98 N.J.L.J. 219
March 13, 1975
OPINION 302
Representing C.P.A. in Disclosing
Fraudulent Records Trade Secret - Criminal Issue
An attorney of the bar asks if he may represent a certified
public accountant, employed by a corporation which is the licensee
in a licensing agreement, for the purposes of negotiating for
compensation in exchange for anonymous disclosure of information
concerning fraudulent manipulation of books which measure the value
of the licensing agreement.
The C.P.A. (hereinafter "A") is presently employed as a
controller by the XYZ Company. There is no written employment
contract between the parties. XYZ Company is a subsidiary of a
publicly-held corporation.
During the course of his employment, A has discovered the XYZ
Company maintains a double accounting system with respect to a
licensing contract with M Company. This is accomplished by the use
of a second set of corporate books which grossly understate the
sales subject to the licensing agreement. The obvious results are
that M Company does not receive proper payment in accordance with
the licensing agreement and a corresponding misrepresentation and
misstatement of the financial records of XYZ Company. It is clear
to A that this practice has been engaged in by XYZ Company for
several years. The licensing agreement confers on M Company the
right to inspect the corporate books of XYZ Company but discovery
of the fraud would be extremely difficult, if not impossible,
without knowledge of the double set of books.
A is not involved, direct or anew, with any accounting aspects
of this licensing agreement. A has chosen not to discuss the
matter with his supervisor. A intends to terminate his employment
with XYZ Company, although definite arrangements in this regard
have not been made. He wishes to contact M Company and disclose
this information in return for an amount of compensation to be
agreed upon between the parties prior to disclosure. He desires to
keep his identity secret, but is aware that the possibility of
disclosure is present. The attorney has submitted a memorandum with
his inquiry as required by R. 1:l9-3. ln addition to the provisions
of the Code of Professional Responsibility which he thinks are
relevant the inquirer points out orbit he believes to be the
"threshold issues" as follows:
First: Is the information intended to be
disclosed a trade secret or confidential
information? Any secondly, will disclosure by
A constitute a violation of our criminal laws?
Counsel fails to recognize that without determination of a
question of substantive law, a resolution of the ethical issues
involved cannot be made. He has pointed out in his memorandum that
the trade secret issue and the more controversial issue of criminal
law must first be solved before the ethical questions can be
approached. That is not the function of this Committee.
In R. 1:19, which establishes the Advisory Committee on
Professional Ethics, there is no mention of any power given to the
Committee to make decisions of substantive law. To act in that
capacity would doctorate the function of this Committee. The rule
speaks of accepting inquiries "concerning proper conduct for a
member of the legal profession under the XYZ and other rules ...
governing the practice of attorneys." R. 1:19-2. The present
inquiry involves questions concerning the conduct of a C.P.A. in a
given set of facts under the laws of the State. It is clearly
beyond the bounds of this Committee's advisors capacity.
In addition to the foregoing any qualified response by this
Committee (e.g., "If A's activity does not constitute a crime, then
counsel's representation will not be violative of DR 7-102(7),"
etc.) would not be proper because of the possibility of encouraging
unwarranted reliance by parties. The rules governing the Committee
expressly prohibit opinions affecting the interests of parties to
a pending action, R. 1:19-2, but even limited interpretation of
substantive law by this Committee could have the effect of
influencing the parties' actions.
The Advisory Committee must recognize the limits of its scope
to avoid interference with Judicial functions and maintain the
quality of service to the bar. It must be chary of intruding into
areas of substantive law, and this opinion is intended to remind
the bar of the limitations of the Advisory Committee.
The inequity is rejected.