Some defense lawyers need to pay closer attention to possible conflicts of interest when they represent both companies and their employees in front of the U.S. Securities and Exchange Commission, the agency’s top enforcement official said.
The SEC has seen “situations where counsel represents 20, 30 or 40 witnesses and the company in a case,” SEC Enforcement Director Robert Khuzami said at a securities law conference today in Los Angeles. “It’s conceivable that there are no conflicts, but when you see those kinds of numbers you start to get concerned.”
Khuzami said that lawyers representing multiple defendants pose problems for people who may wish to cooperate with investigators in exchange for lighter sanctions. In some cases, attorneys have represented both a manager under investigation for supervisory failures as well as the subordinate who engaged in the questionable conduct.
Khuzami also faulted some defense attorneys for coaching their clients aggressively, resulting in witnesses who recall facts that exonerate them while claiming to forget other basic information, including their own job description, that could incriminate them.
Referring to internal investigations at companies, Khuzami said that “the firm conducting the investigation obviously should be representing the best interests of the company and the shareholders, but the concern is sometimes much more about representing management and those who made decisions.”
Khuzami, who joined the agency in 2009 two months after the agency’s failure to catch Bernard Madoff’s fraud was exposed, said the enforcement division has undertaken a range of activities to root out fraud. A unit focused on asset managers is scouring data for firms that report aberrational performance to help identify possible fraud.
Investigators are also reviewing hundreds of investment adviser forms to find people who may have lied about their educational background or professional experience, a sign of people who are possibly more likely to commit fraud, he said.
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