Wednesday, June 25, 2008

Oath Helpers Return

"In August 2001, when in-house accountant Sherron Watkins warned Enron CEO Ken Lay that the company might implode in a wave of accounting scandals,' Lay asked the firm's regular law firm, Vinson & Elkins, to do a 'preliminary investigation.' Though V&E had worked on the very transactions Watkins was questioning, it took the assignment and reported back on Oct. 15 that there was no cause for concern. About a month and a half later Enron filed for bankruptcy, having, in fact, imploded in a wave of accounting scandals. ... In a forthcoming Stanford Law Review article titled 'The Market for Bad Legal Advice,' Columbia Law School professor William Simon cites [Charles] Wolfram's opinion as just one example of patently bad advice offered in exchange for lucrative compensation by academics whom he contends are becoming 'enablers of pernicious ... practices' ... 'Simon seems to suggest that giving favorable testimony for a law firm is facilitating future wrongdoing by the law firm,' says [Charles] Wolfram, who charges $650 an hour. ... Simon's article, whose take-no-prisoners tone left me slack-jawed, contends that there is a systemic, recurring problem that arises when well-heeled clients go shopping for expert exonerations--sometimes prior to doing something shady, sometimes after they've already done it--to immunize themselves from civil liability or criminal prosecution. ... Stephen Gillers ... [said] 'It's unique for law professors to so aggressively criticize the behavior of other law professors--not their intellectual positions.' ... A clear case is where the promoter of a dicey tax shelter offers a boatload of money to a law firm to opine that its Rube Goldberg-style investment has a genuine 'business purpose' and should therefore, pass muster with the [IRS]. ... The problem is even worse, Simon contends, when the client seeks a self-serving opinion not from a law firm but from an ostensibly above-the-fray professor. ... Prior to the Enron debacle, the Oscar for the most dubious performance by a law firm in a supporting role would have gone to New York's Kaye Scholer, which represented Charles Keating Jr.'s now notorious Lincoln Savings & Loan in the late 1980s. ... Simon writes, 'In effect, [Geoffrey] Hazard rented [Harvard's] imprimataur to Kaye Scholer for his own profit, allowing the firm to make virtually unconditional use of it.' (Kaye Scholer later paid $41 million to settle the regulators' suit but acknowledged no wrongdoing.) ... The lawyers he eviscerates are constrained from freely responding by confidentiality obligations. But that's exactly Simon's point. To the extent that free and open discussion can't take place, the opinions aren't worth the respect they're being accorded. ... I am now sufficently old and decrepit to describe myself as a longtime observer of the American legal system. For what it's worth, I find Simon's analysis of what's wrong with legal ethics testimony to be not just dead-on but cathartically so. How gratifying to finally hear someone speak the truth to power so bluntly, boldly, and pursuasively. The ethics emperors have no clothes on, and thank goodness the socially oblivious little boy has finally said it", my emphasis, Roger Parloff (RP) at Fortune, 9 June 2008.

RP, you see an example of a problem with all "expert" testimony: most of it is "MAI", made as instructed. I've read many tax opinions by large law firms used to promote various tax shelters that I couldn't have signed. Not even for the $500,000 I guessed the law firm got for the opinion. For $5 million, well ... The problem is a general lack of "expert" accountabilty, whether the "experts" are: CPAs, rating agencies, criminalists, FBI agents, economists, you name it. If you can't sue 'em over their opinions, they're worthless. If they can hide behind lawyer-client privilege, they're worthless. I previously said, 17 November 2007, publicly-held companies should not have such privilege. I say it again. Another problem Simon does not see is: most attorneys and judges I've seen do not understand evidence. They could learn more about evidence from watching ten episodes of "Perry Mason", 1957-66 than they know today. From time-to-time I get approached to do litigation support work. About half of it I turn down quickly when I explain to the attorney that he wants me to be an "oath helper". These clowns can't present a case, so they want someone else to opine on ultimate issues of fact, which is the trier of facts job.

1 comment:

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