. The demerger would have addressed a fundamental conflict.”
  • “As the failure of EY’s Project Everest showed, the Big Four are probably incapable of unwinding their own deep-seated conflicts. Sooner or later, the task of imposing structural changes will fall to governments and regulators around the world.”
  • “By rejecting demergers on their own terms, the Four have effectively chosen uncontrolled and possibly chaotic break-ups on someone else’s terms and someone else’s clock. The Big Four can’t say they weren’t warned – the issues have been clear from calamities stretching back decades.”
  • “‘First in, first out,’ usually styled ‘Fifo,’ is a term familiar to all accountants; it relates inventory produced to inventory sold. The Big Four’s approach to strategy, risk management, and governance brings to mind a nearby acronym: Fafo, ‘f… around and find out.’ That is an uncomfortably apt description of the Big Four’s headlong drive towards profit through aimless diversification.”
Risk Update

Advance Waivers — Engagement Letter vs. OCG Language in Coke Clash Continues

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Paul Hastings Conflict Waiver Has One Exception—and Coke Says It Applies, Making Document Invalid” —

  • “The Coca-Cola Co. is trying to nullify the conflict waiver it signed with Paul Hastings by seizing on its one exception: matters that are ‘substantially related’ to matters it currently handles for Coke.”
  • “The primary Paul Hastings lawyer working for Coke, Jonathan Drimmer, handles human rights matters around the globe. Coke says that’s all about protecting Coke’s reputation, the same issue at stake in SuperCooler’s $100 million fraud lawsuit against Coke.”
  • “Los Angeles-based Paul Hastings began representing SuperCooler in March when it hired three Cahill Gordon & Reindel lawyers who brought the lawsuit. Atlanta-based Coke complained Paul Hastings ‘abandoned its ethical obligations’ and asked a federal court to disqualify the law firm.”
  • “U.S. Magistrate Judge Robert Norway asked Webb: ‘Just to be clear … your position is that Mr. Drimmer’s representation in the matters that he’s handling is more than just protecting the company from general reputational harm; it’s harm that stems from those particular matters?'”
  • “‘Precisely,’ Webb responded. ‘And that’s why this lawsuit is so problematic, because, on the one hand, Mr. Drimmer’s defending the Coca-Cola Company’s reputation, and then down the hall, with (Paul Hastings’ SuperCooler) lawyers, they’re attacking it. And that really ultimately shows that even though, clearly, Mr. Drimmer isn’t doing trademark or trade-secret misappropriation work for the company … we never said he was. It’s the core values and the principles of the company that he defends are the same value and principles that they are now attacking in no uncertain terms.'”
  • “The engagement letter Coke signed in 2021 with Paul Hastings on human rights matters gives the firm wide latitude to work with any client it wishes so long as the subject is ‘not substantially related to a matter in which we have represented you.'”
  • “Paul Hastings argues Coke’s efforts to link Drimmer’s human rights work and the SuperCooler litigation are a legal stretch.”
  • “Charles Duggan, a Davis Polk partner representing Paul Hastings, said Florida’s Rules of Professional Conduct and ethics rules ‘generally doesn’t allow for such broad generalities to characterize one representation as substantially related’ to another.”
  • “Coca-Cola also is arguing that its guidelines for outside counsel supersede the engagement letter with Paul Hastings and that firms effectively consent to those guidelines when they file a claim through is billing portal. Those guidelines state that Coke does not consent to advance waivers, unless signed by general counsel Monica Howard Douglas or associate general counsel Bonds.”
  • “Moreover, Coke said the advance waiver in the engagement letter it signed with Paul Hastings two years ago was too unspecific for it to have anticipated or given its consent for the law firm to represent a company suing Coke for $100 million. It argues that the waiver is so general to be unenforceable.”