Lawyers and Fraud: The Academy's Complicity
Massive financial frauds are a recurring part of the U.S. business and legal landscape. The Enron, WorldCom, Global Crossing and Adelphia scandals are but some of those making headlines in the recent past. Lawyers were in the thick of each of these frauds, structuring the transactions that were the vehicles of fraud, writing the essential opinion letters, fending off the suspicious federal regulators, and so on. Although the lawyers involved typically defended their conduct by arguing that they did not know of the fraud, the facts often made that claim incredible or exhibited, at a minimum, the lawyer’s reckless disregard for the truth of the matter. Thus, the question arises—what could these lawyers have been thinking?
First, I believe that most of these lawyers did not get up each morning and tell themselves that they were eager to get to the office to aid and abet a client’s fraud. I imagine instead that the lawyers somehow understood their conduct to be correct and lawful. Although each story is unique and complicated, certain conceptions or patterns of thought seem to run through many of the narratives of lawyers’ complicity in fraud.
Interpreting away law’s constraints.
The lawyers involved in the frauds often exhibited an exceptional interpretive imagination, conjuring radical interpretations of legal rules to facilitate the client’s desires.
Collapsing the counseling and the adversarial roles.
Lawyers operate in two distinct worlds—the counseling world where clients are contemplating choice and action, and the adversarial world where a client’s choice or action is the subject of legal challenge. The range of conduct that a competent ethical lawyer would advise a client to undertake before the fact is usually smaller than the range of conduct that the same lawyer, after the fact, could defend coherently. It appears that some of the lawyers enmeshed in fraud simply collapsed these two worlds, advising the clients that they could take any action for which the lawyer could advance a barely coherent justification.
Reliance on the status of “mere helper.”
The list of defendants in the litigation that inevitably follows the collapse of the fraud schemes often reads like a Who’s Who of the financial world, including prominent banks, investment banking firms, accounting firms and national law firms. The deals are usually monstrously complex, and there is a legion of helpers, each with their own lawyers. Lawyers caught up in these frauds often seem to rationalize their participation by relying on their status as “mere helpers” in a sea of principals and other helpers.
Each of these conceptions unravels on closer examination. While it is true that legal rules are inescapably subject to interpretation, the range of reasonable interpretations that courts are likely to apply is typically tightly constrained. Similarly, the ability to conjure a coherent legal argument to defend a client’s proposed conduct does not make that conduct necessarily lawful or prudent. And finally, the law of secondary liability—accessorial criminal liability and “persons acting in concert” in civil liability—dashes any myth that those who “merely” help others break the law are somehow themselves immune from liability.
Still, the patterns of thought persist, in part because they serve as convenient rationalizations for very lucrative work. But these thoughts perhaps persist also because conventional legal education contributes to the maintenance of these conceptions, albeit unwittingly. Here are some of the ways it may do that.
Law schools run the risk of teaching their students that law may be interpreted to its vanishing point.
The traditional law school curriculum embodies the idea of interpretation as the central activity of law. The first task of law professors is to teach their naïve students that rules are slippery things, and are not the simple commands that the students imagined. Thus, we present them with what seems like the solid ground of rules and then pull that ground out from under them. (If the law is “No vehicles in the park,” what then of the baby stroller, the WWII tank memorial, and so on?)
While the skill of interpretation is in fact fundamental to lawyering, it can be a dangerous tool if carried to the extreme. As law teachers, perhaps we ought to make sure that our students understand that the law is not really putty in their hands. We ought to emphasize the reality of law and the practical limits of likely legal interpretations because, without that understanding, the imaginative lawyer can make law’s constraints appear to vanish.
Second, law schools overemphasize the lawyer as advocate, thus marginalizing the lawyer as counselor.
Legal education has traditionally focused on the litigation context. Our standard teaching material in most of the courses remains the appellate court opinion. Even the smaller part of the curriculum that is devoted to lawyering skills tends to focus more on advocacy than on counseling.
Thinking like a litigator is a good thing when you are litigating. But it is a dangerous thing when you are counseling a client on a proposed course of action. To the extent that traditional legal education emphasizes the litigation context, it may facilitate the “litigation thinking” mindset that allows the practicing lawyer in a counseling mode to “green light” a client’s desired course of conduct, even when that course of conduct is likely to be fraudulent.
And third, conventional legal education, with only rare exceptions, depicts lawyers as mere helpers, working “outside” the law.
Within traditional legal education, apart from the ethics course, the lawyer exists as the one who stands beside the client. The law is directed at the client and not the lawyer; the consequences of the court’s choices fall on the client, not the lawyer.
Thus, the ethics course may be the only course that might force the law student to confront the reality that the lawyer too is subject to the law. But there are reasons to doubt the efficacy of the traditional ethics course in this matter. First, the conventional “Professional Responsibility” course usually focuses almost exclusively on the ethics law, ignoring the rest of the state’s law that constrains the conduct of lawyers. This omission is especially critical because the risks to the practicing lawyer arising from the specter of professional discipline are often less than the risks posed by other parts of the state’s law. Lawyers and law firms that represent fraud-doing companies often end up writing big checks to settle the claims of investors; they almost never face professional discipline for their conduct. Traditional legal education also undercuts the significance of the subject by limiting any serious consideration of the subject to a single (usually only two-credit) course in the midst of a three-year educational program.
Thus, legal education prepares our students, albeit unwittingly, to embrace the mythology of the lawyer’s vantage point as one who stands outside the state’s law. And this way of thinking, in turn, facilitates the practicing lawyer’s choice to continue the representation of a client whose conduct raises red flags—again and again. After all, if we imagine that the risks are all on the client’s ledger, the choice to proceed is only for the client to make.
Ultimately, deterring lawyer participation in massive financial frauds will probably depend on the construction of effective disincentives, both civil and criminal. Still, to the extent that the legal education may foster ways of thinking that help the lawyer who is complicit in fraud to sleep better at night, academic lawyers have to confront the possibility of their own complicity in these matters.
Happily, many law schools, including the University of Pittsburgh, have broken from convention in certain helpful respects. A strong clinical program, courses in counseling and negotiation, an ethics course that is devoted to the larger set of obligations and risks faced by the practicing lawyer, are part of our educational program.
Comprehensive reform in these matters, however, remains a distant, barely imagined goal.
Thomas Ross, Professor of Law at the University of Pittsburgh, is the author of various articles on legal ethics and is the co-author of the treatise, The Law and Ethics of Contemporary Legal Practice (West Publishing forthcoming 2008). Professor Ross has testified as an expert witness on matters of legal ethics in both federal and state courts. His most recent engagements include working on behalf of the lead plaintiff in the Enron civil litigation and as an expert for the SEC in a securities fraud matter.