The concept of “advice of counsel” as a defensive strategy in criminal and regulatory proceedings has long been a topic of significant discussion within the legal community. While this defense can indeed be valid, it carries certain requisites and pitfalls that both attorneys and their clients must be aware of. In a recent ruling by the US Court of Appeals for the Second Circuit, the case of US v. Denkberg has demonstrated that seeking legal advice does not automatically absolve a client from the legality of their actions.
The Denkberg case involved defendants who had operated an advertising scheme spanning twelve years, issuing deceptive “prize notices” to consumers. Despite obtaining a legal review from counsel, this defense faltered in light of the illicit nature of their operations, leading to their conviction.
The court’s ruling underscores an essential point: the counsel providing advice must be knowledgeable and the advice given should be based on a comprehensive presentation of facts by the client. Importantly, a mere attorney sign-off does not exonerate actions that are illegal or fraudulent by nature. The incriminating facts surrounding the defendants’ operations led to the collapse of their “advice of counsel” defense.
Moreover, the case places a spotlight on lawyers’ responsibilities when vetting business models. The Second Circuit’s findings indicated that though the advising attorneys escaped prosecution, their conduct could still trigger disciplinary actions due to carelessness in approving questionable business schemes. This serves as a cautionary note to legal practitioners that any semblance of casualness in their review or endorsement of potentially illegal actions could lead to serious repercussions.
For businesses, especially those dealing with complex transactions, seeking legal advice remains crucial. However, as illustrated by the Denkberg ruling, it is vital for clients to understand that such advice must reflect a genuine compliance effort. Similarly, attorneys must be thorough and attentive when advising clients, ensuring that their counsel does not merely serve as a veneer of legality for dubious activities.