Canada: Lawyer As Gatekeeper: Ending Up On The Wrong Side Of The Law

There were plenty of headlines in 2015 for Martin Shkreli, the 32-year old former CEO of Turing Pharmaceuticals and self-professed "Pharma Bro", who eventually became known as the "most hated man in America." Shkreli rose to infamy and spurred a Congressional investigation after it was reported that Turing had obtained a manufacturing licence for Daraprim, a drug used by HIV patients, and had hiked the price by over 5,000 percent from $13.50 to $750.00 per tablet. The negative publicity was only the beginning of Shkreli's troubles. In December 2015, Shkreli was charged with securities fraud, securities fraud conspiracy, and wire fraud conspiracy for allegedly orchestrating three interrelated "Ponzi-like schemes": schemes to defraud investors in MSMB Capital Management LP ("MSMB Capital"), MSMB Healthcare Management LP ("MSMB Healthcare"), and Retrophin Inc. ("Retrophin"). Of particular interest to those in the legal field, the accusations and charges did not stop with Shkreli. Evan Greebel, a New-York based lawyer who served as Retrophin's outside counsel and corporate secretary (while also working at an external law firm), is also the subject of the federal indictment and the SEC Complaint. Greebel has been charged with one count of conspiracy to commit wire fraud for his role in aiding and abetting the fraudulent conduct of Shkreli. Both Greebel and Shkreli have pled not guilty and have stated that they intend to fight the charges.

The facts as alleged by prosecutors are as follows: Shkreli co-founded MSMB Capital in 2009. MSMB Capital subsequently suffered significant losses, which Shkreli concealed from investors. In 2011, Shkreli started another hedge fund, MSMB Healthcare. Prosecutors say that Shkreli used the moneys he raised from investors of MSMB Healthcare to pay back investors in MSMB Capital. MSMB Healthcare too eventually suffered significant losses, which Shkreli again failed to disclose to investors. By then, Shkreli had co-founded yet another enterprise, Retrophin, which went public in 2012. It is alleged that Shkreli, aided and abetted by Greebel, fraudulently induced Retrophin to issue Retrophin stock and make cash payments to disgruntled investors in MSMB Healthcare. To conceal the payments, Shkreli had the investors enter into sham "consulting" agreements with Retrophin (made to look like they related to the company's business) when in fact the payments were for the release of potential claims against Shkreli. The accusation against Greebel is that he drafted certain of these consulting agreements with knowledge or reckless disregard for the true purpose of such agreements and that Greebel did not disclose this information to Retrophin's Board of Directors.

Robert L. Capers, United States Attorney for the Eastern District of New York, made the following statement on the day of the indictment:

As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit. His plots were matched only by efforts to conceal the fraud, which led him to operate his companies, including a publicly traded company, as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity. When regulators and auditors questioned Shkreli's decisions, he joined forces with Evan Greebel, who used his law license and training to conceal and further the scheme.

Role of Counsel when Client is an Organization

The case against Greebel focuses on his role as one of Retrophin's gatekeepers, claiming that the failure to protect his client – Retrophin – constitutes aiding and abetting the alleged fraud perpetrated by Shkreli. The prosecution of Greebel raises questions about when legal advice crosses the line into aiding and abetting a fraud. It is paramount in any lawyer-client relationship that the lawyer always be aware of who the client is, because that is the party the lawyer must ensure receives the benefit of the legal services. When providing legal advice to corporations in particular, lawyers must be cognizant not to slip into thinking that it is the individual officers to whom the legal services are being provided; legal duties are owed to the corporation.

Lawyers are increasingly viewed as one of the gatekeepers for a corporation entrusted with ensuring that it stays within the limits of the law. When a company's lawyer steps out of that role by facilitating an individual officer in advancing his/her own interests, one of the key protections in place for shareholders is lost.

"Lawyers are important players in corporate transactions, ensuring their clients comply with the rules. But when legal advice pushes over the line into enabling fraud, then a lawyer can wind up on the wrong side of the law."

In fact, in many jurisdictions, lawyers have a professional obligation not to knowingly assist or encourage criminal behaviour and those lawyers who are employed or retained by a corporation have a professional obligation to take certain steps when the lawyer knows that the organization is acting or intends to act dishonestly, fraudulently, criminally or illegally. For example, in Ontario, the LSUC Rules of Professional Conduct (Rule 3.2-8) require a lawyer to advise the person for whom the lawyer takes instructions and the chief legal officer, or both the CLO and CEO, that the conduct is wrongful and that it must be stopped. If this advice is refused or not acted upon, the lawyer must then advise progressively the next highest person or groups within the corporation, including ultimately the board of directors, about the conduct and advise that it must be stopped. If the organization, despite the lawyer's advice, continues or intends to pursue the wrongful conduct, the lawyer has a duty to withdraw from acting. In some cases, this will mean resigning. These rules recognize that lawyers as the legal advisers to the corporation are in a central position to encourage lawful conduct and to advise that it is in the corporation's best interest to not violate the law.

The charges against Shkreli and Greebel were brought in connection with President Obama's Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The charges brought against Greebel reflect a continued attempt to hold corporate executives and licensed professionals who betray their positions of trust accountable. There are currently multiple internal investigations into Greebel's actions being conducted by Greebel's past and present law firms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions