Risk Update

Law Firm Risk Reading — FTX Fighting Continues, Canadian Counsel Conflict, Scotland Law Society on AML, PwC Conflicts Report Published

Former lawyer cannot represent his wife in personal injury case, says NS Supreme Court” —

  • “The Nova Scotia Supreme Court has refused to allow a former barrister to represent his wife in a personal injury lawsuit.”
  • “The defendant in the action, Fenwick Holdings Limited, motioned to remove William as Margaret’s representative. Fenwick argued that William was in a conflict of interest and could not represent Margaret. Fenwick also asserted that as William is the plaintiff’s husband, he has a financial interest in the outcome of the litigation. He was also a fact witness to the plaintiff’s fall, and consequently, he will have made observations relevant to the plaintiff’s damages claim. Fenwick argued that a lawyer cannot be a witness and counsel in the same proceeding.”
  • “The plaintiff, Margaret, argued that William was representing her in a personal or private capacity. She contended that discharging him would deprive her of her choice of counsel and would impose time and monetary penalties on her. She argued that it would be difficult and counterproductive to represent her claim without William’s legal training and that hiring outside counsel would be expensive.”
  • “The Nova Scotia Supreme Court ultimately ruled that William failed to meet the statutory requirements to be eligible to practise law in the province. The court noted that he resigned from the Society in 2010 and has not been a member since. The court pointed out that even if he was not acting for a fee, he stood to receive indirect compensation, considering that the plaintiff is his wife and any monetary award she might receive would be of joint benefit.”
  • “The court further explained that the relationship between William and the plaintiff may give rise to a conflict of interest based on s. 34 of the Code of Conduct, which requires lawyers to avoid conflicts of interest. The Society noted that a conflict may arise when ‘A lawyer has a sexual or close personal relationship with a client. Such a relationship may conflict with the lawyer’s duty to provide objective, disinterested professional advice to the client.'”
  • “In addition to the potential conflict based on his relationship with the plaintiff, the court found that Jodan was potentially in a conflict based on his connection to the substantive issues at trial. The court explained that Jordan had recorded observations about the impact of the plaintiff’s injuries on many aspects of her health. He had sworn to those observations in an affidavit and recorded extensive detailed observations in a ‘pain diary.’ The court emphasized the common law prohibition against allowing a lawyer to appear as a witness while acting as counsel.”

The Lawyers Sam Bankman-Fried Once Trusted Are Drawing Criticism” —

  • “Mr. Bankman-Fried and his allies have blasted Sullivan & Cromwell, the New York law firm managing FTX’s bankruptcy, for its tangled relationship with the crypto exchange.”
  • “Just before FTX collapsed in November, one of its outside lawyers at the law firm Sullivan & Cromwell emailed a colleague at another firm, insisting that the cryptocurrency exchange’s finances were stable.”
  • “Four days later, FTX filed for bankruptcy. Mr. Dietderich quickly arranged for Sam Bankman-Fried, the exchange’s founder, to step down so that a new chief executive, John Jay Ray III, a specialist in corporate turnarounds, could lead the company. When Mr. Ray needed lawyers to manage the bankruptcy, a lucrative assignment, he asked a judge to appoint the same ones who had helped get him the job: Sullivan & Cromwell.”
  • “Now, with Mr. Bankman-Fried set to go on trial next month on fraud charges stemming from FTX’s failure, Sullivan & Cromwell’s tangled history with the exchange is drawing scrutiny — especially from Mr. Bankman-Fried’s lawyers and family.”
  • “For months, Mr. Bankman-Fried has attacked Sullivan & Cromwell in court papers and on social media, arguing that the firm’s lawyers set him up as the fall guy for FTX’s implosion while downplaying their own involvement with the exchange. The dispute became even more personal this week when FTX sued Mr. Bankman-Fried’s parents, seeking to claw back millions of dollars and claiming the exchange had operated like a ‘family business.'”
  • “A spokesman for FTX said Mr. Bankman-Fried’s claims were ‘a biased story line’ intended to unfairly blame the professionals trying to recover money. A representative for Sullivan & Cromwell declined to comment. In court, the law firm has said that FTX was never a ‘regular client,’ and that the firm had put in place procedures to guard against conflicts of interest during the bankruptcy.”
  • “In January, the U.S. trustee assigned to FTX’s bankruptcy raised the prospect of removing Sullivan & Cromwell from the case, citing its failure to disclose all of its past work for FTX. Around the same time, four U.S. senators released a letter arguing that Sullivan & Cromwell had a conflict of interest because the firm might bear some responsibility for FTX’s failure. But the trustee backed down after the firm made a more detailed disclosure, and a judge allowed the lawyers to continue overseeing the bankruptcy, saying he saw ‘no evidence of any actual conflict.'”
  • “Mr. Bankman-Fried has remained fixated on Sullivan & Cromwell. His lawyers have argued that the firm is providing evidence to the prosecutors that reflects poorly on Mr. Bankman-Fried, while withholding material that could help the defense. Prosecutors have denied that claim, writing in court papers that FTX and its lawyers ‘have been responding to the government’s document requests voluntarily.'”
  • “Rebecca Roiphe, a former prosecutor and a professor at New York Law School, said it was fair to raise questions about potential conflicts of interest when a law firm represented a company both before and during a government investigation that might involve related work. ‘But this is not uncommon and doesn’t necessarily prove wrongdoing,’ she said.”

Law Society of Scotland rejects proposals for a single UK-wide anti-money laundering supervisor” —

  • “The Law Society of Scotland has rejected proposals for a single UK-wide anti-money laundering (AML) supervisor, saying a one-size fits all approach would be a ‘regressive step’ in efforts to combat economic crime.”
  • “The Law Society has said a number of proposals in the HM Treasury consultation on the future of the anti-money laundering and counter-terrorism financing supervisory regime, risk damaging progress already achieved and could also fail to meet its stated aims of increased system effectiveness, system co-ordination and feasibility.”
  • “The Society has expressed support for further powers to be given to the Office of Professional Body AML Supervision (OPBAS), if those powers would lead to increased effectiveness, and does not oppose reform consolidating anti-money laundering supervision on a devolved basis.”
  • “Graham Mackenzie, Head of AML at the Law Society of Scotland, said: ‘We fully support change that will enhance the current AML regime and support the UK’s economic crime plan. It is, however, crucial that any reform introduced does not interfere with the independence of the legal profession, and also recognises the distinct legal and regulatory frameworks which exist across the devolved nations.'”

How PwC failed to identify or deal with tax leaks scandal” —

  • “Legal inquiries ordered by PwC Australia into its tax leaks scandal found a ‘combination of multiple failings’ by individuals and the firm’s governance, culture and accountability systems.”
  • “A summary of reviews by law firms King & Wood Mallesons, Allens and Linklaters concluded that the scandal – which has rocked PwC’s local operation and heightened scrutiny of the multibillion-dollar consulting sector – was due to a litany of shortcomings and missed opportunities to address problems earlier.”
  • “The tax leaks issues date back to 2013, when former international tax partner Peter Collins triggered the scandal. Mr Collins shared confidential tax information with PwC personnel who used it to help clients sidestep Multinational Anti Avoidance Laws he was helping Treasury develop.”
  • “‘There is no single answer to the question of why the breaches of confidentiality and conflicts occurred and were not discovered and addressed earlier. Rather, it appears to be the result of a combination of multiple failings as well as missed opportunities to address the issues at an earlier point in time,’ it says.”
  • “There was a ‘failure of individuals to identify and mitigate potential conflicts of interest’ inherent in the firm providing advice on how to create tax laws while also providing advice to clients on how to respond to the same laws.”
  • “‘Fundamentally, the confidentiality breaches occurred due to PwC Australia’s failure to recognise and take steps to mitigate the inherent conflict of interest that existed from PwC Australia advising Treasury on the implementation of tax legislation while, at the same time, assisting clients to structure their business operations to comply with the new laws,’ it states.”
  • “Macquarie Business School Emeritus Professor James Guthrie said the report released did not take into account information that was not publicly available. ‘It has taken a decade for PwC Australia to admit its internal failings concerning governance structure and risk management in public,’ he said.”

For more, see: “How confidential tax information was shared at PwC.