I noticed that one area of fuzzy math mentioned in the NYT article was whether to count as an "expenditure" the out-of-pocket cost of flat-rate Lexis/Westlaw (small) or the FMV of LexisWestlaw provided (superhuge). In 1993, when I began practicing, my big firm employer told me that yes, they had a flat rate with L/W, but that they hadn't figured out how to pass that discount on to clients, so they charged electronic research out to clients at FMV. When I left in 1998, my other employer also hadn't figured out how to split the discount among clients. After reading the NYT article, I wonder if firms have figured this out now or if they are still charging L/W out at FMV?

Victor:

I'm the commentor you commented about.

For materials, try contacting Profs Bauman and Regan, from Georgetown, who previously sent me their course materials on "PR and the Corporate Lawyer." Also, check out the Foundation Press collection, "Enron: Corporate Fiascos and Their Implications" (Rapoport & Dharan, eds.).

As for law schools teaching their students about contributing to the Enrons of the future, I have a different sense of that than you apparently do. But it seems that we both agree that the issue should be taught. Perhaps I am just wrong on whether that's currently taught, or perhaps my preception is different than yours because I teach PR. The significant revisions to Model Rules 1.6 and 1.13, which were Enron-driven, and the entire Enron/Worldcom issue have been huge topics in the PR field. You can't help but teach them when you cover those rules, and virtually all the PR texts since Enron cover the topic.

I am realistic, I think, about what goes into corporate lawyering in the real world. Perhaps one person's fraud is another person's gamesmanship. But claiming credit for fictional expenditures and hiring students for brief periods solely to claim full employment strike me as on the bad side of that line. As the article makes clear, I'm not alone in drawing that kind of conclusion: "Prof. Gregory A. Mark, who attended the symposium from Rutgers School of Law, Newark, calls the process a hypocrisy that is 'lost on most law schools. We are all very well trained at redefining the very letter of the law,' he says. 'The rules of professional responsibility don't apply to the law school admission process. Maybe they should.'"

Thanks for the comment, John.

You are right that I was thinking mainly of corporate law classes, not PR, when I wrote the post. Back when I took PR, there was virtually no discussion of the relevant corporate issues. Perhaps MR 1.6 and 1.13 have changed that. I hope you are right, and I am wrong.

Just to bear down on the issue a little, the model rules now do a better job of getting lawyers to report fraud up to the board, but I'm not sure we have a good theory about figuring out what is fraudulent in the first place. Is a transaction that is purely accounting-driven fraudulent? Why or why not? This is where I struggle.

I have flipped through the Foundation/Enron Fiasco book and was disappointed, at least from the point of view of finding good theory to carry over into the classroom. But I will take another look.

I have indeed been meaning to get in touch with Bauman and Regan, and will do so. I'm sure they have some good stuff for me. I have talked to Mitt before about these topics (but not recently) and his new book on Gellene may be helpful.

Victor:

I now see in more detail what you're looking for, and I don't know of any. I have good hypos for ethics in negotiations. For ethics in counseling, I use a hypo based on a law review article where a corporation is discharing pollutants slightly over the legal limits; use the OLC memos on the application of the Geneva Convention; use the letter that Enron's law firm sent to Enron after the investigation prompted by the anonymous whistle blowing memo; and use some other hypos I collected over the years.

But I don't have any good hypos for financial reporting issues. A few good examples really would help. I think that Prof Regan had some hypos in his exams, but I cannot recall specficially. I think that if you have trusted friends in corporate pratice and you ask them to generate a good hypo, based in reality, you may get something good.

But, getting back to the law school stuff, when I read about Northwestern hiring students for very brief periods not because Northwestern really wanted that labor but rather to report 100% employment figures, it reminded me of a case I worked on several years ago at a plaintiff's firm. A company wanted to bid on SBA contracts but was a little over the 1,000 employee limit. So, they fired about 200 employees on the last week of each quarter and then re-hired them the following week. The last week was the reporting date for SBA eligibility. They argued that because they went without those employees' efforts, the firings were real. The federal judge ruled on summary judgment that the scheme was an artifice to defraud -- quite a result, given that we established fraud on the papers without the need for a jury. It's a reported case. I wonder how students would deal with a hypo where the client approached them with that scheme, or where the hypothetical partner tasked the associate with writing up the scheme in a memo to the client.

When I read about Northwestern's scheme and their argument "we paid cash, so it's real," I couldn't help but think of that case, because the defendants made a similar argument that was way too clever and that was declared to be fraudulent as a matter of law.

One last thought .... I've been struck by the depth of law students' beliefs that admissions and rankings are at best a game played by secret and arbitrary rules and, more accurately, are a form of deceit. We can debate the degree to which the students' views are grounded in reality -- but the NYT article certainly confirms their views in their minds. I think that's very bad in the long for law schools.

Credit, or blame, federalism which permits Delaware to "liberalize" its corporate laws to accommodate management and directors of corporations to avoid certain responsibilities to its stockholders and its other stakeholders, in order to siphon incorporations from other states. Of course, corporate attorneys have "lobbied" the Delaware legislature over the years quite successfully to accomplish this. Meantime, other states have responded in similar fashion to avoid losing too many incorporations. While federal statutes may provide some protections to stockholders from Delaware corporate law, there seems now to be an effort to undermine some SEC reforms and Sarbanes-Oxley, perhaps with Mr. Cox in charge.

As to the ethics question, doesn't the smell test waft its way in law schools? Or do law professors have olfactory problems?