The apparent end of a sticking point between Bank of America Corp. and investigators of the Merrill Lynch & Co. Inc. takeover highlights the pitfalls of big companies hiring numerous law firms for legal opinions.
The Securities and Exchange Commission said Tuesday that Bank of America, in a reversal from prior stances, had agreed to a "broad waiver" of attorney-client privilege claims that the company had used to resist requests for information. A federal judge must still approve their agreement.
B of A is negotiating a similar deal with the New York Attorney General's Office, according to published reports. The investigations have been examining B of A's disclosures tied to its acquisition of Merrill Lynch, including decisions on bonuses and losses at the investment bank.
B of A's lawyers reportedly disagreed on whether to supply the SEC with information that may have been privileged communication. The $2.3 trillion-asset Charlotte company hired Paul, Weiss, Rifkind, Wharton & Garrison to advise it on legal issues with the SEC over disclosures about Merrill bonuses. Wachtell, Lipton, Rosen & Katz advised B of A as it negotiated the purchase, while Cleary, Gottlieb, Steen & Hamilton handles regulatory issues. The company has also had three executives serve as general counsel in the past year.
Does it help or hurt a company to have multiple law firms offering opinions on the risks and rewards of strategic direction? How does management sift through potentially conflicting advice from a phalanx of lawyers?
Legal experts said that the practice of engaging multiple law firms works best if the lawyers have separate and distinct areas of oversight. Problems occur often when various duties such as acquisitions, bank regulation or shareholder relationships intersect, which was the case with B of A's Jan. 1 purchase of Merrill Lynch.
Lawrence G. Baxter, a law professor at Duke University, said that having multiple legal advisers "could provide a lot of checks and balances, but at some stage you can have too many cooks in the kitchen." He added, "The risk of conflict can increase."
Richard Spillenkothen, a former supervision director at the Federal Reserve who leads Deloitte & Touche LLP's bank regulatory consulting practice, said he is not overly concerned with the depth of legal advice some banks are engaging. "It is better to be overly informed than overlook something," he said without discussing a particular bank. "To some extent the more perspectives you get on a problem increases your chances of making sure you understand it from many dimensions."
Ron Geffner, a former enforcement lawyer for the SEC and a partner at Sadis & Goldberg, said there is usually no cause for concern when a company has several legal advisers, though investigators could look for certain patterns if a company waives attorney-client privilege. "If the client is soliciting opinions from multiple sources of lawyers on the same subject and then follows the most-liberal opinion, one can assume that they were opinion shopping," he said.
Robert L. Clarke, a senior partner at Bracewell & Giuliani and a former comptroller of the currency, said he has seen instances where a company may seek a lawyer who will provide legal justification for a particular decision, though he said there is nothing ethically wrong in doing so.