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Wednesday, September 9, 2009

Massive Fraud? Yeah, Blame the Attorney!

Today's  New York Times business section has an article on the general counsel of Bank of America who was fired four days after BoA's gunshot wedding acquisition of Merrill Lynch in December 2008.   This was right around the same time that it was revealed to the world that Merrill had understated its bonus payouts and impending losses which ran into the billions.     The New York Attorney General, Andrew Cuomo, is weighing whether to file criminal charges under New York State's notorious Martin Act against several BoA executives for their failure to disclose material facts about the acquisition to BoA shareholders.

The Martin Act is not like the federal securities laws.   One aspect of the Martin Act is its dispensation of the need for criminal intent as an element of a felony.   This helps explain its power and reach, and why former AG Eliot Spitzer was so feared when he chose (unwisely, many commentators say -- and unfairly, many defense counsel say) to wield the Martin Act to fight what he considered to be corporate wrongdoing.  

The Times fails to give a clear and fair picture of the professional obligations constraining the bank's general counsel.  Timothy J. Mayopoulos, BoA's general counsel, is described in the Times article as having "cited legal ethics rules and declined to provide specifics on the advice he gave the bank [BoA]" when giving testimony in a deposition to Cuomo's office.   This is a misleading statement and makes the lawyer look bad.  

Here's the real deal:   Mayopoulos was not free to provide these specifics.   As a lawyer, he was and remains bound by the attorney-client privilege.   This privilege is generally sacrosanct, with some exceptions, and its violation can lead to a lawyer's professional sanction (which can include disbarment).   Lawyers in Mayopoulos' position are not free to speak, unless their client waives the privilege.   Therefore, Mayopoulos should not be viewed as an obstructionist.   Rather, this is a man who may well have done the "right thing," and paid for it with his job; furthermore, to add insult to injury, he may be suffering from the drip-drip-drip of unfounded and unofficial accusations and the sting of innuendo, which he cannot fight back against because he is still constrained by the privilege.  

To their credit, the Attorney General's office is preparing to disregard the assertions by BoA executives that they relied on legal counsel to justify their actions. 

There are too many clients out there who deceive their counsel, who hide or conceal information or who actively mislead them, and then seek to hide behind their "trusted professionals" -- or even point the blame at them -- while simultaneously enjoying the protection that the attorney-client privilege affords them.

Now, there are exceptions, and one is the "crime/fraud" exception.   However, that has to be proven, or admitted, and until that time, the privilege is in place, and a man's reputation continues to erode.

This lawyer may be a victim in this case.   He has paid...with his job, and with his reputation.   He deserved better from the Times, which failed to flesh out this important legal issue.

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