What can a former in-house lawyer do after learning the company issued a prospectus with false financial information, given the duty of confidentiality to that former client?

Plain-English summary

A lawyer's client had previously served as in-house counsel for a small corporation. While in that role, the client became aware that the corporation had issued a prospectus containing false financial information and false statements about the corporate structure, procedures, and profitability, and he resigned shortly afterward. The client had not participated in preparing or disseminating the prospectus. The inquiry asked what the client's responsibilities were toward the public and stockholders given his obligation of confidentiality to his former corporate client, and whether the client had any criminal culpability relating to the prospectus.

The committee analyzed the question under Canon 4 of the Code, on preservation of client confidences and secrets. It quoted DR 4-101(C)(3), under which a lawyer may reveal information clearly establishing that the client has, in the course of the representation, perpetrated a fraud on a third party related to the subject matter of the representation. It also quoted DR 4-101(D)(1), under which a lawyer shall reveal a client's stated intention to commit a crime and the information necessary to prevent it, but first must, where feasible, advise the client of the possible legal consequences, urge the client not to commit the crime, and advise that the lawyer must reveal the intention unless abandoned, and, if the crime involves perjury, that the lawyer shall seek to withdraw.

Applying those rules, the committee opined that DR 4-101(C)(3) gave the client the right to reveal his former client's fraudulent activity, and that under DR 4-101(D)(1) the client had a duty to advise the corporation of the possible consequences of continuing to issue a prospectus containing false information, urge it not to issue the prospectus, and advise that unless the corporation abandoned its criminal intention the lawyer would reveal it. The committee note directs a lawyer in this situation to follow current Rule 1.13, which addresses the lawyer's duties when the client is an organization.

Currency note

This opinion was issued in 1987, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. The disclosure rules it construes (former DR 4-101(C) and (D)) were significantly revised in the current Rule 1.6, and the committee note points to current Rule 1.13 for the organizational-client dimension. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a former in-house lawyer disclose that the company committed fraud?

A: Under this 1987 opinion, the committee read DR 4-101(C)(3) to permit revealing information clearly establishing that the former client perpetrated a fraud on a third party related to the representation.

Q: What steps did the committee say the lawyer had to take before disclosing a crime?

A: Under DR 4-101(D)(1), the lawyer had to advise the corporation of the consequences, urge it not to issue the false prospectus, and advise that the lawyer would reveal its criminal intention unless abandoned.

Q: Did the committee address the lawyer's own criminal culpability?

A: The opinion focused on the ethical duties of confidentiality and disclosure under Canon 4; the committee did not resolve the separate question of the lawyer's criminal culpability.

Background and rules framework

The opinion interpreted Canon 4 of the former Virginia Code, specifically DR 4-101(C)(3) (permissive disclosure of a client's fraud on a third party) and DR 4-101(D)(1) (mandatory disclosure of a client's intention to commit a crime, after warning). Those provisions correspond to the confidentiality framework now in ABA Model Rule 1.6 and Virginia Rule 1.6. The committee note points to current Rule 1.13, the counterpart of ABA Model Rule 1.13, on representing an organization as the client.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 4-101(C)(3) (permissive disclosure of client fraud on a third party)
• Former Virginia DR 4-101(D)(1) (disclosure of a client's intention to commit a crime, after warning)
• Virginia Rule 1.13 / ABA Model Rule 1.13 (organization as client)
• ABA Model Rule 1.6 (confidentiality of information)

See also

• VA LEO 1093: Duty to Disclose Fraud to a Tribunal and Report Co-Counsel
• VA LEO 1205: Government Attorney's Duty to Reveal a False Certification
• VA LEO 1589: Corporate Lawyer Claiming to Represent a Former Employee

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/0983.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Committee Opinion
October 27, 1987
LEGAL ETHICS OPINION 983

CORPORATIONS – CLIENT
CONFIDENCES AND SECRETS.

You advise that your client previously served as in-house counsel for a small
corporation. While serving as in-house counsel, your client became aware that the
corporation had issued a prospectus containing false financial information and false
statements concerning the corporate structure, procedures and profitability. Shortly
thereafter, your client resigned his position with the corporation. Your client did not
participate in any way in the preparation or dissemination of the prospectus. You wish to
know what your client responsibility is towards the public and stockholders of the
corporation in light of his obligation of confidentiality to his former client. You also wish
to know whether your client has any criminal culpability relative to the prospectus.
Canon 4 of the Code of Professional Responsibility deals with preservation of the
confidences and secrets of a client. Specifically, DR:4-101(C)(3) states that “a lawyer
may reveal information which clearly establishes that his client has, in the course of the
representation, perpetrated upon a third party a fraud related to the subject matter of the
representation."DR:4-101(D)(1) states that “a lawyer shall reveal the intention of his
client, as stated by the client, to commit a crime and the information necessary to prevent
the crime, but before revealing such information, the attorney shall, where feasible,
advise his client of the possible legal consequences of his action, urge the client not to
commit the crime, and advise the client that the attorney must reveal the client's criminal
intention unless thereupon abandoned, and, if the crime involves perjury by the client,
that the attorney shall seek to withdraw as counsel.”
Disciplinary Rule 4-101(C)(3) clearly gives your client the right to reveal his former
client's fraudulent activity. Pursuant to DR:4-101(D)(1), your client has a duty to advise
the corporation of the possible consequences of continuing to issue a prospectus
containing false information, urge the corporation not to issue the prospectus, and advise
that unless the corporation abandons its criminal intention the lawyer will reveal the
corporation's criminal intent.
Committee Opinion
October 27, 1987
Legal Ethics Committee Notes. – The attorney confronted with the situation described
in this opinion should follow the direction given in Rule 1.13.