Risk Update

Risk Updates — Merger-driven Conflicts Move, Auditor Engagement Letter Practice Earns SEC Lawsuit

Posted Dan Bressler

“Citing Conflicts as Merger Looms, Former SDNY Judge Leaves Stroock for Boies Schiller” —

  • “While Stroock & Stroock & Lavan plots a potential merger with Pillsbury Winthrop Shaw Pittman, a former New York federal judge of 22 years isn’t hanging around to find out how the tie-up might affect her practice.”
  • “Boies Schiller Flexner on Friday morning announced the hiring of former U.S. District Court Judge Shira Scheindlin, who arrives at the firm’s New York office as of counsel after seven years at Stroock.”
  • “Since moving to private practice, Scheindlin has practiced as a neutral in mediations and arbitrations as well as a court-appointed special master, mock trial and appellate judge, and expert witness.”
  • “In an interview, Scheindlin said she had been ‘very happy’ at Stroock, but was already having to decline nearly a third of incoming inquiries due to conflicts with the Big Law firm’s numerous institutional clients. “I know their intention is to merge with a bigger firm, so that would just increase the number of institutional clients and the number of conflicts, which would not be good for me,” she said.”
  • “In contrast, Boies Schiller’s exclusive focus on litigation presented fewer conflicts and an opportunity to contribute to investigations, mock trial work and criminal defense work, Scheindlin said. ‘It was an opportunity that couldn’t be missed,’ said Scheindlin. ‘That means this is the right firm for me at the right time.'”
  • ‘The pandemic has only accelerated the growth of alternative dispute resolution, Scheindlin said. ‘Parties often put arbitration clauses in their agreements, in those clauses they have to mediate before they arbitrate,’ she said. ‘I know it’s an expanding field at all times, especially in the commercial context, and I do mostly commercial arbitrations and mediations.'”

“US SEC sues auditor Prager Metis over alleged independence violations” —

  • “The U.S. Securities and Exchange Commission on Friday sued accounting firm Prager Metis for alleged auditor independence violations related to a template it used when signing on clients.”
  • “Between December 2017 and October 2020, Prager Metis improperly added indemnification provisions to engagement letters to clients for more than 200 audits and other work, the SEC said. This prevented the firm from having the independence required by law, it said.”
  • “‘These allegations arise solely from template indemnification language used several years ago that was never enforced or sought to be enforced, and the SEC does not allege this language affected the quality of our audits,’ the [Prager] statement said. ‘Prager takes its independence obligations seriously.'”
  • “Prager Metis continued to sign engagement letters with those provisions even after firm staff were aware of the issue, the SEC said.”
  • “Prager Metis was one of the auditors for the FTX Group, according to a court filing. The SEC’s allegations do not relate to the FTX matter”