We Love Blabbing Attorneys, Even if From Fear of Prosecution

NY Attorney in Fraud Scandal Tells All
The New York Law Journal by Zach Lowe - February 19, 2009

There are a ton of legal angles to be explore amid the growing scandal swirling around R. Allen Stanford and the Stanford Group Co. — most notably, where exactly Stanford himself is at the moment. One issue in particular, though, is relevant for the lawyer community: that an attorney for the company, Thomas Sjoblom of Proskauer Rose, sniffed out the fraud, withdrew his representation, and told federal investigators he essentially took back everything he had told to them in recent weeks, according to Bloomberg. Sjoblom didn't return calls for comment, nor did Richard Razook of Hunton & Williams, another attorney reportedly representing Stanford.

In the meantime, Recorder affiliate the Am Law Daily contacted a number of legal ethics experts to discuss Sjoblom's decision to come clean about a client's alleged frauds — especially given the possibility that in doing so, he disclosed confidential client information to the government. Experts said Sjoblom did precisely the right thing — and, more importantly, that the federal Sarbanes-Oxley Act likely made his decision much easier than it otherwise might have been. The SOX Act contains a provision that explicitly states that any attorney before the Securities and Exchange Commission "may" reveal confidential client information to investigators if that attorney believes that doing so will prevent a violation of the law or help rectify losses investors have already suffered, says Bruce Green, a law professor and ethics expert at Fordham University. Before SOX, attorneys in Sjoblom's predicament faced a patchwork of confusing state laws and bar regulations through which they had to navigate, experts say.

The tangle of regulations dated back to the famous OPM case of the early 1980s, when lawyers at a now defunct firm kept quiet about OPM's use of bogus assets to obtain loans and were later found liable for their silence in several civil suits, says Stephen Gillers, a legal ethics expert at New York University School of Law. The SOX regulation gave securities lawyers clarification if their state bar associations or state laws did not, says Steven Lubet, a legal ethics expert at Northwestern University. Sarbanes-Oxley even created a term for withdrawing representation and handing over information to investigators, Gillers says: a "noisy withdrawal." "He did the right thing here," Gillers says of Sjoblom. Lubet says most "noisy withdrawals" never become public. But the SEC mentioned Sjoblom — though not by name — in its complaint against Stanford, something that likely reveals the importance of Sjoblom's cooperation.

In the coming days, there will be other angles connected to the unfolding Stanford scandal to delve into. John Coffee, a securities law expert at Columbia Law School, says it's too early too tell if any third parties who may have steered investors to Stanford might be liable for damages (a la the Madoff feeder funds). That's in part because Stanford's companies are not insolvent; if that remains true, investors will go after the alleged wrongdoer directly instead of targeting third parties, Coffee says. There's also the pending whistle-blower suit two ex-Stanford employees filed against Stanford last year, and the fact that the federal government fined Stanford in 2007 but never went any further. Finally, there's the fun and interesting copyright suit Stanford University filed against the financial group last year. A team from Curtis Mallet-Prevost Colt & Mosle is repping R. Allen Stanford in that case but not in the corporate investigation, court records show.