This column, written by Mark Hinderks, of Stinson LLP, focuses on ethics questions. The discussion here is based on the ABA Model Rules of Professional Conduct, but the Model Rules are often adopted in different and amended versions, and interpreted in different ways in various places. Always check the rules and authorities applicable in your relevant jurisdiction—the result may be completely different.

Question: I represent a closely-held corporate client in a civil case in which there is an issue about when company officers became aware of an accounting irregularity affecting the company’s net worth, before or after the sale of company stock to a new investor to secure an injection of capital. After the sale, when the irregularity came to light, the new investor filed an arbitration proceeding pursuant to the stock purchase agreement, claiming that the stock was worth much less than the investor had been led to believe. At the outset of the case, I carefully interviewed the relevant corporate constituents in a privileged environment. In her interview, the company’s chief financial officer told me that she did not remember if she became aware of the critical accounting issue at the company shortly before or just after the stock sale in question, and the existing documents are not determinative. No depositions were taken. In the arbitration proceeding, you do not ask her about the matter on direct examination, but on cross-exam by the opposing lawyer, she testifies definitively that she is certain the issue only came to light after the stock sale.

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