Cracking Down on Unethical Lawyers

Cracking Down on Unethical Lawyers

February 27, 2005
Cracking Down on Unethical Lawyers
By FRAN SILVERMAN
KIMBERLY DROSOS thought the sale of her Norwalk home was a done deal. She had quickly found buyers for it last summer, signed the closing documents in August, and bought a new home using her profit from the sale as a down payment. But a month later, Ms. Drosos received bills from the banks that held her mortgage and her home equity loans, both of which were supposed to be paid off from the proceeds of the sale. When she called her lawyers who handled the sale, she said, she was stonewalled.

As the notices from the banks mounted, and her calls and questions to the lawyers went unanswered, Ms. Drosos went to the police in December. On Jan. 20, the lawyers, Stephen Feinstein and his father and law partner, Norton Feinstein, were arrested and charged with first-degree larceny and conspiracy to commit larceny. The police said the lawyers had never paid off Ms. Drosos' mortgage or equity loan totaling more than $400,000. Their Norwalk law firm is now in the hands of a court-appointed trustee and their office is for sale.

Meanwhile, Ms. Drosos said she is facing a financial nightmare. She is liable for the $388,884 mortgage still owed on her Linden Heights home and $37,789 on a home equity loan, possible liens on her new home and a potentially crippled credit rating.

''I just couldn't believe something like this could happen,'' she said.

Lawyers representing the Feinsteins say their clients are innocent. Mark Phillips, a Stamford lawyer who is representing Stephen Feinstein, said sloppy bookkeeping by the Feinsteins' firm could be the cause of the problem.

''There is a real possibility that this is nothing more than very poor record keeping and is not at all sinister,'' Mr. Phillips said.

Norton Feinstein's lawyer, Robert Bello, would not comment on the case.

Investigators for the Connecticut Judicial Branch said there were other complaints about the Feinsteins regarding property closings and probate settlements. The investigators said that more than $2 million is missing from client accounts.

In November, Norton Feinstein gave up his law license and ability to practice law in the state, and Stephen Feinstein's license was suspended.

The investigators said that although it does not happen often, other lawyers in the past had also been charged with stealing client funds.

''Ninety-nine percent of attorneys are perfectly honest people,'' said Paul E. Murray, deputy chief state's attorney. ''But any time you have a large population of people doing any particular job, there will be a small percentage of bad apples.''

One of the largest cases of fraud in the state was in 1996, when two Wallingford lawyers, John A. Carrozzella and his partner, Thomas Richardson Jr., were convicted of defrauding 245 clients of $13 million.

In 1987, Richard L. Nahley, a Danbury lawyer and probate judge, hanged himself after allegations he had stolen about $3 million from clients.

Most recently, Sheri Paige, a lawyer who practiced in Norwalk, was charged with larceny for what the chief state's attorney said was misappropriating more than $400,000 from the estate of an elderly client. She resigned from the Connecticut bar on Feb. 16.

''She maintains that she is absolutely innocent and we believe that if the criminal case is tried she will be acquitted,'' said Ms. Paige's lawyer, Geoffrey Brandner of Stamford.

If the fraud involves real estate transactions, victims not only can lose the money invested in their homes, but also be taken to court themselves for failure to pay their debts on their property.

Officials with the Judicial Branch, however, said grievance procedures against lawyers have been strengthened, making it easier for the state to step in and for clients to recoup lost funds.

In the past, clients would have to file a complaint against a lawyer with the Statewide Grievance Committee, which assists the Judicial Branch in disciplining lawyers. The committee would investigate and vote to either take no action, suspend or revoke a lawyer's license. Last year, however, the Judicial Branch created a chief disciplinary counsel's office to investigate complaints against lawyers. The office has subpoena powers and is automatically notified if a law firm starts to bounce checks. The counsel can take lawyers before a judge to suspend or revoke their license if probable cause is found. The counsel's office can also turn evidence of malfeasance over to the state attorney's office for criminal investigation.

Mark Dubois, the state's chief disciplinary counsel, said his office had helped the judicial system take action against unethical lawyers and advocates for clients. He said he had even written letters to credit rating agencies to help protect victim's credit scores.

Since Mr. Dubois became chief disciplinary counsel in January 2004, eight lawyers have been suspended or disbarred for stealing substantial amounts of money from their clients. Five of the eight lawyers were from Fairfield County and the money they were accused of stealing totals about $7 million.

Mr. Dubois said he started investigating the Feinstein firm in the summer after he received overdraft notices and initially thought the lawyers were just having bookkeeping problems. It was not until November that he was able to find probable cause, he said. Meanwhile, Ms. Drosos hired the firm to handle her August closing.

Clients who have been defrauded can apply for reimbursement from the Client Security Fund, which was created in 1999. The fund, which used to be operated by the Connecticut Bar Association, is run by the judicial branch through a committee that includes lawyers and judges who investigate and decide on claims.

Each year, lawyers and judges in the state have to pay $75 toward the fund, which has a balance of $5 million. Last year, the fund paid $2.1 million toward 43 claims, although it denied 61 claims. The fund does not reimburse clients who claim that lawyers billed them for work they did not do, or for malpractice.

Christopher Blanchard, staff lawyer for the fund, said clients could be reimbursed the full amount of their lost money if a claim is approved. However, the process can take up to two years, Mr. Blanchard said.

Malpractice insurance provides some protection for clients, but may not cover a lawyer's intentional wrongdoing, judicial officials said.

Title insurance also offers protection, but only for the buyers who purchase a home, not sellers.

Ms. Drosos said the old mortgage and equity loan on her Norwalk home were paid off by the title insurance purchased by the buyers, but the company, Connecticut Attorneys Title Insurance, is pursuing reimbursement from her.

Stephen Maggiola, vice president and manager of First American Title Insurance Company, which has a separate claim connected to the Feinsteins, said the title insurance company's only recourse is to pursue a home seller when a lawyer is at fault. ''It's a horrible thing we have to do,'' Mr. Maggiola said. ''But we have a responsibility to recover our losses, too. This is a problem where better solutions need to be found.''

Mr. Maggiola said a client's best bet in recouping lost funds was pursing a civil suit against the lawyer and applying to the Client Security Fund.

Ms. Drosos said she is pursuing a civil action against the Feinsteins and will apply to the Client Security Fund for reimbursement. But she felt more preventative protections needed to be in place. She said that she would like to see checks written directly to banks during real estate closings instead of the funds being given to lawyers to disburse.

''It's absolutely ridiculous that the money should ever go into a lawyer's name,'' Ms. Drosos said.

Frederic Ury, the president of the Connecticut Bar Association, said lawyers do not have to be at real estate closings, nor do they have to disburse the funds. He said some states require that lawyers use separate escrow agents to oversee client funds, but those agents can also misappropriate the money. ''One case is too many for something like this,'' he said. ''It's just very disturbing. But it is very infrequent.''

Mr. Ury suggested that clients concerned about fraud should request that their lawyers provide copies of checks to be paid to banks and creditors at closings. He also said that regional grievance panels make it easier for people to make a complaint.

''The speed which things happen now is terrific for the public,'' he said. ''There is a faster resolution. New rules give local grievance panels much more autonomy. There is a feeling that we needed to dismiss grievances that were frivolous faster and discipline lawyers more quickly.''

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When Lawyers Steal the Escrow

When Lawyers Steal the Escrow

June 5, 2005
When Lawyers Steal the Escrow
By PATRICK O'GILFOIL HEALY
INEVITABLY, when people hired Jay W. Rosen as their real estate lawyer, things went wrong.

A dispute over the home's title or its certificate of occupancy would stymie the deal, making it impossible for Mr. Rosen to release his clients' money from an escrow account he controlled. An ancient property-line dispute would rise from the dead. Checks would get delayed. Cash transfers wouldn't connect.

It was as if money just didn't want to leave Mr. Rosen's hands, clients said.

''To say I was irate was an understatement,'' said Gregg Thaler, who hired Mr. Rosen last summer when his family was selling their home and moving from Long Island to Las Vegas. ''I was throwing a fit.''

Soon, the Thalers began to suspect what criminal charges and a guilty plea would later confirm. Mr. Rosen, a 62-year-old lawyer from Garden City, N.Y., had been stealing from his clients, looting their escrow accounts and down payments.

In all, prosecutors say, he stole at least $3.6 million from about three dozen people in Long Island.

His clients joined the growing ranks of the newly bilked. More and more people in New York City and its suburbs are losing thousands of dollars to their real estate lawyers, according to the state Lawyers' Fund for Client Protection, which tracks thefts by lawyers and reimburses their clients.

To hear these stories underscores the fragility of real estate's reliance on trust, handshake compacts and reputation-based referrals, and how quickly it can be corrupted.

With real estate business surging and down-payment amounts rising with home prices, the temptation for a lawyer to filch money from a bulging escrow account and later repay it with other clients' money has never been greater, said lawyers who monitor the thefts.

The thefts are a particular problem in the New York metropolitan area, where 10 percent down payments are standard and lawyers control the escrow money. In many upstate towns, buyers put down only a few hundred dollars to secure a home and brokers hold the escrow.

Timothy J. O'Sullivan, executive director of the Lawyers' Fund, said claims of real estate theft have surged over the last five years and now surpass claims of theft from trusts, estates and lawsuit settlements. One hundred people reported real estate thefts in 2004, compared with 44 in 1999, according to an annual report by the Lawyers' Fund.

In 1999, clients of crooked real estate lawyers received $555,345 in compensation from the Lawyers' Fund, its data show. Last year's total was $3.651 million. The large theft by Mr. Rosen was not the main reason for the increase in compensation, because the compensation for many of his victims has not yet been paid.

There are no hard numbers recording how many lawyers are arrested or disbarred each year after looting escrow accounts on home sales. Some lawyers take the money to pay off debts. Some spend lavishly on extramarital affairs or to finance drug addictions. Others steal from one client to pay others, again and again, getting buried in a self-created pyramid scheme.

For a Chinatown lawyer named Chak Yin Lee, it was a gambling problem. Mr. Lee pleaded guilty last month to one count of grand larceny after being accused of stealing more than $800,000 from at least 10 clients who were buying and selling homes and investment property.

According to a statement from Manhattan prosecutors and lawyers involved in the case, Mr. Lee would transfer down payments from escrow accounts into his personal account, then later make withdrawals from cash machines in Atlantic City. He put off closing dates, and in August, he shut down his law office on Canal Street.

''We were really worried,'' said Jaime Wong, the pro bono lawyer for a couple who lost more than $400,000. ''We were afraid he would disappear.''

Ms. Wong said her clients, Yat and Yi Ng, had been relying on Mr. Lee to save them money. They had planned to reinvest the proceeds of one investment property quickly to avoid paying capital gains taxes, a common maneuver called a 1031 exchange. It was only after Mr. Lee took the profits from the sale -- $426,860 -- and stopped taking their calls that the couple realized something was wrong.

''When it blew up, a lot of people were quite surprised,'' Ms. Wong said. ''He never struck people as anybody who would do something like that. A lot of lawyers told me, 'Oh he was a nice guy.'''

The Ngs were compensated by the Lawyers' Fund, and Mr. Lee was sentenced May 24 to one to three years in prison. His lawyer declined to comment, and Mr. Lee could not be reached. He has been suspended from the bar and is likely be disbarred in July, said Thomas J. Cahill, who is prosecuting his case before the Departmental Disciplinary Committee of the New York State Supreme Court.

''There are a lot of cases where people have been disbarred involving escrows,'' Mr. Cahill said. ''I mean, a lot.'' Mr. Rosen, the Garden City lawyer, was one of them. He resigned from the bar in October 2004 and has pleaded guilty to grand larceny.

His former clients said they are still amazed by the tales of his prolific and indiscriminate thefts. He stole money from young couples, from elderly women and from dead people, prosecutors and his clients said. He took $5,500 from one man and $296,425 from another.

Mr. Rosen, who would not comment for this story, struck many of his clients as competent and kind but sometimes disorganized and socially awkward. He bounced clients' children on his knees like a grandfather, but sometimes forgot papers at closings and neglected to return phone calls.

Born in 1943, Mr. Rosen received a bachelor's degree from New York University, earned a law degree from New York Law School and was admitted to the bar in 1966, according to Martindale-Hubbell, a legal directory.

He had a solid reputation on Long Island and found clients through word-of-mouth and referrals. Homeowners sent their neighbors to him. Couples like Howard and Allison Edelman of Smithtown were referred by their real-estate agent. Brokers and bankers respected him.

''It's like this guy went from being great to being a horror,'' said Mary Cooper, whose company, Morton M. Haves Real Estate, referred a seller to Mr. Rosen. ''We didn't know what was happening. It was a horrible, horrible experience. The best thing we have is our clients' trust.''

Mr. O'Donnell, the prosecutor, said his office later traced the first thefts to 1999. To steal from home buyers, he took their 10 percent down payments. To steal from sellers, he stood in for them at the closing, then took a portion -- or all -- of the proceeds. Like many lawyers caught stealing from escrow funds, Mr. Rosen ran a solo practice. He had an assistant, but no internal accountants looking over his shoulders or legal partners whose careers could be undermined by Mr. Rosen's actions.

He charged a modest flat fee for steering a deal through contract and closing, often attracting clients who didn't want to hire a lawyer but couldn't navigate the process of buying and selling a home in New York without one.

''I moved here from Dallas, Tex., and when we sold our house there, there were no lawyers involved,'' said Ron Tamir, another of Mr. Rosen's clients. ''I thought, 'What's the big deal?' I ran into my next door neighbor, and I said, 'You know a good lawyer?'''

Mr. Rosen had unfettered, unmonitored access to the escrow accounts in his name, and he sometimes told clients he needed to hold money in escrow while a certificate of occupancy was pending or old code violations on a house were ironed out, clients said.

Eleanor Danziger, 82, hired Mr. Rosen as she prepared to sell her home in Woodmere and move to Manhattan. After the closing, Ms. Danziger still had to perform a few minor fixes to bring her home up to code, so the buyers agreed to set aside $50,000 of the purchase price in an escrow account and release the money once the work was done. When the work was finished in June, Mr. Rosen said he would send Ms. Danziger the $50,000, she said. It never came.

''When we went to his office, we were not impressed,'' she said. ''It was less than modest. My son is an attorney, so I know what a substantial practice can be. But this was like, by the seat of the pants. He wasn't making his money from the fees. He was making his money from the other stuff.''

Ashok and Arti Singh said they lost out on a home purchase after hiring Mr. Rosen. After offering $600,000 on a home on Long Island, they gave Mr. Rosen a $60,000 check to be used as a down payment. But after several days of silence, the Singhs learned the sellers had signed with another buyer.

''He didn't put my money into escrow,'' Ms. Singh said. ''That's why I was losing the deal. We went through hell. I'm still in the same house.''

Ms. Singh said she called Mr. Rosen's office repeatedly but got only answering machines. When she reached him, he promised to send her money back, and a check arrived in the mail. It bounced.

Most of his clients were middle-class families or elderly people living on fixed incomes, such as Gertrude Marcus, who sold her home in Hewlett to finance her retirement in Florida. Or the Thalers, who sold their home in Old Bethpage and planned to use the profits to finance a new home in Las Vegas.

Many of Mr. Rosen's victims have been compensated by the Lawyers' Fund, which is financed by lawyers' registration fees and reimburses victims of legal fraud. The fund has so far paid $1.9 million of the estimated $3.6 million to $4.7 million Mr. Rosen stole from his clients.

Mr. Rosen's lawyer, Thomas Liotti, said that Mr. Rosen had not spent the money lavishly or wantonly but had been threatened and shaken down for cash by former clients. In October, The Daily News ran a photograph of Mr. Liotti standing in Mr. Rosen's offices, which had been trashed and burglarized, presumably by those angry clients.

Mr. Liotti would not elaborate on the bizarre allegation but said Mr. Rosen had been sick and victimized. Mr. Rosen's former girlfriend reiterated that story, but spoke on the condition she not be named, saying she feared the people who ransacked Mr. Rosen's office.

She said Mr. Rosen had taken the escrow money, hoping that he would win a large case on appeal and be able to repay the accounts. But the appeal failed, he kept stealing and had a nervous breakdown and attempted suicide, the girlfriend said.

Mr. O'Donnell, the prosecutor, had less sympathy. He said Mr. Rosen is broke and has no property the county can seize and sell.

''He didn't give an explanation'' for the thefts, Mr. O'Donnell said. ''It was just to fund a lifestyle. He lived in a very exclusive neighborhood in Oyster Bay Cove.''

Today, many of Mr. Rosen's clients are still angry, at him and at prosecutors. Mr. Thaler said his home sale closed in September 2004 -- two months after prosecutors began getting complaints about Mr. Rosen, and one month before his arrest.

''While they were waiting, he stole from us,'' Mr. Thaler said.

Katie Grilli-Robles, a spokeswoman for the Nassau County district attorney's office, rejected the charge, saying the path from investigation to arrest was swift.

Mr. Rosen is expected to be sentenced to two to six years in prison this Tuesday. Clients said his sentencing would bring them some comfort, but added that they were still shaken after realizing their own vulnerability.

''There's no way to guard against something like that happening to you,'' Mr. Thaler said. ''If someone's out to defraud you, they're going to win every time.'' Some Ways to Protect Yourself

ALTHOUGH there are few fail-safe ways to guard against theft in real estate transactions, there are preventive steps that can be taken.

Some lawyers recommend having an insurance policy against escrow deposits. Others suggest that lawyers put up a bond against the funds, the same way someone accused of a crime must put up a bond to avoid jail before a trial, or that escrow accounts be set up to require a client's authorization before any withdrawal.

But those are unorthodox tactics, and most lawyers say the easiest way to guard against theft is to know whom you are hiring.

Find a lawyer through friends, family or clergy, or get referrals from the New York State Bar Association or the New York City Bar Association. There is a modest fee for the service.

Call a local grievance committee to find out whether a lawyer has been disciplined in the past. For lawyers in Manhattan and the Bronx: (212) 401-0800; for Brooklyn, Queens or Staten Island: (718) 923-6300; for Nassau and Suffolk Counties: (631) 231-3775; or for the Hudson Valley: (914) 949-4540. Joshua Stein, chairman of the Real Property Law section of the New York State Bar Association, said clients can also deposit their escrow funds with a title insurance company, bypassing a lawyer's escrow account.

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Morgan Stanley Gets a Lesson On Lawyers And the Law

Morgan Stanley Gets a Lesson On Lawyers And the Law

May 17, 2005
Morgan Stanley Gets a Lesson On Lawyers And the Law
By JONATHAN D. GLATER

At least one lesson of the legal brawl between Ronald O. Perelman and Morgan Stanley is clear: Don't pick a public fight with your lawyer on the eve of trial.
Scant weeks before the trial was set to begin, Morgan Stanley and its outside law firm, Kirkland & Ellis, parted ways -- though which side drove the separation is not entirely clear. In proceedings in state court in West Palm Beach, Fla., both lawyer and client asserted that a serious conflict of interest had arisen, and Morgan Stanley told the law firm to expect a civil malpractice lawsuit. Morgan Stanley went to trial with lawyers who repeatedly told the court that they were not as prepared as Mr. Perelman's team.


Yesterday the jury hearing the case weighed in, ordering Morgan Stanley to pay Mr. Perelman $604 million in damages. Jurors still have to consider possible additional punitive damages, and the bigger the total, the more likely Morgan Stanley will try to force Kirkland & Ellis to help pay the bill.

More went wrong in Morgan Stanley's case than just the last-minute lawyer swap. The presiding judge, Elizabeth T. Maass, dealt a serious blow to the investment firm when she instructed jurors that Morgan Stanley had to persuade them that the firm did not conspire to commit fraud -- a shift of the burden of proof; typically, Mr. Perelman's lawyers would have had to prove fraud.

After Kirkland & Ellis was out, Morgan Stanley's new lawyer asked the court for more time to prepare for trial, known as a continuance, arguing that the orders of the judge had created the conflict that prevented Kirkland & Ellis from serving as outside counsel. Judge Maass denied the request, stating that she did not know what the conflict was.

''Morgan Stanley was unwilling to waive any attorney-client privilege and tell me what the nature of that claim was,'' the judge said at a proceeding in March, explaining her reluctance to grant a continuance. She added, several minutes later, ''How would you ever test whether there truly was a potential malpractice claim or it was simply a ruse to allow counsel to withdraw and potentially get a continuance?''

If switching lawyers was intended to buy time, the strategy failed.

A spokesman for Morgan Stanley declined to comment. Lawyers at Kirkland & Ellis, citing client confidentiality, issued a brief statement yesterday, saying, ''There was absolutely no malpractice committed by Kirkland & Ellis.''

Court filings and transcripts hint at one reason Kirkland & Ellis and Morgan Stanley may have decided to part ways: an embarrassing mess over providing documents. Although a Morgan Stanley executive certified in June 2004 that the firm had produced all documents and e-mail messages required by the court, the company found additional documents and e-mail messages months after they should have been turned over to Mr. Perelman's lawyers.

That is why the court issued an order reversing the burden of proof. The judge concluded that Morgan Stanley ''has deliberately and contumaciously violated numerous discovery orders.''

When Judge Maass told members of the jury that they could hold the failure to produce evidence against Morgan Stanley, the instruction no doubt helped Mr. Perelman's lawyers considerably in their arguments while also contributing to the jury's decision.

But transcripts and court filings do not explain how the document production fiasco led to a conflict between the company and its former lawyers. Mark Hansen, one of Morgan Stanley's new lawyers, insisted in court that the conflict was self-evident once the firm told Kirkland & Ellis that it could face a malpractice claim.

''When a client puts a lawyer on notice like that, it creates the conflict because the issue is the relationship between the lawyer and client,'' Mr. Hansen said.

The judge was unconvinced. ''None of that is relevant,'' she said in court ''unless and until I know what it is Morgan Stanley believes Kirkland & Ellis did that was legal malpractice. And so far you have been unwilling to disclose that.''

Mr. Hansen responded simply, ''We can't waive the privilege.''

A dispute like the one involving Morgan Stanley and Kirkland & Ellis is highly unusual. A typical conflict of interest for a law firm involves a current client whose interests run counter to those of a past, present or future client or a lawyer representing both parties to the same dispute.

When the client's interests and the lawyer's interests are at odds, ''you can't do the representation,'' said Bruce Green, a professor at the Fordham University School of Law, who teaches legal ethics. ''There're no hard and fast rules.''

It could be, for example, that a law firm in Kirkland & Ellis's position might be more cautious in representing its client after being told of a potential malpractice claim. If there is a malpractice suit filed by Morgan Stanley, eventually many of the details will become public. For now, Mr. Green said, ''It's hard to say without knowing all the facts.''

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Caught Between Doing Well and Doing Good - New York Times

November 18, 2005
Legal Beat
Caught Between Doing Well and Doing Good
By JONATHAN D. GLATER
NOT a deal is done unless lawyers have blessed it. Not a regulatory filing is made unless lawyers have reviewed it. And not an executive compensation agreement is signed unless lawyers have approved it.

Lawyers have made themselves indispensable to public companies. Lawyers boast of their ability to learn the ins and outs of any problem and to know a client's interests better than the client does.

But if lawyers are as wise as they profess, how is it that so many of their clients have been in the middle of devastating financial scandals over the last four years?

Slowly, we are learning more about what lawyers have been up to. For example, some prominent law firms have issued opinion letters approving tax shelters later challenged as improper. Some appear to have drawn up the contracts that enabled companies to park hard truths on someone else's balance sheet. And it was not that long ago that some helped set up companies that engaged in a series of revenue-enhancing transactions that made Enron look like a powerhouse, at least for a while.

The typical argument in such cases - and just because it is typical does not mean that it is not powerful or even true - is not surprising: lawyers may not know the net effect of transactions they assist.

"Suppose I am asked to help facilitate a wire transfer of several million dollars from Milan," said Geoffrey Hazard, a law professor at the University of Pennsylvania. "Could that be fraudulent? Sure. Could it be perfectly legitimate? Sure. Any badges indicating it's not? No."

Of course, these arguments suggest lawyers are not as powerful or knowledgeable as they claim when they are selling their services. As one lawyer cynically put it, a lawyer may brag of mastery of a deal in advance; but once prosecutors are interested, suddenly that lawyer's role consisted only of drafting a contract.

Bevis Longstreth, a former member of the Securities and Exchange Commission and a retired law firm partner, put the contrast succinctly. "Our lawyers in this country are instrumental in getting the deal done," he said. "In the course of that, they come to understand a great deal about the transaction. They can say, well, we only had this little part, but most lawyers who think of themselves as very good and who are very good, have tremendous peripheral vision and they are worried about everything under the sun."

When it comes to potential misconduct at a client, he said, "It just doesn't add up that they're not conscious."

Now, this is not to say that every scandal can be laid at the feet of lawyers. Far from it. Lawyers have good reason to protect their reputations by keeping clear of the taint of scandal. Often enough, lawyers guide clients through gray areas - saying a tax shelter is not clearly illegal, for example. The fact that a prosecutor challenges a transaction after the fact does not mean that the lawyer who documented it furthered a fraud.

Still, there are troublesome reasons to think lawyers might have become less effective guardians against corporate malfeasance. Several lawyers cited the annual rankings of law firms by American Lawyer magazine. The rankings, they say, forced them to think about looking successful financially, rather than focusing solely on their intangible reputation as good lawyers.

"The ability to think of yourself as the best without being paid the most became much harder," Mr. Longstreth said. Getting paid more meant keeping clients - which can mean avoiding having to say no.

Regulators have gone after lawyers in a few cases. But regulators have usually focused on the corporate general counsel - someone who clearly stands to gain from looking the other way during fraud.

Building a case against outside lawyers is difficult, several lawyers said. To establish wrongdoing, it would have to be shown that the outside lawyer knowingly furthered a fraud. Another stumbling block is proving motive. Executives whose stock options soar in value as a result of phony earnings have a reason to engage in fakery. Outside lawyers - paid by the hour - do not.

But having no reason to do wrong is not the same as having a reason to do right.

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