WHEN savings-and-loan buccaneer Charles Keating was busy defrauding investors and costing American taxpayers some $2.6 billion in government insurance, he got a lot of help. Five United States senators were running interference with federal regulators for their generous "constituent." And surrounding Keating like a praetorian guard were phalanxes of lawyers and accountants who assured both investors and regulators that their client's Lincoln Savings and Loan was sound.
As part of the government's effort to clean up the S&L mess - a bailout that may cost the public half a trillion dollars - federal lawyers are going after not only crooked bankers, but also some of the professional retainers who, knowingly or negligently, helped fraudulent or reckless banking practices go undetected.
Last week the government dealt its toughest blow yet to corporations' outside advisers. The Justice Department and the Office of Thrift Supervision sued a major New York City law firm, Kaye, Scholer, Fierman, Hays & Handler, for $275 million, alleging that the law firm deceived regulators and improperly delayed government efforts to crack down on Lincoln. The feds also took a step unusual in non-racketeering cases: It froze many of the law firm's assets. Faced with an inability to conduct business and a possible loss of clients, Kaye Scholer quickly settled for $41 million, and one of its senior partners agreed to stop representing thrifts.
The US has sued other lawyers in connection with the Keating matter and other S&L failures, and it has also taken out after major accounting firms whose audits failed to uncover financial wrongdoing right up to the eve of thrifts' collapse.
Critics of the accounting profession charge that purportedly "independent" auditors have become far too cozy with the companies whose books they examine. Because the companies pay auditors' fees, these critics say, accountants treat the companies as clients, whereas the real beneficiaries of auditors' opinions are supposed to be investors, depositors, and regulators. The profession's standards of conduct need an overhaul to heighten accountants' skepticism and detachment. Imposing tough legal liability f or inadequate audits may be the necessary prod.
For lawyers, the issues are more complex. Unlike accountants, lawyers are hired expressly to represent their clients' interests, and lawyers have ethical and professional duties to clients. These include a duty of confidentiality and a duty to vigorously defend their clients within the bounds of the law. Our legal system wouldn't work if legal advisers could be compelled routinely to be "snitches" or were regarded as an arm of the government. Clients wouldn't seek legal guidance, and practices in the mar ketplace would become even more free-wheeling.
However, the system also breaks down if lawyers are free, under their privileged relationship with clients, to aid and abet - if only by silence - wrongdoing by corporate predators. This poses a thorny legal and ethical conundrum for lawyers, one that the profession is grappling with. The S&L debacle suggests that lawyers have not yet satisfactorily reconciled their duties to clients and those to the public in the interest of justice.