Counselor, Gatekeeper, Shareholder, Thief: Why Attorneys Who Invest in Their Clients in a Post-Enron World are 'Selling Out,' Not 'Buying in'

Abstract

In recent years, many corporate attorneys have tried to function not merely as legal advisor to their clients, but as business consultants to them, and even as investors in their enterprises. During the Dot-Com boom of the late 1990s, this phenomenon led to the widespread practice of law firms taking equity in lieu of, or in addition to, their traditional legal fees. But when a corporate attorney's financial well-being becomes too closely tied to the success of a transaction in this way, her ability to exercise her independent professional judgment regarding the matter can be compromised. Recent financial scandals have aroused suspicion of the corporate world generally, and although public wrath has thus far focused primarily on the misdeeds of accountants and investment analysts, scrutiny could turn next to the propriety of relationships between corporations and their attorneys. Professor Hurt argues that, at least in part because of the prevalent and questionable practice of taking equity in lieu of fees from a client, the legal profession is now susceptible to the embarrassment of an Enron-like scandal.

Keywords: attorney fees, initial public offerings, law firms, corporate law