Enron and the corporate lawyer: A primer on legal and ethical issues

The Enron collapse and other corporate failures, some accompanied by massive fraud, have raised questions concerning a lawyers responsibilities when the lawyer learns, or has reason to know, that agents of the corporation are engaged in conduct that is unlawful or that is in violation of their fiduciary duty to the corporation. The legal and ethical rules governing a lawyer's responsibility in these troublesome situations are controverted, often ambiguous or discretionary, and sometimes lawyer-protective. This Article summarizes the law, governing such matters as the scienter requirement, the duty to make further inquiry when circumstances suggest the possibility of misconduct by corporate agents, and the new requirement included in the Sarbanes-Oxley Act of 2002 that the lawyer "climb the corporate ladder" to the board of directors, if necessary, to prevent or rectify the wrongful conduct. The vexing question of disclosure of confidential information outside the corporation is also considered. The Article closes with recommendations for legislative, regulatory, or rule changes that would provide greater guidance to lawyers and more protection to public interests.