Legal Ethics and Reform


Lawyers Played a Major Role in Corporate Mis-Deeds

In the spring and summer of 2002 America went through a series of painful disclosures about corporate misdeeds. The first lawsuit to grow out of these disclosures was a fraud charge leveled at Authur Andersen the CPA firm that certified ENRON's financial statements. The fraud charge was based mainly upon certain document destruction activities and the additional failure to adequately disclose the extent and nature of ENRON's off balance sheet "special purpose entities".

The trial was expedited at Andersen's request so the cloud over the CPA firm might be lifted. Andersen was confident their accountants had not misbehaved. The trial was colorful with Andersen's lawyer providing a spirited defense. The case went to the jury around June 1st and all observers expected a quick verdict. After all, the jury only needed to find one Andersen employee who had acted intentionally to deceive shareholders and the public about ENRON's financial condition. But a quick decision was not forthcoming. The jury deliberated for many days and finally came back with a guilty verdict.  They said they had found one and only one Andersen employee who had acted to intentionally deceive the investing public. That employee was not an accountant; it was Nancy Temple, a Harvard trained lawyer at Andersen who had advised the audit team at ENRON about what information they should disclose and what documents they should destroy. So Andersen was right, their accountants had not misbehaved, but one of their lawyers brought the firm down.

After the jury's decision the legal fraternity rallied around Ms. Temple saying the jury was wrong to judge her behavior with the same standards that the legal system usually reserves for judging non lawyers. The legal fraternity reacted like a stuck pig - squealing to the world "how dare you hold one of us to such a high standard of behavior. Don't you know it is our job to guide our clients through the gray area between what is clearly moral and what is clearly illegal. Lawyers simply can't be found guilty of fraud for doing our job."

The disclosures at ENRON had caused a massive review of what public accounting reforms had been proposed in recent years. Investigators wanted to know  what had happened to those proposals. This review brought to light the fact that another lawyer, Harvey Pitt, had been for years a very effective advocate/lobbyist for the AICPA the trade association of public accountants. Pitt had successfully argued for minimum of regulation on that industry. Unfortunately Pres. Bush had appointed this same Harvey Pitt to head up the Securities and Exchange Commission. So although Mr. Pitt began making tough noises about regulating the public accounting industry, his proposals were regularly shown to have "exceptions" and "loop holes". The cries for Mr. Pitt's resignation, which had started among Democrats, began to come from Republicans as well.

Then, in July 2002, after the WorldCom disclosures were added to the ENRON disclosures, Pres. Bush traveled to NYC to give a speech on corporate honesty. With Harvey Pitt in trouble and Nancy Temple already fingered as an agent of fraud, Bush stood in NYC and demanded that America's schools of business strengthen their ethics programs. But for some strange reason, Bush did not mention that America's law schools might want to strengthen their ethics programs as well.

This selective outrage, where everyone is a bad guy except the lawyers, has got to stop.

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