The consequences of Bernie Madoff's massive Ponzi scheme
will linger for years and will test the boundaries of what we thought were
established limits. The latest struggle is between the bank that handled most
of Madoff's banking, JP Morgan, and the Office of the Comptroller of the
Currency (OCC) over whether the bank should be required to turnover certain
records to the government. Although no one seems to know specifically what the
OCC is looking for, all indications are that the OCC wants to see
communications between JP Morgan and its lawyers in connection with its
investigation of the Madoff fraud.
JP Morgan contends that the requested information is
protected by the attorney-client privilege. The dispute raises an important
question over the sacredness of the attorney client privilege. As noted by
Jennifer Zuccarelli, a JP Morgan spokesperson, "This dispute does not go to the
merits of the matter but it does raise an important issue of principle: Whether
we and other banks, large and small alike, have the fundamental right long
recognized in this country to communicate freely with and seek confidential
guidance from their lawyers."
On the other hand, the OCC has asserted that the OCC
"could not do its work" if banks can withhold information on that basis. The
OCC ha further stated that the bank's failure to produce records "will have to
be seen as a continuing purposeful impediment to the authority of the OCC . .
." The OCC has given JP Morgan until January 11, 2013, to produce the documents
or risk sanctions for impeding the OCC's investigation.
If the documents sought truly contain attorney-client
privileged communications, should the government's investigation - which
appears at the moment to be ill-defined in terms of purpose and scope - trump
In an unrelated dispute with federal regulators over
documents, JP Morgan was allowed to invoke the attorney-client privilege to
decline to produce certain emails that had been requested by the Federal Energy
Regulatory Commission. A copy of the federal magistrate's decision can be read here. FERC had accused a JPMorgan unit
of making "factual misrepresentations" and omitting material information in
communications with the California Independent System Operator, which operates
the state's power grid, and in filings to the commission. The FERC suspended
the unit's electricity-trading authority for six months starting April 1. The
court in that matter noted:
It is settled that the attorney-client privilege
"'protects the confidential communications made between clients and their attorneys
when the communications are for the purpose of securing legal advice.'" Id. (quoting In re Lindsey, 158 F.3d 1263, 1267 (D.C. Cir. 1998). "To be
privileged, a communication must be 'for the purpose of securing primarily
either (i) an opinion on law or (ii) legal services or (iii) assistance in some
legal proceeding.'" Id. at *5
From available news reports, it appears that the OCC
believes that investigation of a massive Ponzi scheme should limit the scope of
the attorney-client privilege. JP Morgan and the OCC are trying to reach a
resolution of this matter. If they are unable to do so, then we will see if a
Ponzi scheme alters what we thought was otherwise fairly well-settled law
regarding the nature of the attorney-client privilege.
subscribers can access enhanced versions of the opinion cited in this article:
In re Lindsey,
158 F.3d 1263
Read additional articles at The Ponzi Scheme
Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal
Resource for Unraveling Ponzi Schemes (LexisNexis 2012), along with
Hon. Steven Rhodes. The Ponzi Book, recently reviewed by Commercial Crime International, is
available for purchase at www.lexisnexis.com/ponzibook, and more information about
the book can be found at www.theponzibook.com.
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