98 N.J.L.J. 219
March 13, 1975
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.