This document discusses various topics related to ethics and compliance programs for lawyers, accountants, and financial advisors. It begins with a brief history of compliance programs and examples of expensive corporate scandals. It then discusses requirements for ethics and compliance programs, including establishing standards, training, reporting systems, and enforcing standards. It also covers fiduciary duties owed to clients, potential conflicts of interest, risks of social media posts, protecting client information, and responding to reports of misconduct. Throughout, it references various rules of professional conduct regarding duties of confidentiality, loyalty, and independent judgment.

1. Ethics for Lawyers, Accountants, and
Certified Trust & Financial Advisors
Michael Downey
May 2018

2. History of Compliance Programs
2

3. Corporate Scandals Are Expensive
• Wells Fargo opening fake accounts – $185M in fines
• Volkswagen emission scandal – $20B in market
capitalization
• Martin Shkreli – convicted of two counts of
conspiracy . . .
3

4. Military Procurement Fraud
• JP Morgan and civil war rifles – obsolete carbines purchased for
$3.50 sold for $22
• 1983-90 – one-quarter of 100 largest DOD contractors guilty of
procurement fraud
• 1988-90 – 16 cases involving 14 largest US weapons makers
• Today US DOD spends $100B on weapons and $60B on R&D
Major General Robert Latiff, Ph.D. (retired), “Ethical Issues in Defense System Acquisitions,”
Routledge Handbook of Military Ethics (Oxford 2015)
4

5. Federal Sentencing Guidelines
for Corporations
• Seek to provide just punishment, adequate
deterrence, and incentives to maintain
internal mechanisms for preventing, detecting
and reporting criminal conduct

6. Fines under FSGO
• Size of organization
• Involvement of top officials
• Recidivism
• Obstruction of justice
• Mitigating factors
– Implementation of program that detects and prevents ethics
violations and demonstrates a good-faith effort to avoid such
violations
– Cooperation with investigation

7. Basic Requirements – FSGO Ethics and
Compliance Programs
• Established compliance standards and procedures that are reasonably
capable of reducing criminal conduct
• Specific high-level persons assigned responsibility
• Standards communicated to employees and other agents
• Exercise due care when delegating discretionary authority to individuals
who had propensity to engage in illegal conduct
• Established monitoring and audit system – is the corporation complying
with its standards, and can auditors change/improve the system?
• Establish (publicized) reporting system – how does entity learn of
problems?
• System to enforce standards – with case-specific discipline
• Appropriate response to remedy offense and prevent similar conduct in
future

8. SarbOx Requires Disclosure of
Ethics Program
• Section 406 requires disclosure of existence of
ethical code
• If no code, reason for absence must be
explained

9. Ethics and Compliance Programs
Encourage Reporting
• Basic program consists of:
– Written standards of conduct
– Ethics training
– Ethics advice line/offices
– System for anonymous reporting
• Employees in entities with all four program elements
report misconduct 78 percent of time
– Those in organization with no elements report only 39
percent of the time

10. Compliance Strategy
• Tries to prevent unlawful and criminal conduct
• Tries to prevent self-interested employee
behavior (conflicts of interest)
• Relies on lawyers and compliance officers

11. Integrity Strategy
• Seeks to create conditions to cultivate proper
conduct
• Attempts to align ethical interests of
employees and organization
• Relies on whole management team, not just
compliance personnel

12. “Tone at the Top”
• 60 percent of workplace misconduct involves
someone with managerial authority – 2013 National
Business Ethics Survey of US Workforce
– 25 percent involved senior managers
• 40 percent of employees observed on-the-job
misconduct
– 26 percent said it was “on-going” and 12 percent said it
was “company wide”
– 63 percent reported it – and 1/5 faced retaliation
12

13. Effectiveness of Reporting Hotline
• ACFE reported 2002 results show 46% percent of tips
resulted in fraud detection
• Nature of complaints to hotline
– Theft – 16%
– Wage discrepancies – 13 %
– Sexual harassment – 6 %
– Customer relations – 6 %
– Employee relations, workplace violence, fraud, safety
concerns, falsification of records – 4 to 5 %

14. Qui Tam and Compliance
• 89.7% of employees who eventually filed a qui tam
case initially reported their concerns internally
• 4.7% of employees who would eventually file a qui
tam case worked in compliance departments
• 0.9% of employees who eventually filed a qui tam
case worked in compliance and did not initially
contact their supervisor prior to contacting the
government
14

15. Fiduciary Relationship
Principal (Client)
Agent

16. Fiduciary Duties Owed to Clients
Loyalty
Confidentiality
Safekeeping PropertyIndependent Judgment
Communication
Candor

17. Scenarios
17

18. Scenario #1
• You are contacted by Third Party requesting
information about Trust
• What information do you voluntarily disclose

19. AICPA Rule 1.700.001
“A member in public practice shall not disclose
any confidential client information without the
specific consent of the client.”
19

20. AICPA Rule 1.400.070
“A member should maintain the confidentiality
of his or her employer’s or firm’s (employer)
confidential information and should not use or
disclose any confidential employer information
obtained as a result of an employment
relationship . . . .”
20

21. ABA CTFA Code of Ethics
“Safeguard the confidential nature of information
concerning the business transactions and condition of
my employer and of my employer’s present and
prospective customers, clients, borrowers or suppliers,
except where disclosure of such confidential
information is required by state or federal law or
regulation.”
21

22. ABA CTFA Code of Ethics
“Not use information that is not publicly available to
invest in the stock of a company that is a customer,
borrower, client or supplier of my employer, or share
such information with the investment department or
investment banking subsidiary of my employer, unless
it is legally permissible.”
22

23. Lawyer Confidentiality – Missouri Rule
4-1.6(a)
A lawyer shall not reveal information relating to
the representation of a client unless the client
gives informed consent, the disclosure is
impliedly authorized in order to carry out the
representation, or the disclosure is permitted by
Rule 4-1.6(b).
23

24. Lawyer “Use” of Information –
Rule 4-1.8(b)
A lawyer shall not use information relating to
representation of a client to the disadvantage of
the client unless the client gives informed
consent, except as permitted or required by
these Rules.
24

25. Information relating to the representation of a
client . . . Rule 4-1.6
Client
Court
Filings
Real Estate
Records
Newspaper
Depositions
Pleadings
Opposing
Party
Lawyer

26. Scenario #2
• You receive a subpoena from a Texas court
requesting information about Trust
• How do you respond to the subpoena?
• What information do you disclose in response
to the subpoena?

27. Attorney-Client Privilege
27
Client Lawyer
Rendition of
Legal Services

28. Scenario #3
• The Trust Documents allow you to invest in
any suitable assets
• Do you invest in:
– Real estate by issuing a mortgage (at market rate)
to a family member?
– Stock in a company affiliated to you or a family
member?

29. ABA CTFA Code of Ethics
“Conduct my professional affairs in a manner that
avoids a conflict of interest or the appearance of a
conflict of interest. If I become a party to a conflict, or
the appearance of a conflict is created, I shall inform
my supervisor as soon as possible.”
29

30. AICPA – Conflicts Rule 1.110.010
“A conflict of interest creates adverse interest and self-interest threats to the
member’s compliance with the "Integrity and Objectivity Rule" [2.100.001].
For example, threats may be created when
a. the member or the member’s firm provides a professional service
related to a particular matter involving two or more clients whose
interests with respect to that matter are in conflict, or
b. The interests of the member or the member’s firm with respect to a
particular matter and the interests of the client for whom the member
or the member’s firm provides a professional service related to that
matter are in conflict.
30

31. Missouri RPC 1.7(a)
Except as provided in Rule 4-1.7(b), a lawyer shall not represent
a client if the representation involves a concurrent conflict of
interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to
another client; or
(2) there is a significant risk that the representation of one or
more clients will be materially limited by the lawyer's
responsibilities to another client, a former client, or a third
person or by a personal interest of the lawyer.
31

32. Scenario #4
• Your renewal period for continuing education is fast
approaching
• You lack adequate continuing education hours
• Do you
– Ignore it, continuing education is not a big deal?
– Write down hours of programs you did not attend?

33. Scenario #5
• You believe your Supervisor has made
improper distributions from a trust
• What do you do? Whom do you tell?
33

34. Reporting Up (and Out?)
• MO RPC 4-1.13(c) If, despite the
lawyer's efforts in accordance
with Rule 4-1.13(b), the highest
authority that can act on behalf
of the organization insists upon
action, or a refusal to act, that
is clearly a violation of law and
is likely to result in substantial
injury to the organization, the
lawyer may resign in
accordance with Rule 4-1.16.
Up
Out
34

35. Scenario #6
• Your Colleague is active on social media
• Your Colleague posts that s/he has been busy
working on preparing distributions for the
Smith trust, including large distributions to the
American Red Cross
• What do you do?

36. Scenario #7
• You access your work emails through your
home computer
• Does this create any risks for your clients?
36

37. Protecting Confidences – Missouri
PRC 4-1.6(c)
A lawyer shall make reasonable efforts to prevent
the inadvertent or unauthorized disclosure of, or
unauthorized access to, information relating to the
representation of a client.
37

38. What Are "Reasonable" Precautions
38

39. Scenario #8
• Informant tells you of misconduct by your
colleagues
• Informant brings you emails from Colleague
that evidence the misconduct
39

40. Missouri RPC 4-4.4 – Improper Discovery and
Inadvertent Disclosure
(a) In representing a client, a lawyer shall not use means that have no
substantial purpose other than to embarrass, delay, or burden a third person
or use methods of obtaining evidence that violate the legal rights of such a
person.
(b) A lawyer who receives a document or electronic stored information
relating to the representation of the lawyer's client and knows or reasonably
should know that the document or electronically stored information was
inadvertently sent shall promptly notify the sender.
40

41. Scenario #9
• Third Party threatens lawsuit against you/your
company for mishandling Trust assets
• What should you do?
41

42. Insurance
• Most professional liability policies are “claims
made” policies
– Did insured have insurance at the time the insured
learned of the claim?
• Most other insurance is “occurrence” insurance
– Did you have insurance at the time of the
“incurrence”?
42

43. 43
"Claims"-Made Policies
Work
Done
Year 1 Year 2 Year 3
Demand letter
received
Settlement/
Judgment Paid
X X X
• If you leave your coverage, you may lose coverage for
subsequent claims
• A "tail" policy may be available

44. Work-Product Protection
A lawyer's involvement
is not required
44

45. Attorney-
Client
Privilege
Work-Product
Protection
45

46. Spoliation of Evidence
• Spoliation is “the destruction or significant
alteration of evidence.”
– Consequence
• Adverse inference
• Strike pleadings
• Sanctions (and possible liability)
46

47. Scenario #10
• Colleague is suspected of misconduct
• You are asked to “participate” in an
“interview” relating to the investigation of
misconduct
• What do you need to know about the
interview?
47

48. Representing an Organization – RPC 4-1.13
(e) A lawyer representing an organization may also represent any of its
directors, officers, employees, members, shareholders, or other
constituents, subject to the provisions of Rule 4-1.7. If the
organization's consent to the dual representation is required by Rule 4-
1.7, the consent shall be given by an appropriate official of the
organization other than the individual who is to be represented or by
the shareholders.
(d) In dealing with an organization's directors, officers, employees,
members, shareholders or other constituents, a lawyer shall explain
the identity of the client when the lawyer knows or reasonably should
know that the organization's interests are adverse to those of the
constituents with whom the lawyer is dealing.
48

49. Upjohn Warning
• Represent the company
• Not your counsel
• (May want your own lawyer)
• Communications may be privileged and
confidential
• Company controls privilege
49

50. Dealing with Employees – Rule 4-4.3
• In dealing on behalf of a client with a person who is not
represented by counsel, a lawyer shall not state or imply that the
lawyer is disinterested.
• When the lawyer knows or reasonably should know that the
unrepresented person misunderstands the lawyer’s role in the
matter, the lawyer shall make reasonable efforts to correct the
misunderstanding.
• The lawyer shall not give legal advice to an unrepresented person,
other than the advice to secure counsel, if the lawyer knows or
reasonably should know that the interests of such a person are or
have a reasonable possibility of being in conflict with the interests
of the client.
50

51. Concluding Thoughts
51

52. GAP and S&P 500
• In 2016, how many S&P 500 companies
reported non-GAAP financial results?
52

53. Non-GAAP Earnings – over 80%
• Non-GAAP: net income rose 6.6 percent in 2015
• GAAP: net income fell 11 percent in 2015
• Most common – removing expenses
– Home Depot – Data breach expenses = other
– Frontier Communications – Dividends on preferred
stock
– H&R Block – Severance
NY Times (April 22, 2016)
53

54. 54
Protections – Personal
values, regulations,
professional code,
organizational code
Professional
Career
aspirations
Financial
needs
Others’
Expectations
Resources
Management
Regulators
Board
Governance
Individual
Managers

55. Michael Downey
Downey Law Group LLC
(314) 961-6644
(844) 961-6644 toll free
mdowney@DowneyLawGroup.com
Thank You