|
 |
| 2002 News and Press Releases |
|
|
HEADLINE ARCHIVED:
How To Account For Lawyers
By: Megan Barnett
U.S. News & World Report, Vol. 133, No. 22. December 9, 2002
_________________________________________________________________________
EXCERPT: When accounting giant Arthur Andersen agreed to pay $217 million last May to settle civil charges concerning its work for the Baptist Foundation of Arizona, heads turned. The foundation, it had been alleged, was nothing but a huge Ponzi scheme. The settlement was the second-largest ever by an accounting firm. But what about the lawyers? In this case, they were quietly settling too. Jennings, Strouss & Salmon, the established, Phoenix-based corporate law firm that advised the so-called charity, ponied up $21 million to settle negligence claims even before it was formally sued. Such cases are unusual. In fact, so far only two law firms have been named in shareholder lawsuits filed in connection with the major corporate scandals of the past year, and one internal general counsel has been implicated. But a certain momentum is now building to hold lawyers accountable. U.S. News has learned that during the past 15 months, the Securities and Exchange Commission has made 11 disciplinary referrals to state bars, compared with one or two annually in years past. "One of the biggest disappointments for me since I came to the SEC has been observing the way lawyers are often involved in violations of securities laws," SEC Chairman Harvey Pitt told a conference in September in an unguarded moment. "It's horrendous." And last week, securities lawyers began drafting comments to the SEC's proposed new rule--required by the Sarbanes-Oxley Act--that would require corporate attorneys to report wrongdoing up the corporate ladder. The idea is that the rule would provide one more defense against incipient corporate outrages. New muscle. Reform advocates hope that throwing the enforcement muscle of the SEC behind the rule will give it legs. "If the Baptist Foundation of Arizona had occurred post Sarbanes-Oxley, the SEC would have named the law firm as one of the defendants," says Lawrence Cunningham, professor of law and business at Boston College. The foundation was shut down in 1999 after authorities accused it of swindling nearly $600 million from thousands of mostly elderly church members. Although the securities were not federally insured, its investors took comfort that Arthur Andersen signed off on the charity's books and Jennings Strouss provided legal opinions on its investment offerings. It seems, however, they were investing in securities whose collateral did not exist. Attorneys for Jennings Strouss say they cooperated in the investigation and were unaware of any wrongdoing at the foundation during their decade-long relationship. The firm was named as a defendant in a complaint filed by a victim, the Verde Baptist Church, intervening in the class action lawsuit. The church claimed that "Jennings Strouss either knew, or should have known, or recklessly disregarded" evidence that the BFA was engaged in a Ponzi scheme. Before the victims filed a formal suit against Jennings Strouss, the firm quietly paid $ 21 million to make sure they wouldn't.
|
|
|
