Posts Tagged ‘laura pendergest holt’

Memo to White-Collar Witnesses: Get Your Own Lawyer!

Wednesday, March 4th, 2009

stanford-cio.png

A “Martha Stewart moment” is that unhappy moment during a white-collar investigation when one’s client misleads the investigators. A client who may have escaped prosecution entirely has now practically ensured that she will be prosecuted. If his client must speak with investigators, a good attorney tries to prepare her well, to prevent any Martha Stewart moments from happening.

During the recent SEC investigation of a possible $8 billion fraud at Stanford International Bank, they interviewed Stanford Financial Group’s chief investment executive, Laura Pendergest-Holt (pictured). She was accompanied to the interview by Proskauer Rose partner Thomas Sjoblom, a very good and experienced attorney.

Last Thursday, the investigation went criminal, as Pendergest-Holt was charged with a federal crime. She’s alleged to have had a Martha Stewart moment, lying to the SEC about her knowledge of Stanford’s investments, and about not meeting with other Stanford people to prepare for her meeting with the SEC.

How could that happen, when she had such a good lawyer?

The answer appears to be (first pointed out by Zach Lowe) that Sjoblom wasn’t actually her lawyer. He represented Stanford, not its executive.

This is something that comes up all the time in the white collar world. When a corporation is under investigation, it hires lawyers to protect its interests. The interests of its executives and employees are not always the same — in fact they are rarely the same — and so to avoid potential conflicts of interest they usually get separate counsel.

If the same law firm represented a corporation and its CIO, somewhere down the line the CIO might decide that it’s in her interest to testify against the company. That would cause a conflict of interest, so the company will usually insist that she get her own lawyer.

If the corporation’s attorneys speak with the CIO, they must make it very clear that they only represent the company, and do not represent the individual. In this case, Sjoblom made it very clear at least twice during the SEC meetings that he was Stanford’s lawyer and not Pendergest-Holt’s. It is not yet known whether he made this clear to Pendergest-Holt (he did not return Lowe’s calls seeking comment, but commenting is probably improper anyway), though it is hard to imagine that he did not do so.

Sjoblom had a bit of a dilemma in that situation, regardless. As Stanford’s lawyer, he probably needed to get information from Pendergest-Holt. And he probably needed to cooperate fully with the investigators. He would have had to make it perfectly clear to her that, as he did not represent her, anything she said to him would not be privileged. (Well, Stanford could assert a privilege perhaps, but Pendergest-Holt could not.)

If Pendergest-Holt reasonably believed that Sjoblom represented her, and then Sjoblom shared her information with Stanford or the SEC, then Sjoblom could well be liable in a civil suit. Again, there is no reason to believe that such is actually the case, and this is only mentioned to stress the challenges presented to the corporation’s attorney in a situation like this.

How does the company’s lawyer get information out of its CIO, then? If the lawyer tells the CIO he doesn’t represent her, and nothing she says is going to be confidential, and in fact he’s obligated to share her information, then she’s not going to want to talk. The solution is simple and cold: the lawyer must inform the CIO that if she doesn’t talk she will be fired.

Given all the warnings that must have been given, alerting her that Sjoblom did not represent her, it is strange to see that she didn’t get her own counsel. Nevertheless, Pendergest-Holt somehow appeared before the SEC without being represented by her own lawyer. She didn’t have someone watching out for her own interests, and now she’s been arrested and charged with a federal crime as a result.

She has lawyers now, of course. She is represented by the firm of Parsons Behle & Latimer in the civil SEC matter, and by Houston’s Dan Cogdell in the criminal matter. Still, we have to wonder why she waited until it was too late before she got her own counsel.

Memo to executives and employees: Get your own lawyers!