Look Who's Left Standing

By Carrie Johnson
Washington Post Staff Writer
Thursday, August 31, 2006

Four years after regulators launched a task force to stamp out business corruption, numerous chief executives are on their way to prison, two of the nation's biggest accounting firms are defunct or on probation, and investment banks have shelled out billions of dollars in settlements.

But lawyers serving fraud-ridden companies have emerged relatively unscathed.

Unlike the accounting profession, forced by the Sarbanes-Oxley Act in 2002 to submit to independent oversight, lawyers have generally ducked proposals that would have forced them to blow the whistle to outsiders.

On an individual level, law firms that dispensed bad advice or failed to act on red flags mostly have avoided prosecution, in contrast to their brethren in the accounting industry. Arthur Andersen LLP met its demise after a 2002 conviction, later overturned, of obstructing justice in the Enron Corp. case. Rival KPMG LLP operates under a form of probation for selling abusive tax shelters.

Nor have securities regulators pursued sweeping civil cases against groups of law firms, seeking to determine if they may have performed shoddy work or ignored fraud under their noses. Compare that with a group of leading investment banks, including Merrill Lynch & Co. and J.P. Morgan Chase, that handed over $1.4 billion in 2002 to settle accusations that their analysts produced overly optimistic research reports to help win business for the banks. Several banks later ponied up billions of dollars more to resolve shareholder accusations that they had helped companies disguise financial problems.

"There's every reason why lawyers acting as gatekeepers ought to be held responsible for failures to carry out clear legal mandates," said Harvey J. Goldschmid, a former member of the Securities and Exchange Commission who now teaches at Columbia University School of Law.

Lawyers, of course, enjoy broad privileges that prevent them from sharing client confidences. But courts have held that exceptions can be made in cases where fraud or other crimes have taken place. And the legal privilege would give little cover to attorneys if they broke the law by actively covering up accounting schemes, funneling money to themselves and their bosses or tampering with documents.

To hear many lawyers tell it, the regulatory environment has grown far more harsh in recent years. Indeed, the former general counsel of Computer Associates International Inc. pleaded guilty in 2004 to conspiracy and obstruction of justice in part for misleading investigators, and the former top lawyer at Rite Aid Corp. was convicted by a jury in 2003 for helping his boss backdate compensation documents. Onetime lawyers at General Re Corp. and Hollinger International Inc. are awaiting trial on charges that they failed to blow the whistle on problems that came to their attention.

"The trend line evident in the last 12 months is that both SEC regulatory sanctions and criminal prosecution of inside counsel are increasing sharply," John K. Villa, a defense lawyer at Washington's Williams & Connolly LLP, wrote in a recent trade journal article.

Yet compared with the treatment of accountants, investment bankers and corporate leaders, very few lawyers have been sanctioned, and they have been among the last to be called to account.

For example, Villa compiled statistics showing that the SEC's enforcement unit pursued civil charges against 34 lawyers between 2002 and mid-2006, and prosecutors filed criminal charges against 13 in-house lawyers during the same period.

In comparison, nearly three dozen executives, accountants and bankers have faced charges in connection with the Enron case alone since the Houston energy trader collapsed in December 2001.

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