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Lawyers unconsciously dismiss or discount evidence of

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lawyers unconsciously dismiss or discount evidence of misconduct and its impact on third parties Sarbanes-Oxley Act, 2002 – response to lawyer responsibility for failing to prevent corporate scandal 4 cardinal rules: 1.Always ask “What is in the best interests of my client?” 2.You are bound by the same ethical rules as other lawyers 3.Youand everyone involvedneeds to know who you are acting for 4.Youand everyone involvedneeds to understand what hat you are wearing – legal or business or ….? Ethical Obligations of Corporate Counsel Paul Paton, How it went off the rails at GM Flaw in ignition switch – linked to 13 deaths; internal probe found “a pattern of incompetence and neglect” Special criticism for the internal legal team – lots were fired thereafter, but not general counsel oKept secrets from crash victim families & valued secrecy so kept things from being found out earlier Rhode & Paton: Lawyers, Ethics and Enron Enronscandal-US public co. with largest market cap in world. Seen to have model corporate policies & stellar board. Appeared to be unimpeachable.However, it engaged in “off balance sheet” high risk ventures considered too controversial for ordinary commercial entities that were not disclosed to investors & regulators.Not consolidated with other financial statements –losses concealed from public disclosure.Transactions not designed for legitimate economic objectives. oEnron restatement of financials resulted in criminal convictions, regulatory changes, worthless shares, bankruptcy oLawyers In house counsel Contributed to creation and operation of Special Purpose Entities (SPEs) One lawyer invested her money in one of the entities (personal profit) At least 2 lawyers had concerns but were stymied by other lawyers or management Outside Counsel Assisted in SEC filings & advised on risky business When “investigated” allegations – provided an insufficient report Andersen (Accounting firm) In House Counsel One of the 5 big accounting (& consulting) firms at the time Advised Enron on the risky strategy AND certified the financial statements. Created and audited questionable investment vehicles 44
Shredded significant amount of documents related to Enroncounseled destruction of documents when knew that SEC was investigating and litigation was likely American Response toEnron Sarbanes-Oxley Act:provision that obligated lawyers toreport criminal fraud oRules that required the US Securities and Exchange Commission to establish minimum standards of professional conductfor lawyers who practice before the commission oObligated lawyers to report evidence of a material violation of securities law or breach of fiduciary duty first to a company’s general counsel, then to its CEO and ultimately to the board of directors Attacked self-regulation and independence of the bar. Proposed SEC regulating lawyers Ultimately areporting up the ladder- to the board if necessary – but not out, preserving S/C privilege Canadian Response Federation of Law Societies of Canada’sModel Code of Professional Conductadopted the same language of the ABAModel Code,but omitting the “crime-fraud” exception to the professional conduct rules on confidentiality.

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