WHERE WERE THE LAWYERS?
Now, don’t get me wrong, I don’t expect lawyers to be informants — if you steal a car you don’t want your lawyer calling up the cops and turning you in.
But when it comes to the financial scandals, we’re talking about crime being perpetrated while the lawyers were representing their corporate clients. If the lawyers knew their services were being used to commit fraud, they were supposed to quit. But whether they did or didn’t, the American Bar Association’s ethics rules forbid them to reveal client fraud.
Look, some lawyers at the ABA want to change the ethics rules. They’d like lawyers to speak up when their services are being used to perpetrate serious fraud.
But it looks to me like the ABA believes that clients’ rights to privacy outweigh society’s right to protect itself. I mean Despite the lies revealed over the past year that led to mass layoffs, market disruptions, and decimated retirement plans, the bar association has failed to change the relevant ethics rule.
Maybe right now, boards of directors and corporate lawyers are taking ethics pretty seriously. But what I’d like to know is what happens when times are good again and everyone’s making far too much money to pay attention to ethics?
When the last bubble burst, in the late eighties, Federal Judge Stanley Sporkin wondered where the corporate lawyers and accountants were during some of the Savings and Loans’ worst deals. “Why didn’t any of them speak up or disassociate themselves from the transactions?” Sporkin asked in a famous legal opinion.
And that was just twelve years ago. We could ask Judge Sporkin’s question today. If the legal profession keeps forbidding its lawyers to reveal massive fraud, we’ll be asking the same question again at the end of the next bubble.
In Washington, this is Stephen Murdoch for Marketplace.