Opinion 99-13
(December 1999)

Lawyer A is a partner in a firm with a prestigious reputation in the business community. Lawyer A, in connection with his legal representation of a client learns that B, one of the principals of the client, pleaded guilty to securities fraud committed during his employment with a brokerage firm. The client's business involves a sale of a product to investors which may in certain states be a security. After receipt of this information, Lawyer A wants to introduce B, to a trust company as a person with whom the trust company could deal in purchasing this type of product for the trust company's customer's ERISA plan. The inquirer asks the following questions:

1. Must the lawyer disclose to the trust company that he is recommending someone with a fraud conviction in the securities field?

2. If Lawyer A's firm also represents the trust company, can he make the recommendation without disclosing the fraud conviction?

3. Is it ethical for Lawyer A to allow his name and his law firm's name to be used as a reference in promotional materials used by B, to solicit customers for other ventures being carried on by B when such materials refer to B as having a "spectacular ten year history on Wall Street," with no disclosure as to the conviction?

Except for the answer to the second question, it is assumed that the lawyer does not represent the trust company. It is also assumed for all the questions that the lawyer only represents his client, and not B individually.

Rule 4.1, of the Pennsylvania Rules of Professional Conduct, (the "Rules") "Truthfulness in Statements to Others," states:

"In the course of representing a client a lawyer shall not knowingly:

(a) make a false statement of material fact or law to a third person; or

(b) fail to disclose a material fact to a third person when disclosure is necessary to avoid aiding and abetting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

The lawyer must consider that recommending B to the trust company, without disclosing the fraud conviction may be a problem under Rule 4.1, particularly if B is at all likely to commit fraud or a criminal act again. To avoid running afoul of Rule 4.1, the lawyer should tell the trust company of the conviction. However, the information pertaining to the conviction is confidential information about the lawyer's client under Rule 1.6, and cannot generally be revealed. Therefore, the lawyer should obtain full permission and consent from the client to tell the trust company about the conviction before doing so. However, the Committee cautions that should the client withhold permission to disclose the conviction, then the inquirer may not do so unless one of the exceptions to confidentiality as delineated in Rule 1.6c applies.

The answer to the second question presented is that the lawyer cannot make the recommendation to the trust company without disclosing the fraud conviction. Since the lawyer represents the trust company, all of the normal attorney-client duties attach. The lawyer must adhere to Pennsylvania Rule of Professional Conduct, Rule 1.4 Communication, which states:

A lawyer shall keep a client informed about the status of a matter and promptly comply with reasonable requests for information.

(b) A lawyer shall explain a matter to the extent necessary to permit the client to make informed decisions regarding the representation.

Under 1.4(b), in an investment scenario, an attorney cannot make a recommendation to a client to deal with someone who the lawyer knows has a fraud conviction, unless the lawyer discloses that information. However, this information is confidential under 1.6, and cannot be revealed without the full permission and consent from the client to tell the trust company about the conviction. In addition, if the lawyer represents both the client that has B as a principal, and the trust company, the potential conflict of interest under Rule 1.7b must be considered. Rule 1.7(b) states:

A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after full disclosure and consultation...

However, the lawyer's representation of the client that has B as a principal, and the lawyer's representation of the trust company may constitute a waivable conflict. The lawyer must carefully ascertain that he/she can represent both of these clients at the same time with no adverse affect to either due to the other's representation. Then the lawyer must obtain the consent of each client to allow the lawyer to also represent the other client, after the lawyer has fully disclosed the situation and consulted with each client.

The third question raises some of the same issues as the earlier questions. The lawyer must recognize that the use of the lawyer's name as part of the promotional materials, which includes a "spectacular ten year history on Wall Street," without disclosing the fraud conviction, is a problem under Rule 4.1, particularly a reference to B, if B is at all likely to commit fraud or a criminal act. The prudent thing for the lawyer to do is either not be in the promotional materials, or ensure that any promotional materials which do include the lawyer's name are wholly straightforward and include all material and relevant information. Furthermore, the inquirer must also be vigilant against potential conflict of interest issues which could arise between the inquirer's duties to the client and the inquirer's interests, if any, in B's outside business ventures.

Finally, although outside the normal scope of the Committee's jurisdiction, the Committee cautions that this inquiry raises important potential federal and state securities issues which must be evaluated by the inquirer, but are beyond the purview of this analysis.

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.