When Clients Turn on their Lawyers

Posted by

Have you heard of the “Pharma Bro”; the CEO who, according to reports, notoriously purchased a drug used to treat AIDS patients only to dramatically increase its price? He’s made considerable press recently and now he’s turning on his lawyers. In a recent hearing, lawyers for pharmaceutical hedge fund manager Martin Shkreli requested a delay in scheduling trial as they contemplate asserting “reliance of counsel” as a defense.

Shkreli originally gained notoriety in 2015 when his biotech hedge fund purchased and immediately raised the price of a life-saving drug by 5,556%.  Less than six months later, Shkreli was arrested by the FBI and charged with securities fraud for running a “Ponzi-like” scheme with two of his other hedge funds.  Specifically, prosecutors allege that Shkreli diverted stock and funds from one hedge fund to the investors of a prior hedge fund in order to compensate the investors for money lost. To do so, he disguised the payments as a contract for “consulting services” allegedly at the suggestion of his lawyer.  The Lawyer has also been charged in connection with his role in the alleged scheme and faces up to 20-years in prison for wire fraud.

Although Shkreli long ago suggested that his actions were all done with his attorney’s blessing and he “has the bills to prove it,” this recent development serves as a reminder that the line between creative lawyering and fraud can often become quite blurry. While most statutes and regulations provide room for varying interpretations, a lawyer must always be mindful that the Rules of Professional Conduct do not define competency to mean “accomplish the client’s goals at any cost.”

Rule of Professional Conduct 2.1 acts as a complement to competency by requiring that an attorney “exercise independent professional judgment and render candid advice.”  While it may be tempting to take on the challenge of winning that impossible case or argument, an honest assessment of the viability of your position is vital.  Failure to do so not only risks a loss of credibility in front of judges and colleagues, but could also lead to civil or even criminal liability.  And as counsel for Shkreli is now learning, even a savvy, longtime client may not hesitate to claim ignorance and point to his lawyer when federal regulators bring down the hammer.