![\"\"](\"http:\/\/law.marquette.edu\/facultyblog\/wp-content\/uploads\/2009\/01\/ponzi.jpg\" "\\"ponzi\\"")
<\/a>As the disaster in the financial markets continues to unfold, greed and avarice \u2013 the usual suspects \u2013 are being overshadowed by pervasive fraud as a prime mover.\u00a0 <\/span>We have, of course, the infamous Bernie Madoff and now the \u201cmini-Madoffs\u201d upon whom we can heap large helpings of blame, but deceit, misrepresentations, and fraud seemingly resonate throughout the markets, as illustrated by the subprime scandal, the mortgage mess, and the flood of worthless consumer debt.\u00a0 <\/span>And what was the role of lawyers in all this?\u00a0 <\/span>Financial transactions of this sort inevitably involve lawyers at some stage.\u00a0 <\/span>Investigations and lawsuits may soon give us a clearer picture of the role lawyers may have played in exacerbating the nightmare, but the question for today is whether lawyers could have, or should have, acted to prevent any of this.\u00a0 <\/span>And my focus is not Sarbanes-Oxley or securities regulations, but on the fundamentals of lawyers\u2019 professional responsibility.<\/p>\nLawyers are not permitted to \u201cassist\u201d or \u201cfurther\u201d crimes or frauds committed by their clients.\u00a0 <\/span>To do so \u2013 provided anyone finds out \u2013 eviscerates the venerable lawyer-client privilege and exposes both lawyer and client to civil and criminal remedies. This is comfortably familiar and uncontroversial.\u00a0 <\/span>But what of the lawyer who is aware of a client\u2019s fraud but who arguably has done nothing to assist or further it?\u00a0 <\/span>Assume further that the fraud is on-going and not a past act.\u00a0 <\/span>What is the lawyer\u2019s duty or professional responsibility, especially considering that lawyers are enjoined not to disclose client confidences or privileged communications without client consent (and the reality is that few clients will approve of their lawyer\u2019s whistle-blowing)?<\/p>\n Wisconsin is one of just two states (New Jersey is the other) that impose a mandatory<\/em> duty on lawyers to prevent continuing fraud by a client.\u00a0\u00a0 <\/span>Specifically, SCR 20:1.6(b) provides as follows: \u201cA lawyer shall<\/em> reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary to prevent the client from committing a criminal or fraudulent act that the lawyer reasonably believes is likely to result in death or substantial bodily harm or in substantial injury to the financial interest or property of another\u201d (emphasis added). \u00a0\u00a0<\/span>\u00a0\u00a0<\/span>One authoritative legal source that discriminates between \u201ccriminal\u201d and \u201cnoncriminal\u201d fraud (an interesting distinction itself), reports the following: only 2 jurisdictions (Wis and NJ) require mandatory reports, 24 leave it to counsel\u2019s discretion, 23 forbid disclosures, and 2 require the lawyer resign!\u00a0 <\/span>(The tally for \u201ccriminal fraud\u201d is equally enlightening: only 4 require disclosure, 40 permit it at counsel\u2019s discretion, and 7 forbid it.) <\/span><\/p>\n The scope of the Wisconsin lawyer\u2019s mandatory duty to prevent client fraud is uncharted.\u00a0 <\/span>The rule has been part of Wisconsin law since the adoption of the present rules.\u00a0 <\/span>Several years ago the supreme court and a distinguished committee implemented a number of significant revisions but left SCR 20:1.6(b) untouched.\u00a0 <\/span>Unclear is when the duty is triggered.\u00a0 <\/span>When does a \u201crisky investment\u201d become a fraud?\u00a0 <\/span>What exactly must the lawyer know, or be aware of, before she is required to act?\u00a0 <\/span>How much monetary damage constitutes a \u201csubstantial injury\u201d to a \u201cfinancial interest\u201d?\u00a0 <\/span>Does a violation expose the lawyer only to professional discipline, or might it open the way to a tort claim against both the lawyer and the law firm?<\/p>\n Case law is sparse, which may be a good or bad thing.\u00a0 <\/span>SCR 20:16(b) reared its head \u2013 sort of \u2013 several years ago in a case out of LaCrosse.\u00a0 <\/span>Lawyer K represented \u201cRandy,\u201d a tavern owner, on several ordinance violations involving Randy\u2019s bar.\u00a0 <\/span>One day Randy\u2019s bar burned down.\u00a0 <\/span>When Lawyer K commiserated with Randy about this misfortune, Randy disclosed that he had intentionally set the fire in order to collect on the insurance policy.\u00a0 <\/span>Lawyer K promptly told Randy that he could not collect the insurance because this would constitute still another crime \u2013 past arson + future insurance fraud = big trouble for Randy.\u00a0 <\/span>Shortly thereafter, Lawyer K memorialized this same information in his \u201cDear Randy\u201d letter, which also warned Randy that SCR 20:1.6(b) obligated Lawyer K to notify others to prevent any future fraud from occurring.\u00a0 <\/span>The letter ended by terminating Lawyer K\u2019s representation of Randy.\u00a0 <\/span>Sometime later, Lawyer K learned that Randy had disregarded his advice and collected part of the insurance proceeds.\u00a0 <\/span>To protect against further fraud, Lawyer K notified the police and prosecutors of Randy\u2019s crimes.\u00a0 <\/span>The disclosure included the \u201cDear Randy\u201d letter which recounted Randy\u2019s confessions.\u00a0 <\/span>Randy moved to suppress the evidence on grounds that (former) Lawyer K had breached Randy\u2019s privilege and disclosed confidences without Randy\u2019s consent.\u00a0 <\/span>The trial court disagreed and refused to suppress the evidence.\u00a0 <\/span>In a terse, poorly crafted, one page unpublished per curiam opinion, the court of appeals affirmed.\u00a0 <\/span>Without analyzing (or citing) SCR 20:1.6(b), the court validated the disclosure instead under the crime-fraud exception to the lawyer-client privilege, which is silent as to disclosure.\u00a0\u00a0 <\/span>For the curious reader, the opinion appears here<\/a>.\u00a0\u00a0\u00a0<\/span><\/span><\/p>\n In some respects, Randy\u2019s case was an easy one.\u00a0 <\/span>Randy clearly intended to commit insurance fraud; this was not just a risky or murky transaction.\u00a0 <\/span>But remember that Lawyer K \u201cfired\u201d Randy at the end of the \u201cDear Randy\u201d letter.\u00a0 <\/span>Does SCR 20:1.6(b) apply to former clients?\u00a0 <\/span>(Here it should be mentioned that lawyers have \u201cdiscretion\u201d to disclose client misconduct, but that\u2019s a different story.)\u00a0\u00a0 <\/span>And even where disclosure is mandatory, how precisely does the rule regulate the scope of disclosure?\u00a0 <\/span>What is \u201ctoo much\u201d?\u00a0 <\/span>Should it monitored by a court?\u00a0 <\/span>As the far more complex tale of financial misconduct unfolds, there may be provocative issues of what lawyers may have known of their clients\u2019 actions and whether they should have acted to protect investors or third parties under SCR 20:1.6(b).\u00a0 <\/span>One suspects that there may be other, far more mendacious \u201cRandys\u201d out there.\u00a0\u00a0<\/span><\/span><\/p>\n \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":" \u00a0 As the disaster in the financial markets continues to unfold, greed and avarice \u2013 the usual suspects \u2013 are being overshadowed by pervasive fraud as a prime mover.\u00a0 We have, of course, the infamous Bernie Madoff and now the \u201cmini-Madoffs\u201d upon whom we can heap large helpings of blame, but deceit, misrepresentations, and fraud […]<\/p>\n","protected":false},"author":43,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ocean_post_layout":"","ocean_both_sidebars_style":"","ocean_both_sidebars_content_width":0,"ocean_both_sidebars_sidebars_width":0,"ocean_sidebar":"","ocean_second_sidebar":"","ocean_disable_margins":"enable","ocean_add_body_class":"","ocean_shortcode_before_top_bar":"","ocean_shortcode_after_top_bar":"","ocean_shortcode_before_header":"","ocean_shortcode_after_header":"","ocean_has_shortcode":"","ocean_shortcode_after_title":"","ocean_shortcode_before_footer_widgets":"","ocean_shortcode_after_footer_widgets":"","ocean_shortcode_before_footer_bottom":"","ocean_shortcode_after_footer_bottom":"","ocean_display_top_bar":"default","ocean_display_header":"default","ocean_header_style":"","ocean_center_header_left_menu":"","ocean_custom_header_template":"","ocean_custom_logo":0,"ocean_custom_retina_logo":0,"ocean_custom_logo_max_width":0,"ocean_custom_logo_tablet_max_width":0,"ocean_custom_logo_mobile_max_width":0,"ocean_custom_logo_max_height":0,"ocean_custom_logo_tablet_max_height":0,"ocean_custom_logo_mobile_max_height":0,"ocean_header_custom_menu":"","ocean_menu_typo_font_family":"","ocean_menu_typo_font_subset":"","ocean_menu_typo_font_size":0,"ocean_menu_typo_font_size_tablet":0,"ocean_menu_typo_font_size_mobile":0,"ocean_menu_typo_font_size_unit":"px","ocean_menu_typo_font_weight":"","ocean_menu_typo_font_weight_tablet":"","ocean_menu_typo_font_weight_mobile":"","ocean_menu_typo_transform":"","ocean_menu_typo_transform_tablet":"","ocean_menu_typo_transform_mobile":"","ocean_menu_typo_line_height":0,"ocean_menu_typo_line_height_tablet":0,"ocean_menu_typo_line_height_mobile":0,"ocean_menu_typo_line_height_unit":"","ocean_menu_typo_spacing":0,"ocean_menu_typo_spacing_tablet":0,"ocean_menu_typo_spacing_mobile":0,"ocean_menu_typo_spacing_unit":"","ocean_menu_link_color":"","ocean_menu_link_color_hover":"","ocean_menu_link_color_active":"","ocean_menu_link_background":"","ocean_menu_link_hover_background":"","ocean_menu_link_active_background":"","ocean_menu_social_links_bg":"","ocean_menu_social_hover_links_bg":"","ocean_menu_social_links_color":"","ocean_menu_social_hover_links_color":"","ocean_disable_title":"default","ocean_disable_heading":"default","ocean_post_title":"","ocean_post_subheading":"","ocean_post_title_style":"","ocean_post_title_background_color":"","ocean_post_title_background":0,"ocean_post_title_bg_image_position":"","ocean_post_title_bg_image_attachment":"","ocean_post_title_bg_image_repeat":"","ocean_post_title_bg_image_size":"","ocean_post_title_height":0,"ocean_post_title_bg_overlay":0.5,"ocean_post_title_bg_overlay_color":"","ocean_disable_breadcrumbs":"default","ocean_breadcrumbs_color":"","ocean_breadcrumbs_separator_color":"","ocean_breadcrumbs_links_color":"","ocean_breadcrumbs_links_hover_color":"","ocean_display_footer_widgets":"default","ocean_display_footer_bottom":"default","ocean_custom_footer_template":"","ocean_post_oembed":"","ocean_post_self_hosted_media":"","ocean_post_video_embed":"","ocean_link_format":"","ocean_link_format_target":"self","ocean_quote_format":"","ocean_quote_format_link":"post","ocean_gallery_link_images":"on","ocean_gallery_id":[],"footnotes":""},"categories":[30,72,36,1,3],"tags":[],"class_list":["post-3539","post","type-post","status-publish","format-standard","hentry","category-criminal-justice","category-legal-ethics","category-legal-practice","category-uncategorized","category-wisconsin","entry"],"_links":{"self":[{"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/posts\/3539","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/users\/43"}],"replies":[{"embeddable":true,"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/comments?post=3539"}],"version-history":[{"count":0,"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/posts\/3539\/revisions"}],"wp:attachment":[{"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/media?parent=3539"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/categories?post=3539"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/law.marquette.edu\/facultyblog\/wp-json\/wp\/v2\/tags?post=3539"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}