• If I Told You I’d Have To Shoot You. Or Lose The Case. Neither Are Good.

    By • Sep 10th, 2010 • Category: Food for Thought

    In honor of my appearance in front of a room full of lawyers next week at the New York County Lawyers Association event, I thought I would reprint an article about attorney-client privilege. It was originally published by GoingConcern.com on September 9, 2009.

    Bank of America (BAC) is in the news again today. The reason is one of my favorite subjects, attorney-client privilege. From the New York Attorney General’s (NYAG) letter to Bank of America’s attorney, Lewis J. Liman:

    “Bank of America’s indiscriminate invocation of the attorney-client privilege is hindering this Office… We cannot simply accept Bank of America’s officers’ naked assertions that they sought and relied on advice of counsel in good faith, and that, therefore, they should not be charged…”

    I perked up when I saw the word “naked” used by a lawyer. That kind of cognitive dissonance excites me… But I digress.
    BAC lawyers are using the attorney-client privilege argument to avoid answering charges by the NYAG that, in at least four instances in late 2008, BACs senior officers didn’t tell shareholders about important information — such as surging losses and big bonuses at Merrill — before they voted on the deal.

    “We cannot simply accept Bank of America’s officers’ bald assertions that their decisions to keep each of these material events from Bank of America’s shareholders were based on a full review of all the relevant information by their inside and outside counsel. …cannot assert an advice of counsel defense for their decisions, and at the same time persist in refusing to disclose the substance of the conversations with counsel.”

    Attorneys. Bald. Balding guys with big brains. I’m distracted.

    Reminds me of the “I was duped” defense, another concoction of smart, sometimes balding, but not often enough naked attorneys to defend auditors from accountability for the restatements, backdating scandals, and assorted frauds of their clients. It has been asserted at times with success. It’s being used more and more and more and more. But it smacks of the “have your cake and eat it too” attitude pervasive in C-level corporate America.

    Bank of America is overwhelmed with litigation related to its “financial crisis” era investments. In addition to the Merrill Lynch suits, there’s also Countrywide. However, some investors are still quite bullish, in spite of this enormous legal baggage:

    “…Bank of America, in our view, made some very astute acquisitions. They bought Countrywide Financial Corp., and they bought Merrill Lynch…Countrywide, despite all the problems, was actually a fine-tuned institution in the mortgage industry, and had great growth prospects… Merrill Lynch was one of the top-tier investment banks in the U.S., a global investment bank. If you want to be in investment banking, the reality is very simple: The top five guys make all the money.”

    Audit Integrity and I told you earlier this year about the 300 Worst Companies (and their auditors) based on the metrics important for judging a company’s propensity for issues such as another restatement, major fraud, or SEC investigation. Bank of America is on this list, as well as GE, GM, and Citigroup.

    Nothing dramatic or revelatory here. It’s useful to put it all together in one place and apply consistent metrics over time. But, a strong dose of common sense, basic financial disclosure analysis skills, and professional skepticism takes you eighty percent of the way home.

    For the record, Bank of America’s auditor is PwC, Countrywide’s was KPMG, and Merrill Lynch used Deloitte. And Lewis J. Liman, BAC’s attorney, is not balding or naked in this photo, but probably pretty smart.

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