"Due Diligence" Abuse Violations By Unqualified Lawyers

By Matthew B. Greene, JD

Copyright 2008, 2009 STILAS International Law Services, P.A.

All International Rights Reserved.

Matthew Greene is the founder of STILAS, originally a government contractor for international economic security. Matthew Greene is a former Chief of Special Operations in anti-organized crime and anti-corruption, and is an international legal expert and career strategic advisor to governments, agencies and ministries in various countries.

This article is a brief extract from one of a series of expert reports developed by Matthew Greene and STILAS, in cooperation with certain federal law enforcement and national security agencies of multiple countries, for protection of national critical infrastructure in the private sector.

The financing industry is often highly aggressive and adversarial. Commonly, efforts that would help to avoid fraud if done properly are abused and mishandled by unqualified persons, some of whom also make misrepresentations to justify their role in "due diligence" or "evaluating" a legitimate licensed professional services firm.

Most commonly, lawyers undertake this role, often making misdirected and even unethical criticism of other lawyers and law firms. Such situations are a serious disservice to the client, resulting in damaging an otherwise effective, safe and licensed representation. Commonly, they also cross over a line, entering into the territory of unlawful interference and false unlawful defamation, at the same time directly violating their own fundamental license requirements as lawyers.

Most importantly, but all too frequently ignored, the practice of lawyers defaming other lawyers is actually a direct violation of the requirements and prohibitions of licenses to practice law, such that a lawyer misusing amateur "due diligence" to defame a competitor firm runs a very real risk of violating its license, and possibly having it suspended or revoked.

The American Bar Association (ABA) Model Rules of Professional Conduct ("ABA Rules"), and United Kingdom (UK) Solicitors Code of Conduct (2007) of the Solicitors Regulation Authority (SRA) ("UK Code"), and the relevant analogous licensing laws of other jurisdictions internationally, generally and universally provide for the following specific violations in common situations of abusive "due diligence" by a lawyer or law firm:

Conflict of Interest - Giving advice to a client about whether to retain or cooperate with another licensed professional services firm, under the pretense of evaluating the other firm's services or capabilities, necessarily involves the lawyer's role as a potential competitor with a vested interest in working on the same client matter (which will inevitably result in billable hours, commissions and/or continued advance retainers). Such biased "advice" directly violates the lawyer's license prohibitions against "conflict of interests". (ABA Rule 1.7(a)(2), UK Code, Rule 3.01(2)(b)).

Unqualified Due Diligence or Opinion - Some lawyers may purport to conduct "due diligence" on another firm's services or capabilities, implying that an investigative background check or conclusive determination of fact will be provided, but instead merely state an "opinion" based upon speculation or subjective interpretation of limited open source information taken out of context. Some lawyers will undertake to evaluate the services or capabilities of another law firm or services firm that is recognized as specializing in structured financing, where the lawyer is not sufficiently qualified to understand or evaluate, let alone practice, that specialty. Both such abuses violate the lawyer's license obligation to refuse to give advice on matters where the lawyer lacks sufficient "legal knowledge, skill, thoroughness and preparation reasonably necessary" (ABA Rule 1.1). or "knowledge, qualifications or expertise" required for the matter. (UK Code, Rule 2.01(b) and Guidance 6(b) to Rule 2)

Defaming the Profession - Criticizing another lawyer or law firm for charging an advance retainer, merely because the services of that firm are related to the area of financing, using the defamatory term "up front fee" implying and associated with fraud, constitutes a direct attack on the legal profession as a whole. The majority of legal services are provided based upon advance fee retainer payments, most likely including many of the services of the same lawyer making such criticism. Such defamatory statements made against another law firm, offered as "legal advice" to a client, violate the lawyer's license requirement "not to diminish the trust the public places in the profession". (ABA Rule 8 "Maintaining the Integrity of the Profession", as enacted by various US State Supreme Courts as codified law, UK Code, Rule 1.06). Such violation undermines and "damages the ability of the profession as a whole to serve society" for all matters related to financing, a regulated area in which qualified legal representation is important and necessary. (UK Code, Guidance 10 to Rule 1.06).

Violating Legality and Best Interests of Client - For a lawyer to advise a client to intentionally breach a valid binding contract that the client has already signed violates the lawyer's license requirement to "uphold the rule of law". (ABA Rule 1.2(d), UK Code, Rule 1.01). This also violates the license obligation to "act in the best interests of the client" (UK Code, Rule 1.04), as it causes them to incur liability for breach of contract, possible additional consequences and damages to their creditworthiness or credit rating if dealings with a licensed financial institution are involved in the breach, and deprives the client of licensed professional services needed for a highly regulated sphere.

According to studies by the Association of Certified Fraud Examiners (ACFE), the Congressionally authorized regulatory body National Futures Association (NFA), and statistics from the Federal Criminal Investigators Association (FCIA) and the Federal Bureau of Investigations (FBI), the largest category of business fraud is interference with retaining licensed services.

Fraud compromising or preventing the effective acquisition of professional services constitutes 18% of all internal business fraud, resulting in the greatest average losses of approximately $300,000 per year for every company. Most alarmingly, the statistics evidencing that this type of fraud is the most damaging to company operations do not consider the consequential damages and losses due to failure to procure needed legal and security services to defend the company's essential assets and infrastructure at critical times.

According to the FBI, such "corrupt insiders" involved in this type of fraud generally abuse their authority and violate trust from their fiduciary position, to avoid or prevent the hiring of professional legal or security services, interfere with the work of an outside licensed services firm, or undermine the services firm's relations with the client company.

Such unlawful interference, considered by law enforcement experts as "operational sabotage", is usually intended either to avoid detection of their own mistakes or wrongdoing, or to reserve the company's budgetary funds for continued diversion to maintain a level of profits for the "corrupt insider".

Lawyers who are willing to simultaneously violate most or all of the above license requirements, risking losing their own license, are not credible while engaging in such violations, and most likely are not qualified to assist you as well as the licensed services firm they are criticizing as perceived competitors.

Give priority to licensed services firms for representation of your commercial interests. Place trust in valid licenses, and clear and transparent written presentations evidencing a level of preparedness and expertise to perform licensed work, instead of placing blind "trust" in individuals or "friends" who may be abusing your trust as a "corrupt insider".

Be suspicious when employees, partners or your own lawyers attempt to discourage you from hiring qualified professional services to protect your business interests, especially when licensed expert services are involved, and especially when they themselves are not qualified to perform the functions you are seeking to hire.

Matthew Greene and STILAS avoid accepting any business from the general public. Consultation is generally provided only to government agencies and banking institutions. Provision of services to the private sector may be considered only upon introduction through trusted partners or colleagues of Matthew Greene and STILAS.