Litigation and the Financial Crisis, by Joseph De Simone, John M. Driscoll, John J. Tharp, Jr., and Sina Toussi
How did it all begin? The panelists answered this question with a complex diagram in this presentation from Incisive Media’s 21st Annual General Counsel Conference in New York City. We captured all of the forum panels in real time on our microblog MHTweets. Over the next several weeks, this series will expand on those snippets, offering a recap and take away of the best practices from experts on the subject.
Blame the accountants; they were the ones looking at the loans offered by the brokers who sold them. Or you can start with borrowers; they were the ones irresponsible enough not to read the fine print. Regardless of where you start, the attorneys need to see the full picture and protect their clients against risk, even if they are clearly spelled out on page 253 of that 700 page prospectus no one bothered to read.
Best Practice: The role of general counsel encompasses gatekeeper, bean counter, and investigator. The GC must balance time verses the need to do things in light of the risks involved. Analyze your risk and manage your time with solutions from LexisNexis.
Firms under fire claimed that all of the risks were presented in bold in the prospectus, and that investors are made aware of all the possible outcomes, even when it came to the mortgage backed securities. The question is raised, does a 700-page prospectus equal disclosure or burial? Where do we draw the line at “fraud?”
Joe De Simone said one of the best comments during this panel: “there is fraud, and then there is FRAUD,” meaning you have your Madoffs and then the spokes on the wheel, people who should have known something was wrong. In the legal world we use the term “fraud” for both of these even though there is a difference. Perhaps we need a new way of saying this, such as "secondary fraud" or "co-fraud."
When Auction Rate Securities (“ARS”) investigations reveal a misrepresentation of the risk levels involved, a failure to disclose these risks raises interesting liability questions. Even more so, when you are facing an immediate crisis, such as a Lehman Brothers or Bear Stearns situation, time is short. John Tharpe raised the question of what the SCC expectations are for the company’s need to stave off investors, avoid people making a run, and protect insiders “in the know?” Regardless of the speed at which things are happening, John Driscoll said, “the general counsel has to help the company provide a response that is truthful, qualified, and meets company needs.”
John J. Tharp, Jr. is on Martindale Hubbell Connected. Are you?