• SEC turns attention to lawyers in financial fraud investigations Friday, November 13, 2009

    The Securities and Exchange Commission is investigating NewPoint Financial Services of Beverly Hills, and as part of the investigation the SEC has subpoenaed the company’s law firm.

    According to a report this week in the Daily Journal, attorneys at Nixon Peabody LLC in Los Angeles have cited attorney-client privilege in resisting the subpoena.

    The SEC has also subpoenaed former Nixon Peabody partner David M. Tamman, who recently joined Greenberg Traurig‘s Los Angeles office.  Tamman’s attorneys have filed an opposition to the SEC’s request.

    “It is odd the SEC subpoenaed a law firm,” said plaintiffs’ attorney Tim Blood of the San Diego firm Coughlin Stoia Geller Rudman & Robbins LLP.  “Presumably most of the information the firm had would be protected by the attorney-client privilege, and anything that was not would be available elsewhere.  The reason for the subpoena may have something to do with the suspected conduct of the firm,  but presumably there is a reason having nothing to do with lawyer misconduct.”

    That would seem to be supported by Rebecca U. Cho’s report in the Journal:

    The precise nature of the SEC’s probe is unclear. The court filing says the agency is seeking information about individuals or entities at NewPoint who may have “engaged in a fraudulent scheme in connection with the offer and sale of debentures issued by NewPoint.”

    SEC attorney John McCoy told the Journal the subpoenas don’t necessarily mean either Nixon Peabody or Tamman is a target of the investigation.  “We issue subpoenas to whoever may have relevant information,” he said.

    On the company’s website, NewPoint founder John Farahi describes the company as  “a one-stop super center that allows individuals and business owners to easily coordinate all their financial activities.”

    NewPoint has units that trade stocks and bonds, set up retirement plans, offer mortgage banking as well as consumer banking services such as checking accounts and FDIC-insured certificates of deposit, sell insurance and real estate, provide accounting services and offer financial and estate planning.

    Cho writes law firms are becoming a target in financial investigations:

    As regulators pursue financial misdeeds more aggressively in the wake of the market meltdown and ensuing public pressure, law firms may be coming under more scrutiny. With firms at the center of corporate deal-making and privy to all manner of non-public information, regulators may be applying a level of scrutiny historically reserved for financiers and company officers.

    Within the past year, federal prosecutors have charged three lawyers with insider trading.  And the SEC has charged a former Nixon Peabody attorney with using information about a client’s pending merger to personally profit.

    –J.G. Preston

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2 Responses to “SEC turns attention to lawyers in financial fraud investigations”

  1. Glad to hear that these lawyers were caught with the insider trading info. I wish they were still keeping an eye this type of thing now. It was almost like a quick flash in the pan type of scrutiny.

  2. kristov koslowski says:

    fyi I agree about the insider trading. but there’s been a lot of developments since this article was written in 2009. just followed up on this and saw that the SEC shut down NuPoint in 2010 and then sued Tamen in January 2011 for allegedly obstructing their investigation. I read the SEC’s complaint against Tamen and it’s pretty interesting. in addition to all the privilege issues (to begin with, I’m not sure the SEC should be running around subpeonaing law firms?), something about the SEC’s allegations just don’t add up. first, what was this guy’s (Tamen’s) motive for obstructing an SEC investigation? there apparently was no financial or other incentive (or you can bet the SEC would have mentioned it), and this doesn’t exactly sound like a “star” client. so, did this “partner at an international law firm” just wake up one day and decide he wanted to obstruct an SEC investigation for the hell of it? wow! second, the SEC says that Tamen “knew” the disclosures weren’t in these “PPMs.” did he administer NuPoint’s offering? that would seem a little unusual. did he interview all of the investors to find out what they got? (isn’t that what the SEC is supposed to do?). this poor sap was probably just conveying what his client told him (and it doesn’t look like this client was any saint – he supposedly managed to trick dozens of people into investing lots of money with him). third – there were too many lawyers involved (at least 5 by the SEC’s count – maybe more). doesn’t sound like the perfect plan for a “cover-up.” this guy wasn’t even responding to the SEC – a lawyer at another firm was (“Attorney D”). why didn’t “Attorney D” just go get the documents from the client? did this guy even know when and what “Attorney D” was providing to the SEC? it doesn’t say. fourth, the SEC claims that Tamen initially resisted turning over the documents, but eventually turned over all of the documents after the SEC insisted. did this guy one day all of a sudden accept Jesus and decide that he no longer wanted to obstruct the SEC? was he scared because the SEC was now “insisting” (instead of, maybe, simply “asking?” for the documents?). maybe he was just waiting to get his client to waive the attorney client privilege? finally, assuming this guy suspected his client was being less than truthful, what was he supposed to do? accuse his client of lying? tell “Attorney D” he thinks his client is lying? tell the SEC he thinks his client is lying? stop representing the client for “ethical” reasons? simply relay the information on to “Attorney D”? (this seems the most logical choice to me – “Attorney D” is the one, after all, who is responding to the SEC). but damned if I know. finally, let’s not forget about that pesky little thing called the “attorney client privilege.” is it really appropriate for the SEC to seek information about document revisions from their target’s lawyer? really? doesn’t the lawyer have an obligation to at least advise his client of the privilege (even if not to assert it)? this would seem like a pretty good time for the client to assert the privilege.
    The SEC has said explicitly that they’re going to start coming down hard on attorneys in their investigations (Robert Khuzami devoted a whole speech to this in June). it seems that lawyers no longer have ethical obligations to their clients – their primary obligation is to assist the SEC in their investigation of their clients. this case sounds like an unfortunate mix of a shady client, too many chefs in the kitchen, disregard for the attorney client privilege, and an over-zealous SEC. just some collateral damage. the government enters treachorous waters once they decide to target lawyers solely for “obstructing” an investigation (particularly when the lawyer apparently has no motive, and has nothing to do with the alleged underlying misconduct). the maryland district court just proved that in the recent case, US vs. Lauren Stevens.

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