Legal News

Criminals I Have Known

By Brian Harris

Not the high-class kind with a mask and a gun, but the financial type.

Much has been written about the psychology of people like Bernard Madoff, who apparently can invite people to invest with them in the knowledge that their money will eventually disappear. None of my clients dealt with Madoff, but I have met with advisers who, at a later date, were accused of having used client funds for their personal expenses. The two I have in mind presented themselves as intelligent and savvy investment advisers. I'm not sure they intended to convert funds from the outset, but it's alleged that that was their eventual course. Both spoke knowledgeably about the market, in a way that impressed less sophisticated investors, which is just about all of us. This came to mind over the weekend. On a flight from Munich to Philadelphia, I was the third-party beneficiary of a passenger who spent about three hours telling the person next to him that his adviser was the greatest and had exactly predicted the market downturn. (For the record, I have one wealthy client who, on his own, correctly anticipated the market decline and suffered no losses. I'm fairly sure that he finished high school.)

What is the lawyer's role in dealing with investment advisers? It's certainly not to give investment advice to the client, but it's also not to remain silent. I have written before that these uncertain times have led many to consider investing through large organizations, because of their deep pockets and internal protective procedures. Others prefer individual or small firm guidance. In either case, it is the lawyer's task to ensure that all of the necessary paperwork has been completed and copies given to the client. It's important to remind the client to have regular meetings to review investment strategies and results. It's also appropriate, if the adviser is achieving investment results that are significantly better than others are achieving, to ask how this is being done. That is, due diligence. In some cases, it might be advisable to bring in another adviser, just to review what the first one has done. I once suggested this to the board of an industry pension plan, because its adviser had done extremely well with investments no one on the board could understand, and unwitting uncovered a massive fraud and theft by the adviser. So, the lawyer is not an investment adviser, but he or she should be asking the client if steps are being taken to ensure that what is promised or advertised is in fact happening.

This is a little off the point, but my recent travels also took me to Vilnius, the capital of Lithuania, a country where the protection of rights by lawyers was, until recent years, subject to the control of an overbearing Communist regime. I had an opportunity to visit a KGB prison, where I saw cells used for torturing political opponents. The Lithuanians have opened these cells to public view, so that they will not forget the horror of living under a regime that condoned and practiced torture.

Robert H. Louis
Saul Ewing
http://saul.com

Full post as published by The Legal Intelligencer Blog on July 27, 2009 (boomark / email).