Fund Directions - What Fund Directors Should Know About Attorney-Client Privilege

What Fund Directors Should Know About Attorney-Client Privilege

Jay Baris

Mutual fund directors often rely on advice of counsel when they oversee complicated issues affecting shareholders, such as advisory fees, valuation of portfolio securities, soft dollars and compliance. Directors expect that the attorney-client privilege protects the confidentiality of their discussions with their counsel -- but many misunderstand the privilege. At times, fund directors may believe they can rely on the privilege, when in fact the privilege does not exist or has been waived.

Advisers and funds should take steps to protect the privilege by limiting access to information to people who are covered by the privilege. Furthermore, they should understand that many communications they believe are privileged may not be. Fund Directions spoke with Jay Baris, partner at Kramer Levin in New York, about what attorney-client privilege is and what directors should know about being protected.

What is the Attorney-Client Privilege?

The attorney-client privilege is a legal rule of evidence that protects the confidentiality of communications between an attorney and a client. The purpose of the privilege is to encourage full and frank communication between attorneys and their clients without fear that the lawyers will disclose confidences. The privilege encourages clients to put everything on the table so that the lawyers, being fully informed of all the facts, can fulfill their responsibilities under the law to their clients and help their clients enjoy the full benefits of the law. Disclosure of protected information to someone other than a client or lawyer generally waives the attorney-client privilege.

What is at Stake?

Lawyers are increasingly concerned that prosecutors and regulators are effectively weakening the attorney-client privilege. In particular, there is a growing perception that in their investigations, prosecutors and regulators encourage clients to waive the privilege in exchange for "cooperation credit." In effect, clients risk being labeled "uncooperative" if they do not waive the privilege, and as a result face potentially harsher penalties.

This issue frequently arises in the context of regulatory examinations and investigations of investment companies and their service providers by the Securities and ...

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What Fund Directors Should Know About Attorney-Client Privilege