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Due Diligence Abuse Violations by Unqualified Lawyers

Copyright 2008, 2009 STILAS - All International Rights Reserved.

The financing industry is often highly aggressive and adversarial. Commonly, efforts that
would help to avoid a fraud or scam if done properly are abused and mishandled by
unqualified persons. Often the person claiming to give you “due diligence” information will
make serious misrepresentations and even false defamation, only to justify their role in
“evaluating” a legitimate licensed professional services firm. Such abuses are a fraudulent
scam by themselves, and should also be avoided.

Most commonly, lawyers undertake this “due diligence” role, often making misdirected and
even unethical criticism of a legitimate firm, and even of other lawyers and law firms. Such
situations are a serious disservice to the client, resulting in damaging an otherwise effective,
safe and licensed representation. Commonly, they also cross over a line, entering into the
territory of unlawful interference and false unlawful defamation, at the same time directly
violating their own fundamental license requirements as lawyers.

Most importantly, but all too frequently ignored, the practice of lawyers defaming other
lawyers is actually a direct violation of the requirements and prohibitions of licenses to
practice law, such that a lawyer misusing amateur “due diligence” to defame a competitor
firm runs a very real risk of violating its license, and possibly having it suspended or revoked.

The American Bar Association (ABA) Model Rules of Professional Conduct (“ABA Rules”),
and United Kingdom (UK) Solicitors Code of Conduct (2007) of the Solicitors Regulation
Authority (SRA) (“UK Code”), and the relevant analogous licensing laws of other jurisdictions
internationally, generally and universally provide for the following specific violations in
common situations of abusive “due diligence” by a lawyer or law firm:

Conflict of Interest – Giving advice to a client about whether to retain or cooperate with
another licensed professional services firm, under the pretense of evaluating the other firm’s
services or capabilities, necessarily involves the lawyer’s role as a potential competitor with a
vested interest in working on the same client matter (which will inevitably result in billable
hours, commissions and/or continued advance retainers). Such biased “advice” directly
violates the lawyer’s license prohibitions against “conflict of interests”. (ABA Rule 1.7(a)(2),
UK Code, Rule 3.01(2)(b)).

Unqualified Due Diligence or Opinion – Some lawyers may purport to conduct “due
diligence” on another firm’s services or capabilities, implying that an investigative
background check or conclusive determination of fact will be provided, but instead merely
state an “opinion” based upon speculation or subjective interpretation of limited open source
information taken out of context. Some lawyers will undertake to evaluate the services or
capabilities of another law firm or services firm that is recognized as specializing in
structured financing, where the lawyer is not sufficiently qualified to understand or evaluate,
let alone practice, that specialty. Both such abuses violate the lawyer’s license obligation to
refuse to give advice on matters where the lawyer lacks sufficient “legal knowledge, skill,
thoroughness and preparation reasonably necessary” (ABA Rule 1.1). or “knowledge,
qualifications or expertise” required for the matter. (UK Code, Rule 2.01(b) and Guidance
6(b) to Rule 2)

Defaming the Profession – Criticizing another lawyer or law firm for charging an advance
retainer, merely because the services of that firm are related to the area of project financing,
using the defamatory term “up front fee” implying and associated with fraud, constitutes a
direct attack on the legal profession as a whole. The majority of legal services are provided
based upon advance fee retainer payments, most likely including many of the services of the
same lawyer making such criticism. Such defamatory statements made against another law
firm, offered as “legal advice” to a client, violate the lawyer’s license requirement “not to
diminish the trust the public places in the profession”. (ABA Rule 8 “Maintaining the Integrity
of the Profession”, as enacted by various US State Supreme Courts as codified law, UK
Code, Rule 1.06). Such violation undermines and “damages the ability of the profession as
a whole to serve society” for all matters related to financing, a regulated area in which
qualified legal representation is important and necessary. (UK Code, Guidance 10 to Rule

Violating Legality and Best Interests of Client – For a lawyer to advise a client to
intentionally breach a valid binding contract that the client has already signed violates the
lawyer’s license requirement to “uphold the rule of law”. (ABA Rule 1.2(d), UK Code, Rule
1.01). This also violates the license obligation to “act in the best interests of the client” (UK
Code, Rule 1.04), as it causes them to incur liability for breach of contract, possible
additional consequences and damages to their creditworthiness or credit rating if dealings
with a licensed financial institution are involved in the breach, and deprives the client of
licensed professional services needed for a highly regulated sphere.

According to studies by the Association of Certified Fraud Examiners (ACFE), the

Congressionally authorized regulatory body National Futures Association (NFA), and
statistics from the Federal Criminal Investigators Association (FCIA) and the Federal Bureau
of Investigations (FBI), the largest category of business fraud is interference with retaining
licensed services by a “corrupt insider”, which constitutes 18% of all internal business fraud.

Lawyers who are willing to simultaneously violate most or all of the above license
requirements, risking losing their own license, are not credible while engaging in such
violations, and most likely are not qualified to assist you as well as the licensed services firm
they are criticizing as perceived competitors.

Give priority to licensed services firms for representation of your commercial interests. Place
trust in valid licenses, and clear and transparent written presentations evidencing a level of
preparedness and expertise to perform licensed work, instead of placing blind “trust” in
individuals or “friends” who may be abusing your trust as a “corrupt insider”.

Be suspicious when employees, partners or your own lawyers attempt to discourage you
from hiring qualified professional services to protect your business interests, especially when
licensed expert services are involved, and especially when the critics themselves are not
qualified to perform the functions you are seeking to hire.