5000% More

MSThere is one thing that unites Democratic and Republic presidential candidates these days:  a dislike of Martin Shkreli.

Shkreli is the “Pharma Bro” CEO whose company increased the price of one of its products from $13.50 to $750, a 5000% increase that caused the kind of internet outrage previously reserved for American dentists who kill large game in Africa without a license.  Hillary Clinton tweeted that Shkreli’s “price gouging … is outrageous.”  Donald Trump called him a “spoiled brat” who “ought to be ashamed of himself.”

Shkreli engendered another round of internet ire last week after it was revealed he paid $2 million for the only copy of an album by the Wu-Tang Clan, then told media that he had no plans to listen to it.

Yesterday, Shkreli was arrested on securities fraud charges.  One internet commenter pointed out a valuable Risk Tip:  “This investigation must have been going for a while and Shkreli must have known about it. So at some point he decided the best way to help his image before trial was … alienating every single human being in the country.”

But, Shkreli was not indicted alone.  Criminal charges also were brought against a well respected corporate lawyer.

The indictment asserts that Shkreli and the lawyer schemed to engineer a series of fraudulent transactions to disguise the financial health of Shkreli’s enterprises.  Among other things, the indictment alleges that they, in an effort to deceive company auditors, concocted several phony “consulting agreements” with individuals who had asserted claims asserted against Shkreli and his hedge fund, which were funded by assets of a company not responsible for those claims.

The indictment uses the email exchange between lawyer and client to paint an unflattering picture:

When SHKRELI suggested that the old agreements should be annulled, [the lawyer] responded that the auditor “didn’t like that idea.” When SHKRELI then admitted that “there were serious faults with the [settlement] agreements including lack of board approval” and that redoing the settlement agreements may be a good idea, [the lawyer] responded:  “That will open up some very big issues. The current thinking is let rtrx pay, get a note from the fund[,] and if the fund cant [sic] fulfill the note[,] rtrx will write it off as a bad debt. It would be easier than the road you are referring to. Also, [the auditor] would get very spooked with what you are talking about (which could also spook your investors and counter parties).” In response, SHKRELI stated, “[o]n current thinking: that works for me.”

Later, the indictment alleges:

Initially, [the lawyer] sent an email to SHKRELI informing him that Investor 1 wanted 100,000 RTRX shares as part of his settlement and did not want to enter into a consulting agreement. When SHKRELI indicated that the proposal was acceptable to him, [the lawyer] stated, “Where will the 100k come from? If it’s from the company it would need to be in a consulting agreement.” SHKRELI questioned [the lawyer’s] approach and stated, “Why would it need to be a consulting agreement???! Have you heard of the term settlement?” In response, [the lawyer] explained, “We can call it a settlement agreement, but given [the auditor’s] recent behavior they may require it to be disclosed in the financials. I was trying to prevent that issue.”

Of course, these are only allegations, and the defendants are presumed innocent unless and until proven guilty.

The arrest of Martin Shkreli will likely find its place on anyone’s year-end top-10 internet-villain schadenfreude list, and it may be one of those rare times where there is more sympathy for the attorney.  If there’s truth to the indictment, it serves to further underscore the principle that the Risk Tip has been talking about for years:  the greatest risk of claims against lawyers arise in matters where the lawyer represents a bad client.

Lastly, we will end with an ethical take-home test:  Model Rule 1.5 prohibits a lawyer from charging an “unreasonable” fee.  Would it be ethical for a lawyer to increase his or her rates by 5000% before agreeing to defend Shkreli?

Lessons from Mongolian Camel Farmers

The stress of a difficult birth will sometimes cause a mother camel to reject her offspring.  Without protection and sustenance from its mother, a newborn camel is almost sure to die.  Mongolian camel farmers have discovered that playing low harmonic songs played on a violin-like instrument called a Morin Khuur, accompanied by a traditional Mongolian  “throat singer,” can often alleviate the mother’s stress and encourage her to accept the calf.  (For those few unfamiliar with Mongolian folk music, a throat singer vocalizes more than one tone at the same time.)  As the attached clip demonstrates, it is no wonder that these guys can cure camel stress.

I don’t have to tell you that practicing law can be stressful.  Maybe not as stressful as birthing a camel, but client demands, hostile adversaries, and a host of other factors can lead to serious stress for lawyers.  Stress can take an emotional and physical toll on the individual and if not addressed, lead to more serious problems like depression.  And stress can have consequences not only for the lawyer, but for colleagues and clients as well.  Sadly, I can recall at least three instances in my career where a stressed-out lawyer neglected a client’s case resulting in missed deadlines, adverse rulings, sanctions, and even discipline.

The attached article identifies some common symptoms of stress and depression, as well as some ways to treat them.  http://www.cba.org/cba/practicelink/bwl/stresscoping.aspx

Dealing with stress at the earliest opportunity will help minimize any consequences for the individual and others.  If you are suffering from stress, or you think one of your colleagues is, don’t stay silent.  Many bar associations have lawyer assistance programs that help individuals and their family member who are struggling with depression, anxiety, stress, and other mental health issues.  Reach out to one of these institutions, or a medical provider, so they can help ensure that the individual is put in touch with the available support mechanisms.

Enough about stress.  I want to end this Tip on a high note.  Thankfully, Mongolian throat singers can also rock.

Sitting on a Throne of Lies

The guys who play Santa at the mall get to shed their alter egos when the stores close and they go home.  Not so lawyers.  Our professional responsibility obligations stay with us when we leave the office, even when we are not acting as lawyers.

Recall the story of the lawyer who was disciplined for lying about a speeding ticket.  He thought it would be a good idea to claim that the police officer who issued the ticket singled him out because of his religion and used an ethnic slur.  The claim made its way to Internal Affairs, which investigated.  When pressed, the lawyer admitted that he had made up the story to get out of the ticket (it also didn’t help that the traffic stop was videotaped).

The fact that the lawyer was not acting as a lawyer didn’t matter to the state bar.  He was found to have breached his professional responsibility obligations by engaging in conduct involving dishonesty, fraud, deceit or misrepresentation (Rule 8.4(c)) and prejudicial to the administration of justice (Rule 8.4(d)).  His license — and I don’t mean his driver’s license — was suspended for six months.

So if you happen to be playing Santa this holiday season, remember that the Rules of Professional Conduct still apply.  And while I personally am not of the opinion that claiming to be Santa rises to the level dishonesty, fraud, etc., I am aware of at least one authority that holds a contrary view.


Doubling Down

I’m not much of a gambler.  Sure, I enjoy a game or two at the blackjack table, but beyond hitting or sticking, I don’t really know when I should split or when I should double down.

I do know that doubling down can be a risky move for lawyers.  Although we are obligated to zealously advocate for our clients, the ethics rules don’t allow us to assert claims or arguments without a good faith basis in fact or law.  Lawyers can sometimes lose sight of this, particularly if they learn after the fact that a position they have asserted lacks a good faith basis.

A number of firms recently learned the hard way that doubling down can have serious consequences.   An appellate court reinstated a $39 million malicious prosecution case against Latham & Watkins stemming from a trade secrets case it brought against two former employees of its client.  After the employees purportedly  demonstrated that they had created the business plan at issue prior to joining Latham’s client, instead of withdrawing the claims, Latham double downed and created new claims against the former employees.  The case was dismissed, with the court finding that the new claims lacked a good faith basis, setting the stage for the malicious prosecution claim.

Sure, we all want to win; but where the facts or law provide no good faith basis for asserting (or continuing to assert) a claim, don’t double down.   Otherwise, you may lose a lot more than your case.

When should you double down?  I’m tellin’ you, baby, you always double down on eleven.



“High up grew a daffodil…”

Every elementary school student knows that the worst punishment is getting called out in front of the class.  Whether it’s being forced to stand in the corner, perform, or write something 100 times on the blackboard (see, e.g., Bart Simpson), public humiliation can be an effective deterrent.  (I was going to cite a recent post ranking the best Simpson blackboard gags, until I saw that my favorite — “I will not waste chalk” — was remarkably omitted.)  In the attached clip, renowned schoolteacher June Crabtree provides a fine example of this effective method of deterrence.

Lately, courts and litigants have begun to realize that these old school punishments can be effective in dealing with lawyer misconduct.  Frustrated by the apparent lack of impact that a monetary penalty can have on a wealthy corporation or large law firm, lawyers have been subject to increasingly creative — and humiliating — sanctions.  You may have read about the Jones Day lawyer who was directed to write, produce and appear in a training video as sanction for obstructing a deposition.  But that’s not the only one.  As a sanction for improperly removing a case to federal court, a lawyer’s entire firm was ordered to attend a CLE about federal jurisdiction and Rule 11.  And a litigant in Texas has asked a court there to require the plaintiff’s general counsel to personally attend every court hearing as a sanction for having filed a baseless cause of action.

While these individual sanctions may not seem particularly harsh, the sanctioned  lawyers and law firms have another problem — the media loves this stuff.  So while a $1,000 penalty may not garner much attention, an order directing lawyer to produce a CLE makes headlines.  Notably, the judge didn’t identify the Jones Day lawyer in his opinion, but it didn’t take long for the press to figure out and plaster her name all over the internet.  And who reads articles on the internet?  Clients.  And potential clients.  And judges.

A lawyer’s (an a law firm’s) reputation in the courts and legal community is critical.  So if a monetary sanction isn’t enough to make you think twice before engaging in borderline conduct, think about how your (and your firm’s) name will look in the lead story about a lawyer being ordered to post a video of himself on YouTube reciting a poem about the Rules of Professional Conduct.

As for pretty Miss Crabtree, Little Rascals fans may also associate this story line with the short in which Jackie Cooper tries (unsuccessfully) to put one over on the new schoolmarm (it seems Miss Crabtree had a bit of difficulty holding down a job).  Personally, I prefer that one, but alas Miss Crabtree is much kinder to Jackie, making that clip a less effective vehicle for conveying today’s Tip.  And young Jackie’s taking a ride from a stranger without a second thought seems oddly inappropriate for a Risk Tip.  Enjoy it nonetheless.


Clink, Klink

On a recent trip to London, I stumbled across the original Clink Prison.  According to its website, “The Clink” — which bills itself as “the prison that gave its name to all others” — dates back to the 12th century and continued to operate as a prison until 1780 (it is now a museum).  The origins of the name are uncertain, but possibly comes from the clinking sound of the prisoners’ chains. 

Curiously, nowhere does the Clink’s website reference another famous namesake — Colonel Wilhelm Klink, prison commandant of Stalag 13.  And who is Colonel Klink without the bumbling Sergeant Hans Schultz, who famously disclaimed knowledge of any shenanigans by the Allied prisoners.


Which brings us to the subject of this week’s Tip.  Unlike the affable Sgt. Schultz, lawyers don’t always have the option of turning a blind eye to the misconduct of others.  Model Rule 8.3(a) provides that a lawyer “who knows that another lawyer has committed a violation of the Rules . . . that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer shall report such knowledge to a tribunal or other authority empowered to investigate or act upon such violation.”  Among the most cited case is Illinois’s In re Himmel, 533 NE2d 790 (Ill. 1998), in which an attorney was disciplined for failing to report that his client’s prior attorney absconded with settlement funds. 

But it’s not only conduct as egregious as theft that implicates Rule 8.3.  Lawyers also need to be mindful that what they say in court papers (or social media) about other attorneys might inadvertently trigger a reporting obligation or, at the very least, undermine legal arguments.  In Jackson v. Deen, a federal court in Georgia recently took lawyers to task for accusing each other of ethics violations:  “[B]oth sides, having now flown the ethics-code flag . . . are free to file a bar complaint. See Ga. R. Bar Rule 4–102, RPC Rule 8.3(a) (“A lawyer having knowledge that another lawyer has committed a violation of the Georgia Rules of Professional Conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, should inform the appropriate professional authority.”).  And if they do not then that says something, as ethics accusations should never be used as a litigation tactic.”

If you have reason to believe that another lawyer is engaging in conduct that might trigger a reporting obligation, don’t think you can get away with the Sgt. Shultz defense.  And certainly, don’t think you can publicly attack the trustworthiness or integrity of another lawyer.  Instead, contact an ethics profession; he or she can help you do the right thing so you can stay out of the Clink.


Every week, we regale readers with stories of lawyers’ ethical lapses and other misconduct.  But here’s a story demonstrating that the conduct of anyone who works at a law firm — including paralegals, assistants, clerks, and other staff — can be subject to the same scrutiny, and result in the same severe consequences, as that of lawyers. 

Last week, the SEC filed an insider trading Complaint against a stockbroker named Vladimir Eydelman and Steven Metro.  Although trained as a lawyer, Metro did not practice law; he worked as a managing clerk at Simpson Thacher & Bartlett.  The Complaint asserts that, through an unnamed “middleman,” Metro leaked confidential information about pending deals that Simpson Thacher was working on to Eydelman, who then allegedly traded on the information.   The Complaint describes a cloak-and-dagger scheme to avoid detection, including meetings under the Big Clock at Grand Central Station and tips written on napkins which were then eaten in an attempt to destroy physical evidence.  It didn’t work.   

According to the Complaint, Metro’s take on the more than $5 million reaped from the scheme amounted to about $150,000.  But that’s not the only thing he got.  He also got fired.  And he got arrested. 

Law firms (and in-house legal departments) should have clear policies on confidentiality and insider trading that apply not just to lawyers, but to all personnel.  The policies should, at the very least, admonish individuals to maintain information about client matters confidential; prohibit the purchase or sale of securities when the individual or the firm has material inside information; and provide for a clearing process before an individual is allowed to purchase securities.

While Mr. Metro’s (former) position cries out for a clip from Kevin Smith’s 1994 movie “Clerks,” there is precious little from that movie that has anything do with confidentiality or insider trading (at least nothing that’s not offensive).  I’ll settle for this tutorial instead.


Fatty and Dewey

Next Monday marks the birthdays of two late American icons:  former Governor Thomas E. Dewey and Roscoe “Fatty” Arbuckle.  How appropriate, given the modern day risk management lesson gleaned from their similar experiences.  Don’t know what I’m talking about?  Keep reading.

Not many people today remember Arbuckle.  But in the 1910’s, he was probably the biggest movie star around — literally and figuratively.  In terms of talent, popularity and  versatility, Arbuckle was right up there with Charlie Chaplin; he even had top billing over the legendary Buster Keaton.  You can check out the two of them in this clip. 

So why is Arbuckle all but forgotten?  In 1921, Arbuckle held a party in a San Francisco hotel, during which one Virginia Rappe became ill and later died.  One of Rappe’s friends accused Arbuckle of raping Rappe and causing her death.  Despite numerous holes in the story (and the friend’s attempt to extort money from Arbuckle), Arbuckle was arrested and prosecuted for manslaughter.  The resulting scandal became a major media event (according to William Randolph Hearst, the Arbuckle scandal “sold more newspapers than any event since the sinking of the RMS Lusitania.”).  Initially, Arbuckle didn’t think he needed a lawyer.  Then he thought a Paramount studio lawyer was sufficient.  Only much later did he hire a criminal defense attorney.  

After two mistrials, Arbuckle not only was acquitted, but the jury took the unusual step of issuing a statement of apology to Arbuckle.  Despite his ultimate exoneration, Arbuckle’s reputation was irreparably damaged and his career effectively ended. 

What does this have to do with Dewey?  I recalled Arbuckle when I read this article in the New York Times, about Zachary Warren, the youngest person indicted following the demise of Dewey & LeBouef.  Warren briefly worked in Dewey’s collections group before law school.  Since then, Warren, now 29, went to Georgetown Law, made Law Review, and was serving as a law clerk on the Sixth Circuit while waiting to join Williams & Connolly. 

According to the report, Warren received a call from the Manhattan D.A.’s office, answered questions, and “provided what he interpreted as background information.”  He didn’t think he needed a lawyer.  Later, Warren was called by the SEC about the bond offering issued by Dewey.  Since Mr. Warren had nothing to do with that, and wanted to be helpful and cooperative, he agreed to travel to Washington to sit with the SEC investigators to assist their investigation.  He didn’t think he needed a lawyer.  Oh, by the way, the SEC asked, would you mind if we had someone from the D.A.’s office join us?  Mr. Warren agreed.  He didn’t think he needed a lawyer.  We’ll let the NY Times report what happened next:

Mr. Warren arrived at the S.E.C. offices on Nov. 15. After the S.E.C. lawyer asked some introductory questions, Mr. Moser, the assistant district attorney, took over. An F.B.I. agent was also present, and other prosecutors were listening from New York.

By all accounts, the interview was a disaster for Mr. Warren. He had trouble remembering details from his time at the firm, which prosecutors interpreted as evasion or, worse, lying. They showed him emails and documents, most of which he did not recall. He was not prepared for the hostile tone and became defensive. Prosecutors thought that Mr. Warren was arrogant, even that he was “playing them” by trying to ferret out what they knew, rather than offering to help the investigation.

It remains to be seen whether Warren will be convicted, but the damage to his reputation has already been done.  So if the fear of a criminal conviction isn’t enough to prevent you from speaking to law enforcement without proper representation, then think about Arbuckle, Warren and the potential for irreparable damage to your reputation.  Then call a lawyer.

We’re From the Government ….

I doubt President Reagan had the following in mind when he made the above remarks, but let his comments set the stage for this hypothetical:

You’re a busy lawyer working at your desk, and the receptionist calls.  “There are a pair of FBI agents in the lobby, and they would like to talk to you about a matter you worked on a few years ago.  They know they don’t have an appointment, but they promise it won’t take long and said it’s really important.  Can you come down and see them?”  Or maybe they call you directly.  Or show up at your home, while you’re having dinner.  What do you do? 

Well, if you are a lawyer, and the authorities wish to ask you questions about your clients, you are about to engage in a particularly perilous activity.  Do you know what you can say?  Is the identity of your client a confidence you can disclose in this setting?  Have you thought through the privilege issues?  What about the duties you might have to notify a current client of the contact?  A former client?  What if the officers ask you to keep their contact confidential?  Will you then have to testify in a grand jury?  What if you said something, and later think that wasn’t quite right?  This is a lot to process on the spur of the moment. 

So, what’s a lawyer to do with a pair of G-men tapping their toes in reception?  One approach:  “Hi.  Thanks for coming.  Can I have your card?  I or someone else will get back to you promptly.”  And then call your counsel!

Even for non-lawyers, while many of us have the entirely understandable urge to be good cooperative citizens, you may still be about to embark in risky behavior.  I’ll let the good professor, below, offer his take on the virtues of the Fifth Amendment. 


Olympics 2014

Like all Olympics, Sochi has had its share of memorable, and controversial, moments:  the yogurt flap;  Russia’s disallowed goal leading to a US hockey victory;  Adelina Sotnikova’s upset figure skating win; the fact that it’s warmer in Sochi than in Florida.  Even the sports themselves are controversial; according to my 11 year-old son, if sledding is an Olympic sport, why not award medals for best snowman?  And my eighth-grader has figured out how to make varsity in her freshman year of high school — start a curling team.

Even if you haven’t been following the Olympics, you likely are aware of the controversy surrounding NBC reporter Christin Cooper’s interview of US medal winner Bode Miller.  Cooper was criticized for pushing things a bit too far in her questions about the death last year of Miller’s brother.  Even after Miller teared up, Cooper kept going; by the end, Miller was sobbing, crouched in a ball.

While Cooper was under no obligation to stop her questioning, she might have been well-advised to withdraw sooner (though Miller apparently has no hard feelings).  It’s an issue that lawyers face as well.  While lawyers of course owe a duty of loyalty to their clients, there are some circumstances where withdrawing from a matter is the wisest, or even only, course.

Failing to withdraw can have some pretty serious consequences — a claim against the lawyer and the firm; unpaid fees; even discipline.  So when should you be thinking about withdrawing from a representation? Here are some red flags to look for:

*Client’s A/R is growing and, despite promises to pay, nothing has come in.
*Client ignores your advice and insists on pursuing a course that you believe is unwise.
*Client is repeatedly complaining about the bills, your work, and everything else.
*Joint clients disagree on a course of action or have otherwise are otherwise in dispute.
*Client is engaging in activity that we think may be questionable.

While no one wants to let a client go, in the long run, you may be very happy you did.  And while those reporting on the Olympics don’t face quite the same issues, they may be well-advised to follow the example of Patrick Warburton in his interview of luge hopeful James Gilbert.