Fwd: [toeslist] Mirabile Dictu! The SEC is Getting Disgusted With Lawyers Pulling the Same Tricks in SEC Investigations that They Pull in Foreclosure Land Every Day
- ---------- Forwarded message ----------
From: Riaz K Tayob <riaz.tayob@...>
Date: Tue, May 1, 2012 at 7:05 AM
Subject: [toeslist] Mirabile Dictu! The SEC is Getting Disgusted With
Lawyers Pulling the Same Tricks in SEC Investigations that They Pull in
Foreclosure Land Every Day
To: "The Other Economic Summit (TOES)" <firstname.lastname@example.org>
Mirabile Dictu! The SEC is Getting Disgusted With Lawyers Pulling the Same
Tricks in SEC Investigations that They Pull in Foreclosure Land Every
The Wall Street Journal has an entertaining
if your taste runs to black humor, of how legal chicanery has reached such
high levels that the SEC is toying with the idea of going after it directly
(hat tip reader Andrea). Officials at the securities watchdog suspect that
the way **lawyers**<http://www.nakedcapitalism.com/2012/05/mirabile-dictu-the-sec-is-getting-disgusted-with-lawyers-pulling-the-same-tricks-in-sec-investigations-that-they-pull-in-foreclosure-land-every-day.html#>have
instructed clients to behave in its investigations constitutes
obstruction of justice:
have grown frustrated by what they claim is direct obstruction of
a few investigations and a larger number of probes where lawyers coach
clients in the art of resisting and rebuffing. The tactics include
witnesses �forgetting� what happened and companies conducting internal
investigations that scapegoat junior employees and let senior managers off
the hook, agency officials say.
We�re not entirely sympathetic with the SEC�s problem. With the exception
of HealthSouth, it has not used false certifications under Sarbanes-Oxley
as grounds for going after the certifying officers, who customarily include
the CEO and CFO. Sarbox was designed, among other things, to end the use of
the �I�m the CEO and I know nothing� defense.
Nevertheless, the SEC�s conundrum illustrates a serious decay standards in
the legal profession and in social values generally. Readers of this blog
are welcome to take issue, but attorneys tell me that state bar
associations will sanction or disbar only small players. The large firms
all make a point of being active in the organization. That makes it
socially awkward to suggest a fellow country club member peer might be up
to no good, much the less to move forward with charges.
Florida demonstrates how heavy-hitter law firm miscreants go undisciplined
by the bar. One particular egregious example of influence-peddaling
involves the foreclosure mill Shapiro & Fishman. The firm has been under
investigation by the Florida attorney general�s office (initiated under the
last incumbent, Bill McCollum). Shapiro & Fishman is a regular user of
mortgage assignments prepared by Lender Processing Services, the employer
of the notorious robosigner �Linda Greene� and an avid practicer of
�surrogate signing� which is NewSpeak for forgery. Nevada and Missouri have
indicted LPS employees. The firm is operating under a consent order from
the Federal Reserve Board, the FDIC and the OCC.
So to deal with its wee problem, Shapiro & Fishman hired �superlawyer�
Gerald Richman. Richman (among other things) was on the Host Committee for
a $1500 a ticket fundraiser held on April 30 for three incumbent Florida
Supreme justices (3 of the 7 judges are up for �merit renewal� votes this
year). It also happens that on May 10, the Florida Supreme Court will hear
oral arguments in Pino v. Bank of New York, a foreclosure fraud case.
Needless to say, the outcome will be of very keen interest to Shapiro &
Now it may sound crass to say that the three justices will be influenced by
the participation of Richman, and no doubt well heeled members of the bank
side of the foreclosure bar. But research by social psychologist Robert
Cialdini says they will be. He has found that a gift as small as a can of
soda will make the listener more likely to say �yes� to a sales pitch. And
the fundraiser is only an illustration of the influence bigger firms wield.
Their partners travel in more elevated social circles, belong to the same
clubs, backscratch their colleagues, and may have worked directly together
in the past (in law school, as junior members of white shoe firms, and as
members of committees in the bar association. The prohibitions against
criticizing colleagues in these tight social networks are high.
Any profession that was serious about conduct should have done some serious
soul-searching when the robosiging scandal revealed widespread misconduct.
But it has taken AGs like the ones in Nevada and Missouri, and courts like
New York�s, which imposed certification requirements on attorneys in
foreclosure cases, to do anything about it (note that going after LPS is
certain to lead it to try to shift blame to the foreclosure mills).
Back to main thread. The SEC is considering going after lawyers who
approved certain mortgage bond transactions before the crisis or have been
The SEC enforcement staff has recently reported more lawyers to the
agency�s general counsel, who can take administrative action against
lawyers for alleged professional misconduct.
So far, it looks like the SEC is just barking. The Journal points out that
it lacks the power that the CFTC has to go after attorneys who make �any
false or misleading statement of a material fact.� The SEC has gotten one
lifetime ban against an attorney who coached his client to have her memory
�fade� if she got a year of severance pay and has another case underway.
But it also points out that judges have set the bar high as far as criminal
prosecutions are concerned (note the SEC can only bring civil cases, so
this isn�t an apples to apples comparison).
I�m surprised that this article does not get at one legitimate reason to be
leery of this SEC effort: any investigation, to really get at what
happened, would have to breach attorney/client privilege, unless it had
already been compromised. This is critical to the legal process working
correctly. Further erosion of attorney-client privilege hurts clients far
more than lawyers, which is why the bar won�t take this wake-up call as
seriously as it should.
These are all bad remedies for the real problem: the lack of secondary
liability. As we wrote in ECONNED:
Legislators also need to restore secondary liability. Attentive readers may
recall that a Supreme Court decision in 1994 disallowed suits against
advisors like accountants and lawyers for aiding and abetting frauds. In
other words, a plaintiff could only file a claim against the party that had
fleeced him; he could not seek recourse against those who had made the
fraud possible, say, accounting firms that prepared misleading financial
statements. That 1994 decision flew in the face of sixty years of court
decisions, practices in criminal law (the guy who drives the car for a bank
robber is an accessory), and common sense. Reinstituting secondary
liability would make it more difficult to engage in shoddy practices.
Unfortunately, fraud now seems to have become such a large percentage of
the GDP that lawmakers would no doubt see it as dangerous to employment and
growth to restrict it. And the SEC is so preoccupied with winning cases (as
opposed to making miscreants afraid that they might be dragged into court
and have their dirty linen exposed) that the risk is high that they will
file an election-year �we need to look tough� case, and be deterred, as
they were with the Bear Stearns hedge fund prosecution, if it goes against
Put it another way: if the usually limp-wristed SEC is so upset with legal
misconduct that it is considering action, even if that action is likely to
add up to very little, it shows how deep the rot is among the American
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