March 3, 2009 5:37 PM

Lessons From the Stanford Scandal: Bring Your Own Lawyer

Posted by Zach Lowe

Laura Pendergest-Holt, the former chief investment officer of Stanford Financial Group, is the only person charged with a crime (so far) in the billion-dollar scandal emerging around the investment group--and she is charged not with stealing any money, but with lying to lawyers for the Securities and Exchange Commission during testimony she gave on February 10.

The only defense lawyer in the room with Pendergest-Holt that day was Proskauer Rose partner Thomas Sjoblom, an experienced white-collar defense lawyer (and former SEC staffer). Twice during early testimony, Sjoblom made sure to remind the SEC's lawyers that he was the company's lawyer, not Pendergest-Holt's personal attorney. Take this exchange between Sjoblom and Kevin Edmundson, assistant regional director for the SEC's Fort Worth, Texas, office:

Edmundson: "Just so we're clear. As I understand your statement, you do not, as far as you're concerned, represent the witness here today?"

Sjoblom: "I represent her insofar as she is an officer or director of one of the Stanford-affiliated companies."

Later during a break in questioning, Sjoblom actually called his secretary to have her pull the engagement letter so he could check that he indeed represented all Stanford-affiliated companies.

To many lawyers, the exchanges make clear that Pendergest-Holt walked into one of the trickiest situations for a high-level official of a company under investigation: testifying before the SEC with representation only from a company lawyer.

"You should always have your own lawyer," says Peter Henning, a former SEC and Justice Department prosecutor who now teaches criminal law at Wayne State University Law School. "Always. At some point, the individual's interest and the company's interest are going to diverge."

White-collar defense lawyers agree the setup is typical, especially at the early stages of an investigation, but also that it is fraught with potential conflicts some witnesses won't see. 

"It's not an obvious distinction for a layperson to make--this idea that the lawyer is representing you only insofar as you are an official of the company," says Stephen Gillers, a legal ethics expert and a professor at New York University School of Law. "Which is why very often the witness needs separate counsel."

The law required Sjoblom to warn Pendergest-Holt about the nature of his representation, Gillers and others say. With that done, her decision (with Sjoblom's consultation) to testify then depends on a host of factors, including what information she knew, what information the SEC was seeking, and what Sjoblom and Pendergest-Holt knew about the company's books, lawyers say. 

(Sjoblom, as we've written before, withdrew from the case just days after Pendergest-Holt's testimony and wrote to the SEC official disavowing anything he had ever told the agency about the Stanford group. According to this Houston Chronicle piece, it was Sjoblom who suggested that Pendergest-Holt be one of two Stanford execs to appear before the SEC. Sjoblom has not returned repeated messages.)

"One question I'd want to know the answer to is whether the company ever advised her to obtain independent counsel," says Ellen Podgor, associate dean of faculty at the Stetson University College of Law and lead author of a popular blog on white-collar law. "Because she'd clearly be better off with her own attorney there--or at least someone to advise her."

Pendergest-Holt now has several attorneys advising her, including a team from the Salt Lake City-based firm Parsons Behle & Latimer (led by partner Brent Baker) in her civil case and Houston-based attorney Dan Cogdell in her criminal case. 

The SEC, for its part, is not under any obligation to stop questioning someone who doesn't have their own lawyer, experts say. The SEC issues a form to everyone it subpoenas, outlining their rights--including their right to an attorney (but not to have one appointed for them). 

"Ms. Pendergest-Holt was fully appraised of her rights," Edmundson says. "We don't play hide the football here."

Some large public companies sign agreements requiring them to provide independent counsel for high-level officials who request it, Henning and others say. Stanford's company apparently did not.

"It's a very delicate issue," Gillers says. "These people may just not appreciate that a company lawyer may not be their best advocate."

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