Category: Legal Ethics

Specter Tells of Upcoming Legislation to Stop Thompson Memo Practices

September 15th, 2006

Senator Arlen Specter spoke at the NACDL-Georgetown White Collar Crime Luncheon on September 14. Blogging on that speech for the White Collar Crime Prof Blog is Jack King of the NACDL, who reports:

At lunch today, Specter said that he would prepare legislation addressing the “Thompson memo.” Michael Peel of Financial Times (London) asked what the legislation would “look like” and what the “timetable might be.” Specter replied:

“I would say that the government may not consider on charging a corporation whether the corporation has waived the attorney-client privilege and waived the inadmissibility – or the status – of work product. And then it would say that you can’t consider on charging whether the corporation is going to pay attorney’s fees, if that’s in a contract or what the practice is. As for when I’m going to introduce it, we’re going to be in session for two weeks, and I don’t think there’s time enough to put it together, but I would shoot for the lame-duck session, which I think is going to start on November 13. But the timeline for passage is totally unpredictable. Not until next year at the earliest.
"Have I had any indications of support? Yes, Sen. Leahy is for it.”

(esp)
The Senate Talks About the Thompson Memo

September 12th, 2006

The Senate Committee on the Judiciary has scheduled a hearing on "The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations" for today. The impressive lineup of individual’s giving testimony are:

PANEL I

The Honorable Paul J. McNulty
Deputy Attorney General
U.S. Department of Justice
Washington, DC

PANEL II

The Honorable Edwin Meese
Former Attorney General
Ronald Reagan Distinguished Fellow in Public Policy
Chairman, Center for Legal and Judicial Studies
The Heritage Foundation
Washington, DC

Thomas J. Donohue
President and CEO
U.S. Chamber of Commerce
Washington, DC

Karen J. Mathis, Esq.
President
American Bar Association
Chicago, IL

Andrew Weissmann, Esq.
Partner
Jenner & Block LLP
New York, NY

Mark B. Sheppard, Esq.
Partner
Sprague & Sprague
Philadelphia, PA

The testimony from these witnesses will be retrievable online here. More will be posted on this blog tomorrow regarding this testimony. But to give a preview, the written testimony of the Hon. Edwin Meese includes the following passage regarding the McCallum Memo, an unsuccessful attempt by the government to appease people by saying that waivers of attorney client privilege need to coordinated within each individual USA’s office. Meese states:

"Nevertheless, it appears that the McCallum Memorandum does not represent a sufficient improvement. The main objectives of the Memorandum included providing greater uniformity, predictability, and transparency to the process that federal prosecutors use when requesting a waiver of a business organization’s attorney-client privilege. But the McCallum Memorandum does nothing to address the inherently coercive nature of the Thompson Memorandum factors that take into account whether a company has waived its privilege."

There are many important issues of the day that need to be addressed by the Senate. So why is DOJ allowing so much time to be spent on the waiver issue, an issue they could easily resolve by just removing it from the Memo and from practice? Don’t they get it – asking for a waiver of the attorney-client privilege is just plain wrong.

(esp)
Are Lawyers Getting Away Unscathed?

August 31st, 2006

An article in the Washington Post (here) makes the provocative point that lawyers have largely avoided the fallout from the recent rounds of corporate and accounting scandals, asserting that "lawyers serving fraud-ridden companies have emerged relatively unscathed." The article contrasts lawyers with the two large accounting firms, Arthur Andersen and KPMG, that have been involved in criminal cases, with Andersen forced out of business even though the conviction was later reversed by the Supreme Court. That may not be the best comparison, however. Andersen was prosecuted for obstruction of justice for shredding documents, not for its audit of Enron, and KPMG’s deferred prosecution agreement involved the firm’s direct work selling tax shelters to clients, a product much like any other, and not for its professional advisory role. The Milberg Weiss case is somewhat analogous to these accounting firm prosecutions, in that the subject of that prosecution is not work on behalf of clients but how the firm went about doing its business.

The recent options-timing cases may well put lawyers squarely in the sights of prosecutors, particularly in-house counsel at the companies involved in the questionable — although perhaps not necessarily illegal — transactions. William Sorin, former general counsel at Comverse Technologies, was charged along with two other executives for his role in the options back-dating, and the charges recite how he used his position to facilitate the awards and make them look legal. McAfee Inc. fired its general counsel, Kent Roberts, because of his involvement in an instance of options back-dating, and federal prosecutors subpoenaed the company for information related to his termination. At some companies being investigated, outside law firms drafted the compensation policies while partners at the firms served as directors of the corporations, even being involved in the now-scrutinized option grants. These lawyers are sure to be questioned by civil and criminal authorities, and are likely targets of those investigations.

Although lawyers were not caught up in the criminal prosecutions generated by some of the spectacular corporate collapses of recent years, the options-timing investigations will put the acts of legal counsel under a microscope. It will not be surprising to see more than a few lawyers involved as defendants in the various cases in the future. (ph)
Court Suppresses Two Statements in KPMG Defendants’ Cases

July 27th, 2006

Judge Lewis Kaplan has issued yet another Order in the KPMG defendants case that indicates that government coercion will not be tolerated. In a thoughtful and well-written Order he states:

"Having considered the evidence, the Court is persuaded that the government is responsible for the pressure that KPMG put on its employees. It threatened KPMG with the corporate equivalent of capital punishment. KPMG took the only course open to it. In the words of its chief legal officer, KPMG did everything it could "to be able to say at the right time and with the right audience, we’re in full compliance with the Thompson Memorandum." It exerted substantial pressure on its employees to waive their constitutional rights. (footnote omitted)"

In the conclusion of the 37 page Order the court states:

"In this case, the pressure that was exerted on the Moving Defendants was a product of intentional government action. The government brandished a big stick – it threatened to indict KPMG. And it held out a very large carrot. It offered KPMG the hope of avoiding the fate of Arthur Andersen if KPMG could deliver to the USAO employees who would talk, notwithstanding their constitutional right to remain silent, and strip those employees of economic means of defending themselves. In two instances, that pressure resulted in statements that otherwise would not have been made. In seven, the evidence does not warrant that conclusion. The coerced statements and their fruits must be suppressed.

It is no answer for the government to say that these aspects of the Thompson Memorandum are needed to fight corporate crime. Those responsible should be prosecuted and, if convicted, punished. But the end does not justify the means."

Although the suppression of these two statements may not prove consequential to the government’s case, the court is making it very clear that undue coercion on the part of the government will not be tolerated. The fact that the court did not suppress all statements in this case further indicates the thoughtfulness of the decision.

Opinion –

Download opinion_re_smith_and_watson_statements_doc_650_2.pdf

(esp)
Prosecutors Under the Gun

July 7th, 2006

Assistant United States Attorneys have come in for criticism in two recent opinions regarding the veracity of their statements to courts. In United States v. Stein, the prosecution of 16 former KPMG partners and employees, U.S. District Judge Lewis Kaplan criticized the government’s assertions regarding pressure it put on KPMG to cut off attorney’s fee payments for the defendants despite a long-standing firm policy to pay such expenses. In addition to finding the application of the Department of Justice’s Thompson Memo resulted in a constitutional violation, Judge Kaplan also noted that the prosecutors were "economical with the truth" in their filings and testimony. While not calling them liars, the judge clearly implied that their statements were not fully truthful and misleading in several places.

U.S. Attorney Michael Garcia responded by sending a letter to the court (available below), dated only four days after the opinion, asking the court to withdraw the statement regarding being "economical with the truth," change the characterization of the testimony of prosecutors, and withdraw references to the prosecutors by name. Garcia’s letter states, "The Government’s stance in connection with this matter was an Office position, and the Government’s submissions were approved by layers of supervisors. If the Court continues to find fault with those submissions, the fault should not be attributed to individual prosecutors." That raises an interesting question about the responsibility of individual lawyers for statements made on behalf of the government. The professional responsibility rules govern individual lawyers, not law firms or government offices, and while a submission on behalf of the United States is not that of an individual lawyer, there are people behind the statements. Should judges avoid naming names when they observe misconduct? Garcia’s letter raises fair questions about Judge Kaplan’s interpretation of the evidence, but that is more appropriately advanced in a motion for reconsideration. The question of keeping a prosecutor’s name out of a judicial opinion, if the person is found to have been "economical with the truth," is a much tougher one, I think, because if only "the Office" is responsible then perhaps no one really is held accountable.

In United States v. Clark (here), Ninth Circuit Judge Alex Kozinski wrote a concurring opinion asserting that the AUSA arguing the case tried to mislead the court about record support for a judicial finding relevant to a sentencing enhancement. While the majority held that the lawyer’s reference to a sentence fragment in the record was not intended to be misleading and could be interpreted as supporting the goverment’s argument, Judge Kozinski found otherwise, stating:

I don’t believe that quoting portions of a sentence while leaving out key qualifiers is reasonable conduct for an attorney of this court. I don’t believe that making assertions in a brief regarding disputed factual points, without providing a citation to the record, amounts to reasonable attorney conduct. I don’t believe that ignoring the context of statements in the record — the timing, circumstances and purpose — amounts to reasonable conduct. In short, I don’t believe that it is appropriate or reasonable for a lawyer to pluck a few words from the middle of a sentence and pretend that they say something very different from what they mean in context. This is true of every lawyer who appears before us, but it goes doubly for lawyers who represent the government in criminal cases. See United States v. Kojayan, 8 F.3d 1315 (9th Cir. 1993), ("Prosecutors are subject to constraints and responsibilities that don’t apply to other lawyers. While lawyers representing private parties may—indeed, must—do everything ethically permissible to advance their clients’ interests, lawyers representing the government in criminal cases serve truth and justice first.").

The cite to Kojayan is interesting because in that case, the slip opinion identified by name the AUSAs responsible for misstatements to the court, but the opinion in the bound volume had the names removed. Similarly, while Judge Kozinski’s concurrence in Clark finds that the AUSA’s conduct was unreasonable, there is no mention of the person’s name. Is this another situation where "the Office" takes the responsibility but not the individual? Clark involves a concurring opinion, so it is more appropriate to keep the lawyer’s name out of the reported decision. As lawyers subject to the same professional responsibility rules as other lawyers, I think a good argument can be made that there is a need for some individual accountability when a prosecutor misstates the record or is "economical with the truth." If identifying the AUSA by name is not the best vehicle, then something else should be used to make it clear to the public that such conduct is a violation of the rules of the profession. (ph)

Download kpmg_us_attorney_letter_june_30_2006.pdf

UPDATE: The Wall Street Journal Law Blog reports (here) that Judge Kaplan denied the U.S. Attorney’s request to modify the opinion, including refusing to remove the names of the AUSAs. It will probably be a few more weeks before a decision is made on appealing the decision, assuming the government can appeal under the collateral order doctrine. KPMG is not a party to the case, so it’s hard to see how it has standing to seek review. (ph)
KPMG- Analysis – White Collar Cases Can Be Costly

June 27th, 2006

The KPMG Order provides the clear realization that some white collar cases can be costly to defend. Judge Lewis Kaplan states:

"This is by no means a garden-variety criminal case. It has been described as the largest tax fraud case in United States history. The government thus far has produced in discovery, in electronic or paper form, at least 5 million to 6 million pages of documents plus transcripts of 335 depositions and 195 income tax returns. The briefs on pretrial motions passed the 1,000-page mark some time ago. The government expects its case in chief to last three months, while defendants expect theirs to be lengthy as well. To prepare for and try a case of such length requires substantial resources. Yet the government has interfered with the ability of the KPMG Defendants to obtain resources they otherwise would have had. Unless remedied, this interference almost certainly will affect what these defendants can afford to permit their counsel to do. This would impact the defendants’ ability to present the defense they wish to present by limiting the means lawfully available to them. The Thompson Memorandum and the USAO’s actions therefore are subject to strict scrutiny."

White Collar defendants have felt the pressure of trying to defend themselves against a government accusation. But in many instances they cannot because of the cost involved in presenting this defense. This is in no way meant to diminish the importance of others having the ability to defend themselves, as indigent defense is clearly in a state of crisis in many parts of the United States. But the court’s recognition of this high cost in a white collar case, and the particularly high cost in this white collar case is an important message. If the system is to operate with a presumption of innocence, than it is important to remember that everyone needs to have access to lawyers in order to properly present their defense.

(esp)

Addendum – See

David Hoffman, Concurring Opinions here

WSJ, here and here
Highlights from the Order on KPMG Defendants

June 27th, 2006
Highlights from the opinion by Judge Lewis Kaplan:
- "The Thompson Memorandum and the USAO pressure on KPMG to deny or cut off defendants’ attorneys’ fees necessarily impinge upon the KPMG Defendants’ ability to defend themselves."
- "If the government means to take the payment of legal fees into account in making charging decisions only where the payments are part of an obstruction scheme – and thereby narrowly tailor its means to its ends- it would be easy enough to say so. But that is not what the Thompson Memorandum says."
- "The Thompson Memorandum discourages and, as a practical matter, often prevents companies from providing employees and former employees with the financial means to exercise their constitutional rights to defend themselves. This is so even where companies obstruct nothing and, to the contrary, do everything within their power to make a clean breast of the facts to the government and to take responsibility for any offenses they may have committed. It undermines the proper functioning of the adversary process that the Constitution adopted as the mode of determining guilt or innocence in criminal cases. The actions of prosecutors who implement it can make matters even worse, as occurred here."
- "[T]he government’s interference in the KPMG Defendants’ ability to mount a defense ‘creates an appearance of impropriety that diminishes faith in the fairness of the criminal justice system in general.’"
The remedy is not a dismissal of the action, but rather:

"1. The Court declares that so much of the Thompson Memorandum and the activities of the USAO as threatened to take into account, in deciding whether to indict KPMG, whether KPMG would advance attorneys’ fees to present or former employees in the event they were indicted for activities undertaken in the course of their employment interfered with the rights of such employees to a fair trial and to the effective assistance of counsel and therefore violated the Fifth and Sixth Amendments to the Constitution.

2. The government shall adhere to its representation that any payment by KPMG of the defense costs of the KPMG Defendants is acceptable to the government and will not be considered in determining whether KPMG has complied with the DPA or otherwise prejudice KPMG.

3. The Clerk shall open a civil docket number to accommodate the claims of the KPMG Defendants against KPMG for advancement of defense costs should they elect to pursue them. If they file a complaint within 14 days, the Clerk shall issue a summons to KPMG. The Court in that event will entertain the claims pursuant to its ancillary jurisdiction over this case.

The motions are denied insofar as they seek monetary sanctions against the government. The Court reserves decision as to whether to grant additional relief." (citations omitted)

(esp)
KPMG Defendants Successful

June 27th, 2006

The KPMG defendants have cause for celebration as Judge Lewis Kaplan’s 83 page Order is favorable. For now the Order is below. Analysis and highlights will be forthcoming.

Download KPMG_Thompson_decision.pdf

(esp)
ABA & DOJ

June 26th, 2006

The American Bar Association (ABA) and Department of Justice (DOJ) have not exactly been on the same side on all issues these days. And this seems odd as DOJ is made up of attorneys and the ABA is an attorney organization.

For one, the ABA opposed the DOJ policy on waivers of the attorney-client privilege (see here)

And now the DOJ is proceeding against the ABA asking a court for civil contempt on a consent decree previously signed. According to a DOJ press release here, it sounds like the parties have reached an agreement. The press release states in part:

"The Department of Justice filed a petition today asking the U.S. District Court for the District of Columbia to hold the American Bar Association (ABA) in civil contempt for violating multiple provisions of a 1996 antitrust consent decree. The consent decree prohibited the ABA from misusing the law school accreditation process. The Department also filed a proposed order and a stipulation in which the ABA acknowledges the violations alleged in the Department’s petition and agrees to reimburse the United States $185,000 in fees and costs incurred in the Department’s investigation. The proposed order is subject to court approval. . . . "

Looking at some of the items on the list, like "-Obtain annual certifications from certain ABA staff and volunteers that they agree to abide by the decree and are not aware of any violations," – it sounds like the ABA may be implementing a compliance program.

(esp)
The Sharks Smell Blood in the Water

June 22nd, 2006

The fallout from the Milberg Weiss indictment continues to spread as other firms seek to lure away its partners and a remnant formed by former name partner William Lerach is accused of being linked to the misconduct. An article in The Recorder (here) states that a San Francisco law firm is soliciting a number of Milberg Weiss partners to join it and, not surprisingly, bring along the securities class actions for which they are lead counsel. The Lerach Coughlin firm, which broke off from Milberg Weiss in 2004, is the object of a motion to exclude its proposed lead plaintiff in a securities class action because of the firm’s potential involvement in the government’s continuing investigation related to payments to representative plaintiffs before Milberg Weiss split up. The motion (here courtesy of the Securities Litigation Watch) states that appointment of Lerach Coughlin’s proposed plaintiff would be "troubling, to say the least," and the competing lawyers are kind enough to attach a copy of the Milberg Weiss indictment — as if it were unknown to the court. The lawyers offer their plaintiff to serve as the lead plaintiff and themselves as suitable counsel, showing that the competition remains fierce in the securities class action world. The indictment is barely a month old, and hardly a week goes by without a challenge to Milberg Weiss’ (and now Lerach Coughlin’s) representation in a case or partners announcing they are leaving the firm. The momentum is unlikely to slow down in the near future, and could pick up if cooperating witnesses (or a defendant) are able to link former firm leaders Melvyn Weiss or William Lerach to the alleged improper payments. (ph)