A lawyer is engaged by a large investment bank to conduct an internal investigation into potential securities fraud within one of its departments. The lawyer's report will be provided to the bank's board of directors, and potentially to regulatory agencies. The bank directs the lawyer to focus solely on identifying culpable individuals and to limit the scope of the investigation to specific transactions, even if other questionable activities are uncovered. The lawyer is concerned that this limited scope might prevent a full and accurate assessment, potentially misleading the board and regulators. What is the lawyer's ethical obligation regarding the scope of the evaluation?
- AComply with the client's directive to limit the scope, as the client sets the terms of engagement.
- BProceed with the limited scope, but disclose the limitations in the report.
- CRefuse to undertake the evaluation if the limited scope would produce a materially misleading report.
- DExpand the scope of the investigation independently to ensure a comprehensive report.
Show answer & explanationAnswer & explanation
Correct answer: C. Refuse to undertake the evaluation if the limited scope would produce a materially misleading report.
As an evaluator, a lawyer must not provide an evaluation that they know is likely to materially affect the client's interests in a fraudulent or unlawful manner. If the limited scope would produce a materially misleading report, the lawyer must refuse to undertake the evaluation. Simply disclosing the limitations might not mitigate the misleading nature of the report.
Why the other options are wrong
- A. A lawyer cannot comply with a client's directive if it would lead to a materially misleading or unlawful evaluation.
- B. While disclosing limitations is generally good practice, it does not cure a materially misleading report; the lawyer should decline the engagement if such a report would result.
- D. Expanding the scope unilaterally without client consent would exceed the lawyer's authority and violate the terms of engagement.
Evaluator's Duty of Candor
A lawyer acting as an evaluator must exercise independent professional judgment and decline to provide an evaluation if its terms would produce a report that is materially misleading or would violate the lawyer's ethical obligations.
- Evaluation must be compatible with other client relationships.
- Must not knowingly make a false statement of material fact or law.
- Cannot provide a materially misleading report, even if client requests it.
Memory trick: Truth's clear path, an honest view, no misleading report, that's what's true.