Bressler Risk Blog

Deborah A. Winokur, counsel at Cozen O’Connor has an excellent article out which reminds us: “Attys Should Note Judges’ Financial Conflicts Of Interest” —

• “Given these recent developments, what steps should attorneys practicing in the federal courts consider?”
• “First, be proactive in your Rule 7.1 disclosures, so that a judge has a clear understanding of the corporate structure of your client, including its immediate parent, and the ultimate parent corporation. As Judge Erickson wrote in his email to the policymakers, ‘[i]t seems to me that more information rather than less is prudent in today’s environment.'”
• “Second, do not assume that a judge’s order against the party with which the judge has the financial interest removes the risk of prejudice. Centripetal unsuccessfully argued that Judge Morgan should not be disqualified because he ruled against Cisco, thereby demonstrating his impartiality.”
• “But the appeals court found that ‘[w]here a judge becomes aware of a possible appearance of impropriety, there is a substantial risk that he or she might bend over backwards to rule against that party to try to prove that there is no bias.'”
• “Third, remember that use of a blind trust is not the same as a divestment under the Disqualification Statute. Per Subsection (f), if a judge presiding over a matter for a substantial amount of time later learns that either the judge or a member of the judge’s household has a financial interest in a party, the conflict may be cured if the judge divests himself or herself of that interest.”
• “A lawyer relying on a judge’s representation that the conflict has been resolved because the judge put the contested security in a blind trust may find that the judge will be removed on appeal, and any findings or judgment may be remanded and relitigated.”
• “Fourth, run the names of your client and the other parties involved in the litigation through the publicly available databases at the outset, to independently determine if the judge may have a financial conflict of interest. Promptly bring any issues you identify to the attention of the judge and the other litigants.

“Polsinelli Fights Littler TRO Bid In Trade Secrets Case” —

• “Polsinelli PC is fighting back against Littler Mendelson PC’s bid to bar Polsinelli from using 30,000 client files the firm obtained when it poached a Littler attorney last year, calling the request a thinly veiled anti-competitive ploy in the pair’s ongoing feud over home health care business.”
• “In a 32-page brief filed Friday, Polsinelli said that not only are the overwhelming majority of the 30,000 files in question simply routine client files and not trade secrets, as Littler has asserted, but also that Littler knew about Polsinelli’s possession of the documents for more than a year before filing its temporary restraining order request roughly two weeks ago.”
• “Polsinelli said Littler’s motion is clearly aimed at undercutting POSH, or the Polsinelli Online Solution for Homecare, an online document platform similar to a competing product offered by Littler, and which lies at the heart of the two firms’ dispute.”
• “Littler’s recent TRO motion centers on 30,000 client documents that were transferred to Polsinelli after Spinola joined the firm. Polsinelli claims the overwhelming majority of those documents are simply routine client files, but Littler claims Spinola intentionally downloaded Toolkit templates and other sensitive documents and then improperly squirreled them away in his client files.”
• “Polsinelli said it did identify a handful of documents, like a Toolkit subscriber database, that could be considered proprietary information. But Polsinelli said it promptly notified Littler of those documents and vowed not to read or use their contents.”
• “Polsinelli said the fact that it’s been in communication with Littler about those files for more than a year puts the lie to Littler’s claims of impending harm.”

“7th Circuit affirms insurance co. must pay USA Gymnastics ‘reasonable and necessary’ fees incurred from Nassar-related claims” —

• “An insurance company that balked at representing USA Gymnastics against lawsuits stemming from Larry Nassar’s sexual abuse of hundreds of female athletes has failed in its challenge to an order that it pay significant fees to the Indianapolis-based athletic organization.”
• “‘It is undisputed that USAG paid nearly 70 percent of the attorneys’ fees for which it now seeks reimbursement,’ Brennan continued. ‘That is compelling evidence of a market test. This element of the (Thomson Inc. v. Ins. Co. of N. Am., 11 N.E.3d 982 (Ind. Ct. App. 2014)) presumption supports, rather than contradicts, the bankruptcy and district courts’ conclusions that the fees USAG claimed are presumed to be reasonable and necessary.'”
• “Discussing three special circumstances that Liberty argued rendered Thomson inapplicable, the 7th Circuit began with an alleged conflict of interest with USAG’s chief legal officer, C.J. Schneider, who was also an attorney with a law firm that served as outside counsel for USAG.”
• “‘Despite Liberty’s contentions, the governing case law does not hold or suggest that the presumption is inapplicable when there is an apparent conflict of interest,’ it wrote. ‘To the contrary, an insurer’s objections to a policyholder’s selection of defense counsel lose force when the insurer disclaims its duty to defend and turns out to be wrong on the law.'”
• “It also noted that the lower court was aware of Schneider’s dual role and concluded USAG’s practices were nevertheless sufficient to support the Thomson presumption’s application.”
• “It further pointed to the bankruptcy court’s conclusion that the entire amount USAG claimed for Gibson Dunn & Crutcher LLP’s work was reasonable and necessary. That factual finding, the appellate court concluded, posed a ‘high hurdle’ for Liberty in seeking to overturn it.”

“Ex-Boyfriend Of Biglaw Associate Arrested For Insider Trading… Wonder Where He Allegedly Got All That Nonpublic Info?” —

• “Seth Markin, a former FBI trainee, and his friend Brandon Wong were arrested on insider trading charges (there’s also a parallel civil complaint filed by the Securities and Exchange Commission)…”
• “According to the indictment, the pair made ~$1.4 million by improperly trading on nonpublic information, specifically that Pandion was set to be acquired by pharmaceutical company Merck.”
  How’d they come across this insider information? The indictment indicated Markin was dating a Biglaw associate staffed on the M&A deal, and he ‘abused his relationship of trust and confidence’ to gain access to the information.”
• “The law firm associate girlfriend was working from home as she worked on the Merck deal, trusting that Markin would ‘maintain her confidences and keep information she shared with him confidential,’ according to the indictment.”
• “The associate took confidential work calls from her apartment, sometimes on speakerphone, and kept work documents such as binders, notes, and legal pads ‘out in the open in her apartment,’ where Markin sometimes stayed for days at a time, the DOJ said.”
• “‘Because she trusted Seth Markin … she left him alone in her apartment and gave him a key fob to access her building,” the indictment states. ‘[She] trusted that Markin would not look through her confidential work materials, and if he overheard or saw anything confidential, he would keep it secret.'”

“Fla. Firm Fundraiser For Trial Judge Doesn’t Trigger DQ” —

• “A law firm that hosts a fundraiser for judge’s reelection campaign while one of its lawyers is in active litigation in the judge’s court is engaged in ‘ordinary’ election activity, a Florida appeals court ruled Wednesday.”
• “In a ruling backing a Miami judge’s decision not to recuse himself from a real estate dispute, a three-judge Third District panel drew a distinction between ‘limited’ lawyer involvement in judicial campaigns and more extensive activities — as when a lawyer acts as a judge’s campaign treasurer — that might require the judge to step aside.”
• “The December fundraiser for Judge Mark Blumstein, a circuit judge in Miami-Dade County, occurred long before he issued adverse rulings raised by defendants in an April disqualification motion, according to the appellate court. Also, there were no ‘individualized allegations’ regarding the plaintiffs’ counsel in the case, Joshua E. Rasco of Barakat & Bossa in Coral Gables.”
• “In a disqualification motion, they [the plaintiffs] argued that the court’s bias against them had been evident from the outset of the case, including during a deposition scheduling dispute and a remark the judge made intimating that their claim on the funds was improper.”
• “Only later did the couple’s lawyers learn that on the same day, Barakat & Bossa was helping host a fundraiser at a Coral Gables restaurant for Judge Blumstein’s re-election campaign. A flyer attached to the motion lists the firm first among 16 law firm hosts.”
• “The Barakat firm is ‘big on supporting good judges, helping them with their campaigns, and we do fundraisers for a lot of judges,’ he said. Requiring disqualification any time a lawyer from a firm supports a judge’s campaign ‘would defeat the purpose of supporting the judge,’ he [Rasco] said.”

“For Big Law in Florida, Balancing Client Interests and Politics Is Treacherous” —

• “As corporations and asset managers increasingly focus on diversity and ESG, Big Law and its corporate clients face growing challenges in Florida to stay off the governor’s enemy list.”
• “Being canceled by Gov. Ron DeSantis has real consequences, and the governor’s penchant for retribution is causing others to think twice before speaking out. Since DeSantis in April banned core tenants of DEI training at large Florida employers, Florida law firm managing partners with numerous DEI initiatives have declined to discuss the impact of the ban on their own firms’ diversity and inclusion programming.”
• “Requesting anonymity to discuss the chilling effect of the ban, one Miami firm leader said he and his colleagues feared retribution from state government overall—particularly after the Texas legislature’s threats to Sidley Austin.”
• “DeSantis has a history of exerting influence on law firms. Former Holland & Knight partner Sanford Bohrer was instructed to drop a 2020 lawsuit he was preparing to file for a longtime client, the Miami Herald, after the state’s general counsel received Bohrer’s demand letter.”
• “In a recent interview, Bohrer said he doesn’t know whether DeSantis would try to pressure law firms to drop clients larger than his or retaliate against perceived political slights in the way of the Texas legislature. But having felt the influence of Tallahassee from his office in Miami, Bohrer said that any firm that wants to lobby the Florida legislature or represent state agencies will have to make accommodations.”
• “Bohrer had represented the Miami Herald in records lawsuits against Florida state agencies dating back to the 1990s, but the planned April 2020 lawsuit (which demanded that the state produce records on COVID outbreaks at Florida elder care facilities) was the first time he felt the governor’s influence in his practice. After DeSantis’ general counsel placed a call to George Meros, the state’s outside counsel at Holland & Knight, Bohrer was told not to file the lawsuit. “
• “Holland & Knight declined to comment on its relationship with the governor or Bohrer’s statements. At the time, the firm issued a statement citing a possible conflict of interest as the reason for siding with DeSantis, while the governor’s office denied pressuring the firm.”
• “Without knowing how Meros’ ongoing representation of DeSantis (in a lawsuit involving felon voting rights) impacted the firm’s ability to represent the Miami Herald (in a lawsuit about elder care COVID cases), Alfieri said the firm’s simultaneous representation of the newspaper and the state may or may not have presented a concurrent client conflict.”
• “But a sophisticated government client would be reluctant to consent to a law firm’s representation of another client it deems hostile, Alfieri said, adding that such a government client would likely try to avoid disclosing the reason for withholding its consent and opt to leave the decision to its legal counsel.”
• “‘In this way, the law firm withdrawal may be perceived as an ethically dictated result consistent with the rule of law, rather than a politically motivated outcome driven by a partisan calculation,’ Alfieri said. ‘Doubtless, Florida citizens would prefer a less shrewd and a more open and accountable government decision-making process.'”
• “Bohrer, who has since retired from Holland & Knight, said he doesn’t envy the position of managing partners who have to prioritize client relationships based on economics and politics.”

“NJ Atty Booted From Pharma Co.’s Herbal Extract TM Row” —

• “A New Jersey magistrate judge has recommended disqualification of counsel for pharmaceutical company HP Ingredients in its trademark suit against rival Sabinsa over a similarly named herbal extract, finding that HP’s counsel had a prior relationship with Sabinsa that poses a conflict of interest.”
• “U.S. Magistrate Judge Rukhsanah Singh said in a Wednesday order that J. Mark Pohl of Pharmaceutical Patent Attorneys LLC can’t represent HP Ingredients Corp. in its infringement litigation against Sabinsa Corp. over the name for a competing anti-inflammation extract. Judge Singh found Pohl’s previous attorney-client relationship with Sabinsa exposed him to confidential information — including revenue and pricing data — that is relevant to HP’s ‘potential monetary recovery.'”
• “‘Because Pohl received confidential information relating to Sabinsa’s intellectual property, litigation, and pricing strategies, it is not unreasonable to believe that such information can be used against Sabinsa in this matter,’ Judge Singh said.”
• “HP Ingredients filed suit in September 2021 and contended that Sabinsa’s ‘Panicin’ extract — which reduces inflammation while also supporting immune and liver health — infringed HP Ingredients’ brand name trademark on rival extract ‘Paractin.'”
• “But Sabinsa said in a March motion that HP Ingredients’ counsel must be disqualified from the litigation, contending that Pohl was conspiring to infringe on trade secrets that’d he’d become privy to when previously representing Sabinsa for about six months in 2009 and 2010.”

“Non-Disclosure Agreement in a Transactional Negotiation Did Not Create a Fiduciary Relationship or Obligation that Could Be Imputed to an Adversary’s Counsel in Future Actions Related to Infringement or Validity of Patents” —

• “A non-disclosure agreement in a financing transaction did not create a conflict of interest stemming from a fiduciary relationship or obligation for a law firm with respect to a party to that non-disclosure agreement that it did not represent.”
• “Centripetal Networks sued Palo Alto Networks for patent infringement. During the litigation, Centripetal Networks moved to disqualify counsel for Palo Alto Networks, Ropes & Gray LLP, in view of its prior involvement in a potential financing transaction between Centripetal Networks and third-party Silver Point Finance. The negotiations between Centripetal Networks with Silver Point Finance dealt with specialized financing to provide Centripetal Networks with general purpose funds and funds to pay an insurance premium on a policy covering a judgment from a prior patent litigation.”
• “After Centripetal Networks sued Palo Alto Networks for patent infringement, the same Ropes & Gray attorneys that represented Silver Point Financial in the earlier transaction appeared on behalf of Palo Alto Networks. Centripetal Networks requested that Ropes & Gray withdraw, but Ropes & Gray refused.”
• “Centripetal Networks then filed a motion to disqualify counsel alleging that Ropes & Gray’s representation of Palo Alto Networks created a conflict of interest.”
• “In its motion to disqualify Ropes & Gray, Centripetal Networks alleged it was either ‘a former client’ based on an ‘implied attorney-client relationship’ theory under Rules 1.7 and 1.9 or ‘a third person’ to whom the Ropes & Gray attorneys would owe responsibilities under Rule 1.7. Under Virginia law, an attorney-client relationship may be implied from the actions of the parties.”
• “In this case, however, the wording of the NDA made it clear that no attorney-client relationship existed between Centripetal Networks and Ropes & Gray. The NDA specifically referenced Ropes & Gray as Silver Point Finance’s attorneys ‘and not the transaction’s attorneys, the joint venture’s attorneys, or any other term or syntax denoting collective representation.'”
• “Having found no violations of Rules 1.7 and 1.9, there were no conflicts of interest to impute onto Ropes & Gray and the court denied Centripetal Networks’s motion to disqualify.”
• “The wording of an NDA in a transactional financial negotiation is relevant to determining implied attorney-client relationships as well as obligations of outside counsel to parties to the agreement. The same is true for confidential information shared during negotiations.”

Excellent analysis by Mark Hinderks, head of Stinson LLP’s legal ethics & professional responsibility practice: “Dear Ethics Lawyer: Representing Multiple Clients in Claims Against One Defendant” —

• “This column, written by Mark Hinderks, of Stinson LLP, focuses on ethics questions… Question: As a law firm partner, my largest client is Railroad, but I also represent three trucking companies. A prominent shipper uses all of them but has fallen on hard times and owes varying substantial amounts to each. Railroad and the three trucking companies have each asked me to represent them in filing suit for unpaid amounts. I’d like to represent all of them, as it will be more efficient and potentially less expensive for them and prevent any of them from seeking other counsel. Are there any ethical issues here?”
• “As a threshold matter, you should consider and address the potential conflicts of interest. For example, facts concerning the size or validity of the respective claims (or defenses to them) of the various transportation companies either known now or discovered during the course of the case, could put you in a conflict situation.”
• “As a threshold matter, you should consider and address the potential conflicts of interest. For example, facts concerning the size or validity of the respective claims (or defenses to them) of the various transportation companies either known now or discovered during the course of the case, could put you in a conflict situation.”
• “A conflict could also arise in the event of a dispute among your clients about strategy, costs, or other matters. It is prudent to discuss these possibilities with each client and provide in the engagement letter for what happens in case of a conflict, e.g., any consent to withdraw from representing one or more clients and continue representing others, if otherwise permissible under the circumstances.”
• “On a related note, you should also discuss what can and cannot be disclosed to each client concerning the claims of others and provide in the engagement letter for any agreement about that subject. This is particularly relevant in a ‘zero-sum’ situation, when seeking relief for multiple clients from an adverse party whose resources may not be able to satisfy all claims.”
• “Remember the significance of Model Rule 1.6—your possession of confidential information of one client that is relevant to another in assessing the relative validity or amount of claims could give rise to a conflict if you have not secured an agreement about whether, how and when information may be shared.”
• “It is also imperative to work out an agreement concerning how any recovered funds will be divided (timing and amount) among the clients in order to avoid a conflict in a ‘zero-sum’ outcome. This should include how your fees and expenses are going to be shared.”
• “In addition, examine your relationships with all of these clients (particularly with your largest client Railroad) to determine whether there is or could be a ‘material limitation conflict,’… For example, are there circumstances, including your own personal interest in the continued origination of business from your largest client, Railroad, that create a significant risk that you would favor the interests of Railroad over other clients in making strategic decisions or allocating resources?”

“Trump Lawyers Rotate Among Inner Circle as Legal Woes Mount” —

• “As the legal risks facing Donald Trump and his inner circle continue to expand, the former president and key allies have been playing round robin with a small pool of defense lawyers.”
• “Trump’s legal matters are multiplying — the FBI searched his Mar-a-Lago estate Monday as part of an investigation into whether presidential records, including classified material, were mishandled — and he’s pulling from a cadre of lawyers in his orbit with proven conservative bona fides or a track record of representing people loyal to him.”
• “Corcoran is fresh off longtime Trump adviser Steve Bannon’s contempt of Congress conviction by a federal jury in Washington. Rowley is representing former Trump trade adviser Peter Navarro in his pending contempt case, and has counseled Trump allies Stephen Miller and Cleta Mitchell in trying to fend off their own Jan. 6 committee subpoenas. Rowley has also represented Republican Representative Scott Perry, who rebuffed a Jan. 6 committee subpoena and who released a statement on Tuesday saying the FBI had seized his cell phone.”
• “Lawyers can represent multiple clients in related cases or even those facing shared criminal charges, but they have to follow ethics rules enforced by state bars. They have an obligation to make sure clients understand any conflicts of interest.”
• “A client can waive those conflicts, but prosecutors can later raise a flag and judges can step in if they think that diverging interests are too deep to ensure that each person gets appropriate legal representation — if one person wants to plead guilty and cooperate with the government against the other, for instance, said Kathleen Clark, a legal ethics expert who practices in Washington and is a professor at Washington University in St. Louis School of Law.”
• “If Navarro had a change of heart and decided to cut a deal with prosecutors and cooperate against Trump, that could pose a conflict problem for Rowley, Clark said. She said there could be other conflicts if lawyers handling Jan. 6-related matters had some other connection to Trump — if they were being paid by someone on his behalf or from funds he controlled, for instance.”

“The Price of Being Big: Law Firm Hiring Hits Conflicts Snag” —

• “Major law firms’ checks of potential hires for conflicts of interest are becoming so extensive that they often slow the recruiting process and sometimes sink employment deals altogether.”
• “Running the checks is often ‘the single most difficult job’ law firms have, said Jeffrey Lowe, a legal recruiter for Major, Lindsey & Africa in Washington. ‘You have to get it exactly right, not mostly right,’ he said.”
• “Firms often review a wide range of information in checking for conflicts, including client representations, stock holdings and criminal records. They look largely for factors that could pose a conflict with the firm’s client base.”
• “The growing challenges are part of a new reality for some of the largest firms in the world. Firms are increasingly sprawling, global operations with a vast web of clients, which require expanded conflicts checks for new recruits.”
• “Checks that were once made at the end of a hiring process now often happen much earlier, said Sharon Mahn, New York-based legal recruiter and managing director with ZRG Partners. ‘Kind of like Tinder versus eharmony—let’s cut to the chase,’ she said.”
• “Firms rely on lateral partner questionnaires, known in the legal recruiting business as LPQs, to vet candidates for potential conflicts, Mahn said. The ever-bulkier questionnaires, she said, can slow the hiring process for firms looking to snatch up certain lawyers with big books of business before competitors do it first.”
• “A typical LPQ, she said, usually includes questions about the lawyer’s clients and whether they have been open to repeat business; how much the clients have been billed versus how much they’ve actually paid the firm; and whether the lateral candidate is the lead attorney for a particular client.”
• “Law firm conflict check departments, once back-office functions, have come to be a dominant force in the hiring process, recruiters say. Ten to 20 people now typically staff the departments, with some topping out at 30 or more at the largest international firms.”
• “Mary Beth Robinson, a senior vice president with the Attorneys’ Liability Assurance Society, which provides legal practice insurance to firms, said that even if conflicts checks take a long time and slow the hiring process, they are worth it. ‘We advise firms to take their time and do this work correctly,’ Robinson said. ‘It’s top of mind for us.'”

“To Stem Lateral Movement, Firms Are Adding Clawback Clauses in Partnership Agreements” —

• “Law firms are increasingly utilizing the proverbial ‘golden handcuffs’ in their partnership agreements, allowing them to go after the hefty bonuses and other incentives previously paid to a lawyer looking to leave.”
• “Since January, three Am Law 30 firms have incorporated clawback provisions into their partnership agreements that make it more difficult for a partner to leave, according to legal recruiter Larry Watanabe.”
• “Such arrangements could allow firms to go after bonus payments in 2022, he says. For instance, a partner with a $1 million compensation plan could be entitled to a bonus of up to $5 million expressed in January, but paid in April or the summer.”
• “Other firms are strengthening clawback provisions, which have proven difficult to enforce in the past, with other financial tools such as forgivable loans that allow for more incremental payments to partners and mitigate some of the risks of going after money that has already left a firm’s bank account.”
• “The strategy of using clawbacks reflects a bigger problem, as firm leaders desperately look to stave off lateral departures and hold onto business generators.”
• “‘Because of lateral movement in the past two decades, law firms are worried about golden handcuffs. It was much less of a problem 20 years ago, by a material margin, because firms simply didn’t have to worry about partners getting up and taking their practice elsewhere,’ says Kristin Stark, a legal consultant at Fairfax Associates.”
• “Firms are performing more due diligence on lateral candidates, according to legal recruiters. Some are using lateral partner questionnaires (LPQs) more often, and requesting candidates fill them out sooner, to collect financial data and client information, as well as details on conflicts and professional and personal references.”
• “But that process is not without its own faults. For instance, a Decipher analysis of LPQs since March 2020 revealed a 75% increase in candidates claiming books of business. On average, candidates claimed a $2.1 million book of business in the period from March 2020 to October 2021, compared with an average of $1.2 million prior to the pandemic.That likely means candidates are inflating their books of business, according to Ellenhorn, who notes that since the start of the pandemic, Decipher has also seen a 40% rise in red flags related to financial irregularities.”
• “Legal recruiters are fielding more questions from law firms interested in using clawbacks but unsure of how to apply them or whether or not the clauses are legal in the states where they operate.”
• “As more firms consider clawbacks and run into potential hiccups along the way, some are strengthening such clauses with forgivable loans that are considered ‘friendlier the longer a candidate stays,’ according to Macrae.”
• “‘The forgivable loan is better because it represents the other side of the coin. Now, the departing partner has to sue the firm to recover funds,’ the employment lawyer explains, noting that their firm generally advises clients to incorporate both clawbacks and forgivable loans into their arrangements to serve as a ‘deterrent.'”
• “‘It is bad enough that someone is leaving,’ one Am Law 100 partner says. ‘When a firm makes a big deal out of a departure, it becomes obvious that the departure really hurts you. It tends to reflect negatively on the firm, and people will question what the firm was doing to prompt those partners to leave in the first place.'”
• “The firm leader offers this advice instead: ‘In this tight market, I think it is better to lead with love, lead with compassion, and lead with why things will work.'”

“New SEC Guidance Tackles How to Handle Conflicts of Interest” —

• “New guidance from the Securities and Exchange Commission warns firms that identifying and addressing conflicts under Regulation Best Interest and the Advisers Act fiduciary standard ‘should not be merely a ‘check-the-box’ exercise, but a robust, ongoing process that is tailored to each conflict [said Micah Hauptman, director of investor protection for the Consumer Federation of America].'”
• “In its new guidance, released Wednesday morning in Q&A form, SEC staff notes that it’s ‘important that firms and their financial professionals review their business models and relationships with investors to address conflicts of interest specific to them.'”
• “Industry sources I contacted see the bulletin as helping brokers and advisors figure out ‘how’ to identify and address conflicts.”
• “‘This is one of the first substantive pieces of guidance on Reg BI for the brokerage industry and the fiduciary standard for investment advisers’ under SEC Chairman Gary Gensler, Jim Lundy, a partner and member of the Securities Enforcement & Litigation Practice at Foley & Lardner LLP, said in an email. “As such, brokerage and investment advisory firms should give this a close study and apply it to their business model and compliance and supervision programs as they best see fit to do so.'”
• “The FAQ, Lundy added, ‘may be viewed as helpful in that it provides much greater detail and guidance for the ‘how’ aspect of getting into and maintaining compliance with these standards.'”
• “Further, he [Hautpman] continued, ‘it makes clear that there are some conflicts that are of a nature and extent that firms would be unable to address in a way that would allow the firm or its financial professionals to provide advice or recommendations that are in the retail investor’s best interest. In those cases, firms would need to take much more aggressive action in addressing those conflicts, including eliminating them or refraining from providing advice or recommendations that could be influenced by the conflicts to avoid violating the obligation to act in the retail investor’s best interest.'”
• “The guidance points out that there are no conflict-free business models. While all firms have some conflicts, the nature and extent can vary greatly from firm to firm based on business model or product mix.”
  “Addressing conflicts is also not a set-it-and-forget-it task. The steps to address conflicts need to be tailored to a firm’s particular business model. The guidance also provides steps firms can take to “identify” conflicts.”

“Senate passes bill to crack down on conflicts of interest in federal contracting” –

• “The Senate Tuesday passed a bipartisan bill aimed at rooting out any instances of conflict of interest in federal contracting by removing any conflicts between taxpayer-funded projects and federal government contractors’ other business opportunities.”
• “The Senate passed the Preventing Organizational Conflicts of Interest in Federal Acquisition Act, led by Senator Gary Peters, D-MI., the Chairman of the Senate Homeland Security and Governmental Affairs Committee, that would require federal agencies to identify potential conflicts for specific contracts early in the process. The bill is expected to pass the House as well.”
• “‘Federal contractors are entrusted to provide critical goods and services to the federal government as it serves the American people. If we don’t know whether they are serving other, potentially conflicting interests, we can’t be confident that Americans are getting exactly what they pay for,’ said Senator Chuck Grassley, R-IA., a lead co-sponsor of the legislation. ‘We’ve put together a good government bill that takes steps to eliminate these potential conflicts of interest to rebuild public trust in our contracting process.'”
• “The new legislation aims to increase transparency in the federal contracting process by requiring Federal contractors to disclose other business relationships with entities that conflict with the specific work that an agency has hired them to do.”

“Marco Rubio, Chris Smith, Brian Mast Want Information From McKinsey Regarding Work With China” —

• “This week, U.S. Sen. Marco Rubio, R-Fla., and U.S. Rep. Chris Smith, R-NJ, sent a letter to McKinsey Global Managing Partner Bob Sternfels highlighting McKinsey’s apparent role in supporting various Chinese state-owned enterprises and asking for any and all information on these relationships.”
• “‘In April, the U.S. Food and Drug Administration (FDA) announced that it would not issue new contracts with McKinsey & Company pending ongoing investigations into whether McKinsey failed to divulge potential conflicts of interest over its work with both the FDA and opioid manufacturers,’ Rubio’s office noted. ‘McKinsey’s conflicting interests appear to go beyond its work with opioid manufacturers. The company retains deep ties with the Chinese Communist Party (CCP) even as it continues contracting with federal agencies.'”
• From the letter:
  • “To be clear, the behavior documented by the House Oversight Committee’s investigation is alarming. On at least four occasions, McKinsey appears to have passed along non-public information based on its relationship with the FDA or discussed its willingness to do so… ach example raises serious questions about the ‘internal firewalls’ McKinsey routinely claims to have in place when asked by lawmakers, federal contractors, or the press.”
  • “What is more, these examples revolve around a single client, raising the specter that such casual disclosure of firewalled information could be happening routinely across the company. That is particularly alarming given the sensitive nature of McKinsey’s federal contracts and questionable foreign contracts, including with the CCP, People’s Republic of China (PRC), and entities affiliated with them. Despite multiple assertions by McKinsey’s leadership to the contrary, legal filings make clear that the company did work on behalf of the Chinese government, and therefore, the CCP.”

“HSBC Says Conflict of Interest Probably Prevents Appointing Ping an to Board” –

• “HSBC is unlikely to appoint an executive of its biggest shareholder Ping An Insurance Group of China to its board due to a conflict of interest, HSBC Chief Executive Noel Quinn told reporters on Monday.”
• “‘There is the potential for conflict of interest given there is an overlap in their business model with ours in terms of insurance and banking,’ Quinn said.”
• “Quinn’s remarks follow media reports of Hong Kong lawmakers calling on HSBC to make such a move, and a wider debate between the British bank and its largest shareholder Ping An over strategy.”

“Private Equity’s Top Lawyers Enjoy Prized Access to Buyout Funds” –

• “Kirkland & Ellis became the world’s highest-grossing law firm in part by advising private-equity clients through an industry super-cycle. Its belief in the asset class didn’t stop there.”
• “Partners have invested in a range of internal pooled investment funds that buy into private equity funds, according to regulatory filings and people familiar with the matter. In some instances, the vehicles have bought into specific deals where they are advising the buyside.”
• “In the past 12 years, [Kirkland’s fund] Randolph Street has sought to raise more than $1 billion from Kirkland partners to invest in client funds and deals, a Bloomberg analysis of regulatory filings shows. The internal funds are among the largest in the legal profession, people familiar with the matter said. “
• “Kirkland’s investment entities have no management or other control rights over the funds they invest in, according to the firm’s conflicts of interest disclosures in court filings. Lawyers are allowed to participate in investment programs and longstanding legal ethics rules are in place to deal with potential conflicts of interest.”
• “Other US law firms have similar vehicles, people familiar with the matter say. Cooley’s affiliated investment fund — GC&H Investments LLC — has taken stock in startup clients, a regular practice among firms and lawyers that advise technology companies.”
• “Some of the deals Kirkland has invested in alongside clients include taking stakes in Blackstone Inc.-backed benefits administrator Alight Solutions, Bain Capital-backed Aveanna Healthcare and GB Group, a software company previously backed by Audax Private Equity.”
• “But — as with other advisers that invest money alongside clients — Kirkland’s internal funds have drawn some scrutiny for potential conflicts of interest.”
• “‘Ethics regulators have given guidance for decades,’ on how such arrangements can be done ethically, said Abe Cable, a professor at the University of California’s Hastings law school. Still, investments in the private equity funds of clients could be difficult to monitor. ‘If the lawyer, or a different lawyer at the firm, then represents a portfolio company or an acquisition target, the potential conflict might be hard for the company to see or understand.'”

I’m pleased to take a moment to update (and encourage) readers on data and developments to date on the BRB Risk Staffing Compensation Survey.

We’ve seen strong interest and healthy participation from many. The present summary report shows over 35 of you have taken the survey, providing detail on over 135 staff positions (and counting)!

O Canada
I had a specific note from a firm or two in Canada, noting my US bias. Apologies for that. Aiming to address that, we’ve updated the survey to include that geography. If we gather enough meaningful data from that region, we’ll either include it in the report or connect directly with those colleagues.

There’s still time to participate
When it comes to surveys, the more data the better. So I’d like to encourage those of you who are or manage risk staff to take the survey. (Remember, the one way assure you’ll receive a copy of the eventual summary report is to participate by contributing your/your team data…)

I’ll note that some of you have reached out with questions about privacy. Understanding the sensitivities involved, information is being treated with the strictest confidence. And, to be clear, the report will not be identifying firms or individuals.

But if you’re itching to participate but have concerns about privacy, please feel free to drop me a direct note. I’ve worked with a few firms on creative approaches here.

Help spread the word!
Finally, I’d like to encourage everyone to share this opportunity with colleagues. The more input we gather, the richer the results will be. So please drop a line to friends, feel free to share on social, etc. (Though if you have a risk friend you haven’t already encouraged to sign up for the blog already, are they really a friend?)

Click here to take the survey!

“Professional regulation of lawyers and law firms in Germany: Comprehensive reform comes into force” –

• “Almost two years after the publication of the draft legislation, the reform of the professional regulation of lawyers and law firms in Germany comes into force today. The reform brings significant changes regarding greater freedom of organisation under company law for law firms and regarding the regulation of law firms.”
• “Foreign law firms also benefit from the reform of the Federal Lawyers’ Act, as it expands their freedom to act within the scope of their activities in Germany, subject to compliance with certain requirements. However, the increased requirements for admission in Germany and compliance with professional duties must be considered.”
• “Foreign law firms that have their registered office in the UK, the USA or any other member state of the World Trade Organization may also provide legal services in Germany under certain conditions (Section 207a Federal Lawyers’ Act).”
• “The reform of the Federal Lawyers’ Act also introduces some innovations in the structure of professional service firms. For example, professional service firms as legal entities can now themselves be partners in other professional service firms, provided that both entities meet the requirements of professional law.”
• “The previous requirement that a majority of the partners should be lawyers is now dropped due to the other guarantee of compliance with professional duties, in particular through Section 59d Federal Lawyer’s Act. However, the reform still does not permit a pure capital participation in a professional service firm. In this respect, it remains to be seen whether the legislator will act again in the current legislative period and relax the prohibition on third-party ownership that has continued to apply up to now.”
• “Whereas current professional law and regulation solely apply to individual professionals, the Federal Lawyer’s Act now introduces a dualistic approach which is more in line with practice outside of Germany: in the future, the entity through which the individual professionals exercise their profession will also be subject to regulatory requirements and have professional duties of its own.”
• “The other side of the coin is that, under the Act, a law firm will be obliged to ensure the adherence of its professionals to their individual professional duties. Law firms will have to ensure through their management boards and, where appropriate, through their supervisory boards that violations of professional obligations are detected at an early stage. The firm must provide appropriate mechanisms for this purpose.”
• “In cases of violations of the law firm’s regulatory obligations, particularly its culpable omission to put in place appropriate organisational, personnel and technical measures, the law firm itself can be sanctioned (Section 113 Federal Lawyers’ Act). According to Section 114 para 2 Federal Lawyers’ Act, sanctions can range from warnings to fines of up to EUR 500,000 or in a worst-case scenario to disqualifying the law firm from providing legal services.”
• “One of the core pieces of the reform is the new regulation of the provisions on lawyers’ conflicts of interest… What remains unchanged is that the scope of application extends to all lawyers and legal staff of the entire law firm. The prohibition on the entire law firm acting can now be lifted, but the individual lawyer cannot be exempted from it. Where it is lifted (such that another lawyer from the same firm can act), the new provisions stipulate the appropriate precautions which must be taken to maintain confidentiality.”

“Update: Congress Seeks To Impose Some AML Obligations On CPAs, Law Firms, And Others” –

• “On July 7, 2022, Arnold & Porter published an Advisory on the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act (ENABLERS Act) that was attached to the National Defense Authorization Act (NDAA) on June 23, 2022. Since the previous Advisory, the House has made substantial amendments to the ENABLERS Act, particularly with respect to the categories of professions that would be subject to the due diligence and reporting obligations under the Bank Secrecy Act. This Advisory highlights the recent amendments.”
• “The amendment removes attorneys, law firms, or notaries involved in financial or related activity on behalf of another person, as well as certified public accountants, and public accounting firms from the list of covered professions;”
• “The key takeaway from the amendment is that the Act’s focus has shifted to the relevant services rather than professions as a whole. For example, rather than impose BSA requirements on any attorney or law firm involved in financial activity on behalf of another person (as proposed in the June 23, 2022, version of the ENABLERS Act), the amended Act would impose BSA requirements only on those attorneys or law firms providing legal entity arrangement, association, or formation services; trust services; or third-party payment services; that is, the types of services that potentially create the transparency concerns that the ENABLERS Act seeks to address. This shift avoids some of the concerning implications we raised in our previous Advisory.”
• “Second, the rule of construction provision provides that privilege, ethics, confidentiality, privacy, or related matters should not limit or impede the covered parties’ obligation to comply with the Act. FinCEN would need to address how lawyers and certified public accountants could address AML program reporting obligations without jeopardizing their respective ethical duties of confidentiality and other professional conduct responsibilities to their clients. And with the extraterritoriality provision, the dilemma also would arise for foreign professional, who are subject to their own professional responsibility requirements. The implication of this provision is that compliance with federal obligations should win out over other territorial, state, and local laws when a conflict arises between a lawyer or accountant’s obligations.”

“Number of law firms fined by SRA increases following anti-money laundering compliance crackdown” —

• “The number of fines against law firms, handed out by the UK’s solicitors’ watchdog, has increased six-fold over the past five years following an anti-money laundering compliance crackdown, according to data obtained by City A.M.”
• “The Solicitors Regulation Authority (SRA), which regulates more than 11,000 law firms in England and Wales, gave out just six fines in the financial year 2017/18 compared to 37 in 2021/22.”
• “The uptick in fines came after the SRA launched a clampdown on firms that had fallen behind on their anti-money laundering obligations, after new rules were introduced in 2017.”
• “The clampdown – which saw the SRA ask every law firm that it regulates to declare that they had a firm-wide risk assessment in place to help prevent and detect money laundering by January 2020 – led to 23 law firms being fined for anti-money laundering failures last year.”
• “The two enforcement sweeps saw the SRA review firms’ compliance with anti-money laundering standards, and check whether firms were breaching transparency rules, which require law firms to publish basic information about complaints, and the prices of certain services, for example.”
• “However, Andrew Pavlovic, a partner at law firm CM Murray, argued the SRA’s ‘focus on organisations is likely to continue’ as the watchdog finds itself tasked with ensuring law firms’ compliance with sanctions that were introduced following Russia’s invasion of Ukraine.”
• “The total value of fines issued against law firms more than tripled in five years, from £87,000 in 2017/18 to £299,925 last year. But the total value fines against firms last year is heavily skewed after law firm Mishcon de Reya was hit with a £232,500 fine for anti-money laundering failures, which were not picked up as part of the sector sweep.”