On May 23, 2002, The National Law Journal ran a story (click here to read it) about the $500 million fraud by a Portland, Oregon, pension advisory firm, Capital Consultants LLC, upon mostly Oregon and Washington pension and health care benefit trusts. The court-appointed receiver sued five law firms that did legal work for Capital and its co-conspirators, saying, "They aided and abetted the perpetration of a fraud on the pensioners." The law firms - including two Seattle firms - paid $50 million to avoid trial and possibly much greater liability. Here are several links to more information about that case: Link#1, Link#2, Link#3, Link#4, Link#5.One of those law firms was from New Jersey, and it defended itself by saying that it "acted appropriately in all respects, including immediately notifying authorities once it realized fraud was being committed." The New Jersey lawyers' reporting of the fraud to authorties may well have prevented the Northwest pensioners from losing even more than the half-billion dollars that they lost.
It is not surprising that New Jersey lawyers would have recognized their duty to report client fraud, for since 1982 the New Jersey Supreme Court has required that its lawyers do so. That Supreme Court's Rule of Professional Conduct, Rule 1.6, directs that lawyers must report to authorities, if necessary, to prevent or stop a client from committing any fraudulent, illegal, or criminal act likely to cause great financial loss or personal harm to another. And if they discover a client has used them to further a fraud, crime, or other illegal act, they are permitted to report information to help the victims -- to rectify the consequences of the client's acts. (Click here for New Jersey's rule.) Those provisions are the "public-interest exceptions" to lawyer confidentiality that the organized bars (national and state) have fought against for two decades.
The Washington State Supreme Court's rules for lawyer conduct, before September 1, 1985, sometimes required, and always permitted and encouraged, lawyers to report fraud committed by a client while using the lawyer. But in 1985, our Court rubberstamped new conduct rules that our State Bar proposed similar to the American Bar Association's model rules -- without the public-interest exceptions to confidentiality. University of Washington Law Professor Rob Aronson then urged the Court not to abandon the public-interest exceptions and permit potentially great harm to the public, but the Court ignored him. Click here to see his strongly worded 1985 letter to the Court.
The law firms that assisted Capital Consultants LLC and others involved in the fraud were:
Lane Powell Spears Lubersky law firm, of Seattle, paying $25 million to avoid trial; Stoel Rives law firm, in Seattle, Portland, and elsewhere, paying $12.5 million to avoid trial; O'Melveny & Myers law firm, of California, paying $8 million to avoid trial; McCarter & English law firm, of New Jersey, paying $2.5 million to avoid trail; and Weiss Jensen Ellis & Howard law firm (merged into Holland & Knight), of Portland, paying $2 million to avoid trial. Lawyers can make staggering sums by keeping clients' dirty secrets. In the 1983 $200 million fraud case of O.P.M. Leasing Services (O.P.M. stands for Other People's Money), when the criminals' lawyers discovered that their largest client was forging and selling bogus mainframe computer system leases, the lawyers kept quiet while collecting their $700,000 bill, which the client paid by continuing the fraud for eight more months, bilking victims of $85 million more and even hiring an unsuspecting law firm after the first one quietly resigned! To learn about the O.P.M Leasing case, read the journal articles by New York University Law Professor Harry Subin and by the late former Oregon State Bar president Dick Nahstoll -- click here for those articles.Most nationally prominent legal ethics professors recognize that major frauds nearly always are actively furthered by, or enabled by the silent acquiescence of, the wrongdoers' lawyers. Boston University Law Professor Susan B. Koniak recently condemned lawyers who enable Enron and similar scandals in Forbes Magazine (Aug. 12, 2002, page 58, click here to see it), saying:
"The dirty secret of the mess is that without lawyers few scandals would exist, and fewer still would last long enough to cause any real harm. Lawyers need to be regulated. No other legal reform enacted will do any good as long as there are no consequences to lawyers who bless anything a manager wants to do. ... Because lawyers are necessary to commit almost any fraud of more than a moment's duration, their firms' survival should be on the line. ... The lawyer problem is systemic: no "few bad apples" here. ... This is a disgrace."Our society is paying the price of the rotten-apples culture of lawyer. Everyone who pays for electricity up and down the West coast (including customers of Seattle City Light, bigtime) is paying for the contrived energy shortage of 2001 that lawyers enabled Enron and others to fabricate. Click here to see an article of May 17, 2002, about how Enron's "hired gun" lawyers scrambled to extinguish a "smoking gun" memo detailing Enron's energy trading fraud authored by a lowly law firm associate (formerly at Portland's Stoel Rives law firm) who had not yet been morally brainwashed into the amoral lawyer cult.Click here for an article about a probe of Enron's 45 law firms, none of which exposed its routine illegality and fraud. For an article about the criminal and civil charges filed September 12, 2002, against Tyco International's Chief General Counsel (a former white-collar criminal defense lawyer) and other corporate executives for their fraud upon Tyco's public shareholders, click here. The clear message is that lawyers will do, and routinely will help their clients to do, absolutely anything that they think they can get away with. -- and they're bright enough to get away with just about anything. The price of getting caught must be made high enough to discourage lawyer lawlessness -- like the price of crossing railroad tracks without looking.