Author: Sung Hui Kim

Former Lawyer of Martin Shkreli Convicted of Fraud

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In case you missed the news over the winter holidays, in late December 2017, Evan Greebel, who was outside counsel to Martin Shkreli’s former pharmaceutical company, Retrophin, was found guilty by a jury in Brooklyn of charges that he conspired to commit wire fraud and securities fraud.  In August 2017, a different jury found Shkreli guilty of defrauding hedge fund investors but cleared Shkreli of conspiring with Greebel to steal from Retrophin.  This conviction offers a stark reminder that lawyers cannot use their legal expertise to facilitate the commission of a crime or fraud.

 

The news story can be found here.

Dewey & Leboeuf Retrial Ends in a Split Verdict

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For those of you following the Dewey & LeBoeuf criminal trial, you know that the jury deadlocked in October 2015 after nearly six months of deliberations on dozens of charges against Steven H. Davis, the former chairman of Dewey, and two other former executives of the law firm, Stephen DiCarmine and Joel Sanders. The three men were accused of being the architects of an accounting fraud that enabled Dewey to defraud its lenders and creditors during much of the financial crisis.

In January and February 2016, Manhattan Prosecutors reached deferred prosecution agreements with Steven H. Davis and Zachary Warren, one of the original defendants.

The Manhattan prosecutors retried the case against DiCarmine and Sanders, the remaining defendants, in the New York State Supreme Court in Manhattan.  In May 2017, the jury delivered a split verdict.  Joel Sanders, the law firm’s former chief financial officer, was convicted on three criminal counts.  He could be sentenced up to four years in prison. Stephen DiCarmine, the former executive director, was acquitted of the same charges.

Update on the case can be found here.

Manhattan Prosecutors Plan to Retry Remaining Dewey and Leboeuf Defendants

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For those of you following the Dewey & LeBoeuf criminal trial, you know that the jury deadlocked last October after nearly six months of deliberations on dozens of charges against Steven H. Davis, the former chairman of Dewey, and two other former executives of the law firm, Stephen DiCarmine and Joel Sanders. The three men were accused of being the architects of an accounting fraud that enabled their law firm, Dewey & Leboeuf, to defraud its lenders and creditors during much of the financial crisis.

In January and February of this year, Manhattan prosecutors reached deferred prosecution agreements with Steven H. Davis and Zachary Warren, one of the original defendants.

The Manhattan prosecutors are now planning to retry the case against DiCarmine and Sanders, the remaining defendants. The trial is expected to begin early next year in the New York State Supreme Court in Manhattan – just in time for your spring semester 2017 P.R. classes. Apparently, DiCarmine has communicated that he wants to replace his longtime lawyer, Austin Campriello.

Update on the case can be found here.

 

Inside (Inhouse) Lawyers: Friends or Gatekeepers?

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Those of you teaching Chapter 6—The Lawyer’s Duties to the Legal System, the Profession, and Nonclients—might be interested in an article of mine just published by the Fordham Law Review for its Lawyering in the Regulatory State Symposium.  In the paper, using the GM ignition switch scandal as a point of departure, I critique the common assertion that our legal system is best served if the corporate in-house lawyer conducts his/her relationships with senior corporate managers according to the “lawyer as friend” model. I argue that there are numerous problems with the model, not the least of which is the invariably (and perhaps intentionally) vague way in which the model is invoked.  Those who invoke the “lawyer as friend” model repeatedly assert that the senior corporate manager needs to be able to repose “trust and confidence” in the inhouse lawyer. Unfortunately, they never explain: trust and confidence in what?

As a matter of professional responsibility and fiduciary obligation, the lawyer cannot reassure the manager that his communication will remain confidential or that the manager will be shielded from adverse consequences. If the corporate senior manager is engaged in material wrongdoing that may harm the corporate entity, that manager will usually not be entitled to those assurances.  As William Simon has explained, the authority to invoke or waive the organization’s confidentiality rights usually belongs to the organizational agents different from those who made the confidential communications. Because the lawyer may be required to testify against the manager in a court of law, it would be entirely inappropriate for the lawyer to reassure her colleague of her continuing loyalty or confidentiality.  The lawyer’s duty of confidentiality will not block disclosure within the organization, and it will not prevent the organization from divulging information outside of the corporation, no matter how harmful internal or external disclosure is to the manager. Indeed, the only thing that the lawyer can properly promise the manager is that she will listen carefully and not rush to judgment, which is the behavior that anyone would reasonably expect of a competent professional (irrespective of any preexisting friendship). To suggest that lawyers should invite the manager’s trust and confidence and then—if the lawyer encounters evidence of material misconduct—turn around and report that manager to higher-ups basically advocates a bait and switch model. This “bait and switch” does not sound like friendship, which is precisely why the “lawyer as friend” analogy should be abandoned.

To be sure, in the best possible world, the senior corporate manager backs down from his illicit plan. This good result may be reached through some form of moral dialogue that legal scholars are right to recommend. What many folks ignore, however, is the sobering reality that persuasion does not always work. Not all lawyers will be skillful in the art of moral suasion, and—frankly—most law schools do not train students in moral suasion. Also, sophisticated senior managers, who find themselves in desperate enough situations to be considering wrongdoing in the first place, may not be receptive to the lawyer’s (perhaps feeble) attempts at moral suasion.

Perhaps those invoking the “lawyer as friend” model are merely saying lawyers should be “friendly”?  Unfortunately, that commits the fallacy of confusing “friend” with “friendliness.”

If you’d like to read the whole article, it can be downloaded from SSRN here:

The entire issue of the Fordham Law Review Lawyering in the Regulatory State Symposium can be found here.

 

Former GE General Counsel Ben Heineman Gives Advice to In-House Counsel

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The April 2016 issue of Corporate Counsel Magazine (subscription required) features an article by Ben W. Heineman, Jr., who served as GE’s senior vice president-general counsel from 1987 to 2003 and then senior vice president for law and public affairs from 2004 until his retirement at the end of 2005. Heineman is currently a senior fellow at Harvard’s schools of law and government. The article contains excerpts from Heineman’s much-anticipated forthcoming book, The Inside Counsel Revolution: Resolving the Partner-Guardian Tension (Ankerwycke, 2016).

In the book, Heineman makes the case for his ambitious vision of the modern general counsel: “a lawyer statesperson who is an outstanding technical expert, a wise counselor and an effective leader, and who has a major role [in] assisting the corporation [to] achieve the fundamental goal of global capitalism: the fusion of high performance with high integrity and sound risk management.” In carrying out this role, the general counsel must resolve “the most basic problem confronting inside lawyers: being partner to the board of directors, the CEO and business leaders but ultimately being guardian of the corporation.” Accordingly, the book provides some guidance on how to resolve the partner-guardian tension that is inherent in the role.

The book can be pre-ordered here.

Deferred Prosecution Agreements Reached with Former Dewey & LeBoeuf Lawyers

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It’s always a good idea to remind your students to be careful if they should ever take on the responsibility of managing a law firm, especially in times of financial bust. If you have been following the Dewey & LeBoeuf criminal trial, you know that the jury deadlocked in October of last year on dozens of charges against Steven H. Davis, the former chairman of Dewey, and two other former executives of the law firm, Stephen DiCarmine and Joel Sanders. The three men were accused of being the architects of an accounting fraud that enabled Dewey to defraud its lenders and creditors during much of the financial crisis.

In January of this year, Manhattan prosecutors reached a deferred prosecution agreement with Steven H. Davis. The agreement runs for five years and prohibits Davis from practicing law in New York during that period.

In February, prosecutors reached a deferred prosecution agreement with Zachary Warren, one of the four original defendants, just weeks before he was supposed to go on trial in the New York State Supreme Court in Manhattan. Notably, Warren was not a lawyer when he worked as the client relations manager at Dewey & Leboeuf. After leaving Dewey, he went on to graduate from Georgetown Law Center and clerked for a federal judge.  He plans on working at Williams & Connolly in the fall.   The agreement requires Warren to perform 350 hours of community service as part of a one year agreement.

The Manhattan prosecutors are planning to retry the case against DiCarmine and Sanders.

Articles about the agreements reached with Davis and Warren can be found here and here.

Jury in Dewey & LeBoeuf Criminal Trial Acquits on Some Charges, Deadlocks on Others

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A Manhattan jury today (October 7, 2015) cleared three former executives of Dewey & LeBoeuf on falsifying business records charges. However, the jurors remained deadlocked on dozens of other charges. The three executives, all trained as lawyers, are being accused of masterminding a four-year scheme to manipulate the finances of the once-prominent law firm in an effort to keep it afloat during the financial crisis.  They were charged with a range of crimes including grand larceny, scheme to defraud, and falsifying business records. Prosecutors working under Manhattan district attorney Cyrus R. Vance, Jr. called more than 40 witnesses to support the prosecution’s case. Recent update on the case is here. Prior blogposts can be found here.

Jury Deliberations Begin in Dewey & LeBoeuf Accounting Fraud Case

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Yesterday, on September 16, 2015, in the New York State Supreme Court in Manhattan, the jury began deliberating whether the three former executives of the now defunct law firm of Dewey & Leboeuf conspired to manipulate the finances in an effort to defraud investors and bank lenders.  In a daring move, defense lawyers chose not to call any witnesses and rested their case. For more detailed information about the trial, it is reported that one legal newswire, Law360, has been live blogging the event. Warning: the testimony “has often been dull and focused on arcane accounting treatments.” Latest news of the trial can be found here. Prior posts can be found here and here.

Defense Plans to Rest in Dewey & LeBoeuf Criminal Trial

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Those of you who are teaching Chapter 6, Part II (Duties to Third Parties and to the Law) may want to refer to the ongoing criminal trial of three former executives of Dewey & LeBoeuf, who are being tried for larceny, fraud and falsifying business records. The trial began in late May and the defense team plans to formally rest its case on Tuesday without calling a single witness. Prosecutors working under Manhattan district attorney Cyrus R. Vance, Jr. have called more than 40 witnesses to support the prosecution’s case. Recent update on the case can be found here. Prior blogpost can be found here.

Guest Blogger Jennifer Pacella

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We are pleased to welcome Jennifer Pacella of the City University of New York, Baruch College, Zicklin School of Business as guest blogger. Jennifer is Assistant Professor of Law at the School of Business. She has taught Fundamentals of Business Law, The Law of Business Organizations, and the Law of GRC (Governance, Risk Management, and Compliance) & Whistleblowing. Her research interests include attorney whistleblowing and the Dodd Frank Act. She received her J.D. from SUNY Buffalo, her Master’s in Political Science from UNC, and her Bachelor’s in Political Science from SUNY Geneseo. Her prior professional experiences include clerking for the Third Circuit Court of Appeals and working as an associate at Shearman & Sterling LLP in New York City in its Financial, Securities & Commercial Law group. I am an admirer of her recent work on in-house counsel and whistleblowing. Welcome, Jennifer!

Davis Polk Law Firm Rebuked by Judge in A.I.G. Case

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What ethical obligations do lawyers have if they harbor serious doubts about the legality of their client’s plan of action?  What if that client is the federal government (the Treasury Department and the Federal Reserve Bank of New York) and the plan of action is bailing out A.I.G. to avert (or mitigate) a nationwide financial crisis?

Yesterday (June 15, 2015), Judge Thomas C. Wheeler of the United States Court of Federal Claims issued a ruling, which–among other things–rebuked the law firm of Davis Polk for blessing the transaction which gave the government a nearly 80 percent equity stake in A.I.G. The ruling cites an email from a Davis Polk lawyer in which the lawyer noted that the government “is on thin ice and they know it.”

The full story and the link to the 75 paged ruling are here.

 

 

Dewey & LeBoeuf Criminal Trial Has Begun

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It is a rare event when the top managers of a major, venerable U.S. law firm are being criminally prosecuted for fraud.  So those of you who plan on teaching Chapter 6, Part II (Duties to Third Parties and to the Law) may want to take advantage of the ongoing trial involving top executives of the law firm of Dewey & Leboeuf, which collapsed in bankruptcy in May 2012.   The trial is expected to last (by some accounts) until Labor Day.

Opening statements began on May 26, 2015 in the New York Supreme Court before Justice Robert M. Stolz. The defendants, former chairman Steven Davis, executive director Stephen DiCarmine, and chief financial officer Joel Sanders were charged with concealing Dewey & LeBoeuf’s failing financial situation from lenders and creditors, including insurers that invested in a debt offering to raise about $150 mililion.

Natasha Lydon from Above the Law is reporting on the trial.  Her recent post about the opening statements can be found here.

For background on the case, The New York Times has a fairly informative article here.

Wal-Mart, Attorney-Client Privilege, and In-House Counsel

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This isn’t exactly current news but nonetheless very noteworthy. A Delaware Supreme Court en banc opinion, Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, Del. Supr., No. 614, 2013 (July 23, 2014), explicitly endorsed the Garner exception to the attorney-client privilege in a Section 220 books-and-records proceeding. Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970) recognized an exception “where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, [and] protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.”  Huge victory for shareholders who can show cause, and huge loss for those who think that the attorney-client privilege should be absolute.

Also noteworthy is the resignation of Maritza Munich, the general counsel of Walmart International. Munich had tried to stop a bribery scandal as it was unfolding at Walmart. Michael Scher of the FCPA Blog provides some interesting detail on the scandal and Munich’s resignation.

For teaching purposes, one can construct a hypothetical based on the facts of the Wal-Mart case and ask the student to put herself in the shoes of an in-house attorney (such as Munich) who uncovers serious law violations within her corporation: what would she do? Good opportunity to talk about how to comply with Sarbanes-Oxley 307 (SOX 307) and the meaning of an attorney “appearing and practicing before the Commission” under SOX 307 covers. If you want to add a psychological perspective to the discussion, I talked about the  pressures of being in-house counsel in prior work.