The basic premise of the lawyer-client relationship is that the lawyer acts as the fiduciary of the client, responsible for protecting the client’s interests. When that relationship goes awry and the lawyer steals from the client, it is one of the worst white collar crimes. In United States v. Della Rose, the Seventh Circuit upheld the conviction of Steven Della Rose for stealing the $64,000 settlement that his client received from a workers comp claim. The client was no angel, having been fired from a number of previous jobs, struggling with drug and alcohol addictions, and losing his house and car. Della Rose’s coconspirator, who actually cashed the check and took the $64,000 in $100 dollar bills — receiving $50 from Della Rose for his "parking expense" — was described by the court as "somewhat of a shady character," i.e. as unseemly as they come. In an opinion that goes into excruciating detail (approximately 10 pages of facts in the .pdf version of the opinion, available here), Della Rose engaged in an elaborate scheme that included obtaining a false ID from a compliant clerk at the Illinois Secretary of State’s office — no paragon of virtue if the indictment of former Governor Ryan is true — who Della Rose used for his "DUI clients." Della Rose received a 41-month term of imprisonment, and gets another chance at the sentencing because of a remand to the district court to reconsider the sentence in light of Booker. He may get more time, not less. (ph)
Category: Legal Ethics
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David Tedder was a lawyer who helped two clients set up an off-shore gambling business and created a company to funnel money to them, in violation of 18 U.S.C. Sec. 1084 (here), which prohibits the use of wire communications for the purpose of wagering or betting. Tedder created a company called Clear Pay to move money to the off-shore betting business, Gold Medal Sports, that operated out of Curacao. The Florida Attorney General warned Western Union not to wire money to Gold Medal Sports, so Tedder set up Clear Pay to get around that restriction. Unfortunately, Tedder’s clients were caught and, not surprisingly, turned on their former lawyer by testifying against him. His conviction was upheld by the Seventh Circuit (United States v. Tedder here), and Judge Frank Easterbrook described Tedder’s trial defense:
Although he was a lawyer, knew about §1084, and even knew about criminal prosecutions of similar ventures (after which he whipped up still more layers in a futile attempt to shield his clients), Tedder told the jury that he thought that Gold Medal Sports and Clear Pay were upstanding businesses operated in compliance with all laws. This was essentially the tax protester’s defense that he just didn’t think that the law, however clear, applied to his endeavors. See Cheek v. United States, 498 U.S. 192 (1991). The district judge gave appropriate instructions to the jury, which did not believe Tedder’s professions of ignorance and convicted him. Tedder maintained that he drew his understanding of federal law from observing conduct —Gold Medal Sports was not the only offshore gambling enterprise—as if the existence of bank robberies shows that it is lawful to steal money at gunpoint. Testimony about this curious approach to legal "research" did more to demonstrate Tedder’s mendacity than to make out a defense. His multifarious endeavors to hide the source and disposition of Gold Medal Sports’ funds revealed his true beliefs.
Courts have generally held lawyers to a higher standard regarding knowledge of the illegality of conduct, and Tedder’s conduct shows how a lawyer who gets involved in his client’s wrongdoing will end up the target of the criminal prosecution. The Seventh Circuit upheld the conviction, and remanded to the district court to reconsider the sentence in light of the discretion granted by Booker. The original sentence was 60 months (!!!), at the high end of the Guidelines range, and I would not be surprised if Tedder is looking the same amount of time, at a minimum. (ph)
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News reports (See, e.g., Wall Street Journal, Atlanta Jrl Constitution) are talking about the possibility that Dennis Kozlowski’s attorney may be an upcoming witness at his trial. Kozlowski, former CEO of Tyco, along with Mark Swartz is presently on trial for a host of charges, including larceny under New York State law. It seems that Attorney David Boies did an internal investigation of the company for Tyco’s Board and that he may now be a witness in the trial. The problem is that there seems to be a conflict in testimony between what he might say, and what Kozlowski’s present attorney might say with regard to Kozlowki’s departure from the company.
So can a lawyer testify at the trial of their own client? And if so, can they ask themselves the questions on direct examination? It could be quite a circus if the attorney would have to ask themselves questions, that they would then answer.
First, in the rare circumstance that this happens, the witness testifying normally has another attorney ask the questions — so that’s easy to resolve. But the tougher question is whether the present attorney can testify in the trial of his client in order to rebut testimony presented by a witness at the trial (the fact that the initial witness is an attorney is not a factor). And if he or she does testify, can they remain counsel for the client for the rest of case.
The ABA Model Rules of Professional Conduct speak to this issue in Rule 3.7(a), where it states:
(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless:
(1) the testimony relates to an uncontested issue;
(2) the testimony relates to the nature and value of legal services rendered in the case; or
(3) disqualification of the lawyer would work substantial hardship on the client. . . .
Rule 3.7(a)(1)(2) do not apply here, but the question of (3) is one that may need to be considered. Would it be a substantial hardship for Kozlowski to have to get new counsel, or to proceed without his lead counsel, for the rest of this trial. And if the prosecution really needs the initial testimony, knowing full well that it might mean that trial counsel may need to take the stand and respond, do they want to risk a problem in the case just for this testimony?
The New York Ethics Rules differ slightly, but not significantly on this issue. DR5-102 states:
DR 5-102A. A lawyer shall not act, or accept employment that contemplates the lawyer’s acting, as an advocate on issues of fact before any tribunal if the lawyer knows or it is obvious that the lawyer ought to be called as a witness on a significant issue on behalf of the client, except that the lawyer may act as an advocate and also testify:
1. If the testimony will relate solely to an uncontested issue.
2. If the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony.
3. If the testimony will relate solely to the nature and value of legal services rendered in the case by the lawyer or the lawyer’s firm to the client.
4. As to any matter, if disqualification as an advocate would work a substantial hardship on the client because of the distinctive value of the lawyer as counsel in the particular case. . . .Here again, the issue may be whether it would be a substantial hardship to the client. But do the prosecutors in the Kozlowski trial really want to run the risk of having the defendant’s own counsel up on the witness stand testifying for the defense.
(esp)
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Check Ben Cowgill’s Legal Ethics Blog (here) for links to the ABA’s Survey on Lawyer Discipline and his discussions on the topic, which are always worthwhile.
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Check Ben Cowgill’s Legal Ethics Blog (here) for links to the ABA’s Survey on Lawyer Discipline and his discussions on the topic, which are always worthwhile.
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A new blog that is worth checking out is Legal Ethics Blog by Ben Cowgill (here). Ben pitches his blog to practitioners, and his take on issues will be useful as the number of ethics/professional responsibility issues that arise in white collar crime cases is certainly growing with lawyers involved in advising clients and (unfortunately) as targets of investigations. (ph)
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At the annual conference "The SEC Speaks" at which Commission members and staff discuss the state of securities law, Chairman William Donaldson gave the introductory speech that included some words directed at the lawyers in the audience, who probably accounted for over 90% of the participants. In his statements (available here), Donaldson stated:
I hope you will do your best to explain to your clients the principles behind our rules. Similarly, I hope you will not expend significant time, money, and energy devising structures aimed at evading requirements and trying to achieve an accounting or disclosure result that is “better” only because it achieves technical compliance with a rule while artfully dodging the rule’s purpose.
I hope you will focus attention on identifying what we sometimes call “appearance” problems, which refer to those potential but as-yet-undeveloped issues, such as conflicts of interest that can trip up a client, or new business relationships or revenue streams that could create conflicts with the best interests of the firm’s customers. You can help your clients to integrate compliance and ethics into discussions about new products or new business ventures, and address in real time the risks those new products or business lines may present.
You can help corporations to encourage their employees to learn from their mistakes. If there is a breach in ethics or compliance it is imperative to figure out what went wrong and how it can be prevented from happening again.
And most important, you can help corporate leaders to set a personal example, and insist that when a decision is made, no matter how large or small, everyone is obligated to check his or her internal compass and ask whether the course of action is the right thing to do.
This position is consistent with the SEC’s view since enactment of the Sarbanes-Oxley Act of lawyers as gatekeepers of their securities clients, and the recent emphasis in enforcement actions on holding lawyers accountable for the legal advice they provide to clients.(ph)
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Carolyn Elefant on the My Shingle blog has an interesting post (here) releated to a story about a lawyer disciplined for misleading other lawyers into joining her firm with promises of high salaries and luxury cars. The lawyer, Cynthia Sutherin, was a former public defender who told the attorneys that she had $5.2 million to start the firm, and when her lies (including that she had cancer) were revealed, the duped attorneys filed a disciplinary complaint, for which Sutherin received a two-year suspension from the disciplinary panel (see article here discussing case). Carolyn raises some interesting issues about the duped attorneys:
But here’s my real beef. If dishonesty, outside the context of an attorney-client relationship is grounds for disbarment, why isn’t greed and incompetence? After all, what were those lawyers who left their job thinking when a former public defender claimed to have $5.2 million to start a firm? Did those lawyers think it was a wise business move to work for an attorney who offered to buy them them BMW’s rather than reinvesting the money back in the firm? Did the lawyers ask whether Sutherin had a business plan for further growth of the firm or office space or even a website? Were they at all concerned that a former public defender who I’m assuming had no previous experience running a law firm would be capable of launching a practice that would succeed from the start? At best, the duped attorneys were guilty of simple incompetence in failing to protect their own interests and at worst, of allowing the lure of fancy cars and high salaries to obscure their good judgment. Surely, we don’t want that kind of attorney in practice any more than a dishonest one. So why weren’t those attorneys subject to discipline also?
(ph)
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The underlying crime is not a white collar offense (weapons possession under Section 922), but the defendant certainly qualifies as a white collar professional: a District Attorney in the Texas Panhandle region. Richard J. Roach entered a guilty plea on Feb. 8 to a Section 922(g)(3) charge of being an addicted or unlawful user of narcotics in possession of a firearm, and admitted to the following (taken from the U.S. Attorney’s Office for the Northern District of Texas (Amarillo) press release):
Roach admitted that he was addicted to a controlled substance, and that on January 11, 2005, he knowingly and intentionally possessed two firearms — a Beretta .38 caliber semi-automatic pistol and a Smith & Wesson, 9mm pistol. Roach had occupied the position of district attorney for the 31st and the 223rd Judicial District Court in the Texas Panhandle since 2000. Roach admitted that several months ago he began using methamphetamine on a regular basis and became addicted. On December 16, 2004, one of Roach’s employees found a syringe floating in the toilet located in their private office bathroom. The DEA lab found methamphetamine residue in the syringe. Roach further admitted that on December 20th and 31st of 2004, and January 3, 2005, Roach injected himself with a syringe containing substances including methamphetamine.
This is a very scary, sad story of a respected attorney who became addicted to the latest scourge on the drug landscape. (ph)
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The government set the stage for introducing the audiotapes made by Bill Owens, HealthSouth’s former CFO, who wore a wire for two days immediately before the FBI executed a search warrant at the company as part of its accounting fraud investigation. The defense has raised questions regarding the veracity of the tapes and problems regarding the government’s handling of them. At the trial today, prosecutors called an FBI evidence technician, who testified she made an "honest mistake" when she put the incorrect date on the evidence log for the tapes. The defense has sought to exclude the tapes from being introduced at trial, a position U.S. District Judge Karon Bowdre rejected before trial (see earlier post here) but did give the defense the opportunity to raise admissibility questions at trial. The government appears to be laying the foundation for admission of the tapes through Owens. Interestingly, while the defense has sought to exclude them, counsel has also said they are exculpatory of Scrushy and show that it was Owens who was the perpetrator of the fraud. No harm in having a fall-back position, in case the tapes come in. An AP story discussing the testimony at Scrushy’s trial is here.
This type of evidence is uncommon in white collar cases, but not unique — recall the prosecution of senior Rite Aid executives involved a cooperating witness who wore a wire to meetings with other defendants. The recordings in that case were challenged as being made in violation of Pennsylvania Rules of Professional Conduct 4.2 and 8.4 because it was an unauthorized contact with a represented person and involved dishonest conduct by the federal prosecutor, U.S. v. Grass, 239 F.Supp.2d 535 (M.D. Pa. 2003), arguments the district court rejected in refusing to suppress the tapes. (ph)
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