Eric Sieracki's defense against the SEC argues that he lacked scienter (the knowledge of the illegality of an act or conduct; the guilty knowledge). He had relied on the advice of his lawyers. (see Memorandum In Support Of Sieracki Summary Judgment Motion.

In general, an "advice-of-counsel" defense consists of three elements: 1) the defendant's good faith reliance on counsel's advice of; 2) the defendant's lack of knowledge that counsel's advice was erroneous, and 3) the defendant's full disclosure of all relevant facts to counsel, or counsel's actions as determined by the facts of his or her own investigation. (Jacqueline M. Jauregui, "Advice Of Counsel." Federal Defense and Corporate Counsel Quarterly, Summer 2000) The SEC said in its brief that an "advice-of-counsel" defense requires a party to show he requested advice about the legality of an action, received advice that was legal, and relied on it in good faith.  (See SEC's Memorandum In Opposition To Sieracki's Summary Judgment Motion.)

Sieracki cannot use both an "advice-of-counsel" defense and an assertion of attorney-client privilege. The SEC states,

when asked in deposition whether he consulted Countrywide lawyer Mike Udovic regarding credit risk disclosures, Sieracki asserted the attorney-client privilege. SF 549. It is well settled that “[t]he privilege which protects attorney-client communications may not be used both as a sword and a shield.” Bittaker v. Woodford, 331 F.3d 715, 719 (9th Cir. 2003) (quoting Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir. 1992)).  (See SEC's Memorandum In Opposition To Sieracki's Summary Judgment Motion, p. 11.)

Forced Reliance

An officer or director of a corporation cannot know all of the complexities of the corporation, including the complexity of laws that govern it. Officers and directors must rely on a wide range of advisors who provide counsel, including attorneys. Officers and directors may not have the opportunity to verify the advice they receive; they may not possess the skills or have access to the knowledge that an advisor relied upon. It seems that in light of the growing complexity of knowledge, an "advice-of-counsel" defense must be a viable option. In order to allow this defense it may be necessary for corporations to include contractual provisions for defense. (see Mark A. Kressel, "Making the Advice of Counsel Defense Available for Corporate Directors." The Yale Law Journal Online, February 7, 2007.)

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There are many career options for non-practicing licensed attorneys. (See for example, 300+ Things You Can Do With A Law Degree.) Although non-lawyers working in these careers are not obligated to adhere to lawyer disciplinary rules, licensed attorneys are. To their great surprise, the non-practicing lawyers might find themselves subject to disciplinary action for conduct in careers outside of the practice of law.

An Example From The Federal Government

Politics is a popular career for non-practicing licensed attorneys. Often times it is a natural step to move from practicing law to making law.

At the Federal level, all Representatives must abide by the House Ethics Rules. Those who are lawyers must also, answer to their licensing State Bar. Bar Associations have sanctioned lawyer-politicians for actions committed while serving in government offices. Most notable:

  • Former President Richard Nixon was disbarred from New York in 1976 for obstruction of justice related to the Watergate scandal.
  • Former Vice President Spiro Agnew, having pleaded no contest to charges of bribery and tax evasion, was disbarred in 1974 from Maryland, the state he had previously served as governor.
  • Former President Clinton received a 5-year suspension from the Arkansas State Bar for false statements he made in the matter with Ms. Lewinsky.

What Is The Basis For Sanctions?

We can consider the current situation of Congressman Charles Rangel, who has been charged in Congress with, among other things, underreporting taxes. Congressman Wrangel's conduct could be sanctionable under New York Rule 8.04, which reads, in part,

A lawyer… shall not:
      · · ·
(b) engage in illegal conduct that adversely reflects on the lawyer’s honesty, trustworthiness or fitness as a lawyer;
(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

Comment 2 to Rule 8.04 states,

Many kinds of illegal conduct reflect adversely on fitness to practice law. Although a lawyer is personally answerable to the entire criminal law, a lawyer should be professionally answerable only for illegal conduct that indicates lack of those characteristics relevant to law practice. Violations involving violence, dishonesty, fraud, breach of trust, or serious interference with the administration of justice are illustrative of illegal conduct that reflects adversely on fitness to practice law… A pattern of repeated offenses, even ones of minor significance when considered separately, can indicate indifference to legal obligation.

Sanctions could be based on the same facts as the House Ethics Committee's allegations. For example, Congressman Rangel's alleged…

… failure to report rental income related to Punta Cana on his Federal income tax returns [is alleged to have] violated the Internal Revenue Code. (Statement Of Alleged Violation (SAV), ¶ 245, see ¶ 119-133 of the SAV for details regarding the Punta Cana rental)

Congressman Rangel responded formally to the Ethics Committee that he:

… acknowledged publicly, prior to the establishment of the Investigative Subcommittee, that his tax returns omitted rental income derived from his investment in the Punta Cana resort located in the Dominican Republic and that he had filed amendments and paid additional taxes. Congressman Rangel [advised that he] has done everything within his power to fulfill his legal obligations in this regard, and to the best of his knowledge, nothing further is required. (Statement p. 20)

He also stated on the House Floor:

The fact that there was negligence on the part of the person that for 20 years did it and the fact that I signed it, does not really give an excuse as to why I should not apologize to this body for not paying the attention to it that I should have paid to it. (Address 03:02:33)

Have Lawyers Been Sanctioned For Violating The Internal Revenue Code?

Lawyers have been sanction for violating the Internal Revenue Code. For example:

Aaron Bertel, a lawyer in New York State, received a three-year suspension for conspiracy to defraud the United States and the Internal Revenue Service and for filing fraudulent income tax returns. (268 A.D.2d 112, 706 N.Y.S2d 101)

Marie Klarman, a lawyer in New York State, received a one-year probation for knowingly filing a false personal income tax return in which she deducted mortgage interest that she was not entitled to deduct. (Klarman paid the additional taxes she owed.) (22 A.D.3d 953, 802 N.Y.S.2d 267)

Alberto Pirro, Jr., a lawyer in New York State, received a three-year suspension for several counts of tax evasion and tax fraud. (Pirro had an otherwise unblemished record, accepted full responsibility, and noted that the tax returns were prepared by a CPA.) (305 A.D.2d 22, 759 N.Y.S.2d 527)

Bonnie Strunk, a lawyer in New York State, was disbarred based on her felony tax conviction (Criminal Tax Fraud in the Fourth Degree, a class E felony, for failing to file her 2008 personal income tax return while having a tax liability in excess of $3,000).

A Warning for Non-Practicing Licensed Attorneys

Even if a lawyer is not engaged in the practice of law, he is still answerable to the entire criminal law. And, his conduct must not reflect adversely on his character or fitness to practice law, even if the conduct is not criminal. To the extent that a lawyer's character and fitness are called into question, he may find himself stripped of his law license, even if his non-lawyer counterparts would otherwise suffer no consequences.


Bruce A. Campbell is the managing director in the law firm of Campbell & Chadwick, P.C. He has defended lawyers and other professionals on a variety of malpractice and other tort claims for more than 25 years. He has published more than 50 articles and authors a blog about legal ethics. Mr. Campbell may be reached by email or at 972-277-8585.

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