S. Taylor, "Ethics and the Law: A Case History," New York Times Magazine, January 9, 1983 (excerpts)

... O.P.M. was short for "other people's money." Almost from the start, the company was basically insolvent and survived by means of fraud and bribery. A single computer would be used as collateral for two or three loans with different banks; the value of a given piece of equipment would be inflated to obtain larger loans. ... Between 1977 and 1981, O.P.M. obtained from 19 banks, pension funds and other lenders more than $196 million in loans secured by phony Rockwell leases. ...

... Goodman was worried that Clifton might go to the authorities. He said he promised Clifton $50,000 to $100,000 in severance pay that, Goodman testified, was "meant to induce him to keep his mouth shut." Goodman also urged Hutner to talk with Clifton's attorney, William J. Davis of Schulman Berlin & Davis.

In his description of their meetings, Davis said that Hutner seemed to be trying to persuade him that Clifton should keep silent and should take back his letter. Davis said the conversations were "a kind of macabre dance around the issue," so elliptical and hypothetical that "nothing was fact, everything was possible." He said Hutner seemed to know more than he let on, but seemed anxious to preserve a "smoke screen" of deniability. Davis recalled: "I had visions of him clamping his hands over his ears and running out of the office.

Davis also said he had been prepared to give Hutner a copy of Clifton's letter and would have told him "as much as he wanted to know," but that Hutner told him "he didn't want to know what was in it."

Hutner gave a very different account of these meetings. He insisted he did not seek to have Clifton withdraw the letter, nor did he shrink from hearing about Clifton's evidence.

Yet Davis did give Hutner and Eli R. Mattioli, a younger Singer Hutner lawyer who attended one of the meetings, some crucial information. According to a memorandum prepared by Singer Hutner at the time, Davis said Clifton had evidence that O.P.M. had perpetrated a multimillion-dollar fraud and that the opinion letters Singer Hutner had drawn up to obtain loans for O.P.M. had been based upon false documents. And Davis also passed along, Mattioli recalled, an ominous opinion from Clifton -- that O.P.M., "in order to survive, would probably have to continue the same type of wrongful activity."

Thus it was that in the middle of June 1980 Singer Hutner received what was tantamount to a stark warning that the law firm was deeply involved in a huge, ongoing fraud. Today, Davis recalls that he felt at the time that a turning point for Singer Hutner had arrived. "Once you come into that kind of knowledge,": he says, "a whole new set of rules drops on you." Certain that Singer Hutner would have to resign and that O.P.M.'s fraud would soon be exposed, Davis says he "just sat there waiting for the shoes to drop."

It was a long wait.

The seriousness of the situation was not lost on Singer Hutner, which decided it needed some outside legal advice of its own. On June 18, the firm made an appointment with Joseph M. McLaughlin, who was dean of Fordham Law School at the time and is now a Federal District Court judge in New York. McLaughlin, one of Mattioli's professors at Fordham, was a leading authority on the attorney-client privilege, under which lawyers are generally prohibited from revealing secrets confided to them by their clients.

According to McLauglin's deposition, Hutner, Mattioli and Carl J. Rubino, another Singer Hutner lawyer, arrived at his office on June 19 "in a distressed state." He said Hutner made it clear "that he wanted to act in a way that would preserve the attorney-client confidence."

But it soon became clear to McLaughlin that, given the apparent scope of the fraud and the law firm's close relationship with O.P.M., the central problem was one of "ethics, professional responsibility." He accepted a $5,000 check from Hutner as a retainer and proceeded to bring into the case a legal-ethics expert, Henry Putzel III, a former Federal prosecutor who had taught the subject at Fordham and who was practicing law in New York.

The next day, at a two-and-a half hour meeting in Hutner's office, Hutner, Mattioli and Rubino gave McLaughlin and Putzel a detailed report on what they had learned from Goodman and Davis. The Singer Hutner lawyers stressed two major points, McLaughlin recalled in his deposition: they wanted to do the ethical thing, and they wanted to continue representing O.P.M. unless they were ethically and legally obliged to quit. In conversations on June 25 and over the next few days, McLaughlin and Putzel gave Hutner and other members of the law firm the advice they wanted to hear. (The advice is described in detail in documents Putzel prepared at the time and in Putzel's and McLaughlin's depositions in the bankruptcy investigation.) Singer Hutner could ethically continue to represent O.P.M., giving the benefit of the doubt to Goodman's assurances that there was no ongoing fraud. The firm could continue to close new loans for O.P.M. pending efforts to find out the details of Goodman's past wrongdoing; such information would help them guard against any continuing fraud. Singer Hutner was bound to keep everything it had already learned secret, except from Weissman.

It was not necessary, Putzel advised, for Singer Hutner to check the authenticity of the computer-lease documents with third parties such as Rockwell before closing the new loans. As to the possibly false opinion letters and documents the firm had unwittingly provided to banks to obtain loans for O.P.M., Putzel offered another welcome option: Singer Hutner had no legal duty to withdraw them. He reasoned that leaving the victims of a past fraud in the dark was not an ongoing fraud.

McLaughlin and Putzel did recommend some steps aimed at stopping any efforts to commit new fraud. They said, for example, that O.P.M. should be required to certify in writing the legitimacy of each new transaction. Goodman was unfazed; he simply signed certifications he knew to be false. And he found ways to put off giving the law firm the kind of detailed description of his crimes that would have made the attorneys better able to judge the dangers of their position.

While McLaughlin and Putzel advised the law firm to press Goodman to confess to them and to his partner Weissman the details of his wrongdoing, they did not initially suggest that he be pressed too hard. One reason, as Putzel explained in a deposition, was his concern that the law firm's obligations to O.P.M. might be inconsistent with giving Goodman's secrets the fullest protection. Thus, a lawyer was found to represent Goodman's personal best interests, while Singer Hutner theoretically concentrated on representing the best interests of the corporation -- this though the corporation was virtually Goodman's personal fiefdom.

Goodman's new lawyer was Andrew M. Lawler, an old law-school friend of McLaughlin and, like Putzel, a former Federal prosecutor. In their depositions, McLaughlin and Putzel testified that they had placed great confidence in Lawler, and that Lawler had told Putzel that he knew of no ongoing fraud. This should, perhaps, not have been much of a surprise. Lawler's information came from Goodman, and according to Goodman's testimony, Hutner had given the executive a brief lesson in the attorney-client privilege, telling him that his disclosures to Lawler would be protected only so long as they did not indicate any ongoing fraud.

Meanwhile, as Goodman continued to stall, Lawler and Singer Hutner were dickering over the best way for Goodman to come clean about his past crimes. The object: to get at the truth but to do it in a way that would wrap it in the legal code of silence that is the attorney-client privilege.

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All through this summer of nondisclosure, Singer Hutner continued closing loans for O.P.M. without checking the legitimacy of underlying Rockwell leases. Some were legitimate, but leases securing loans of $22 million in June, $17 million in July and $22 million in August proved to be fraudulent.

In the first week of September, Goodman finally told Hutner some of the details of the fraud he had first hinted at in June, and Hutner explained it all to Putzel over lunch at the Yale Club in New York. In his deposition, Hutner recalled the meeting. "I wanted to get the hell out" of the connection with O.P.M., he said, "I was just disgusted, and I wanted (Putzel's) acquiescence." The two men tentatively agreed that the law firm should quit as O.P.M.'s counsel -- though Putzel advised that the firm was not ethically obliged to do so because, he still assumed, the fraud had ended before June.

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Over a period of two weeks, the members of the law firm discussed the question of quitting O.P.M. in a series of heated and emotional meetings. Meanwhile, Singer Hutner closed two more loans that proved to be fraudulent. For the first time, the law firm tried to check with Rockwell the legitimacy of the leases by mailing a verification form to a Rockwell executive in California. Goodman later recalled that when he heard the form was on its way, "I just went totally bananas." Goodman's O.P.M. henchmen intercepted the document at Rockwell and forged the executive's signature.

Singer Hutner voted formally to resign as O.P.M.'s general counsel on September 23 in a daylong series of meetings punctuated by expressions of concern about the effect of a possible O.P.M. bankruptcy on the law firm's fees. ...

Singer Hutner quit O.P.M. gradually, completing the process in December 1980. The lawyers assumed that an abrupt withdrawal would cause O.P.M. to collapse; they would handle legal business until Goodman, who had vowed that he would eventually pay back the victims of the fraud, could find new counsel. Singer Hutner's decision was in accord with Putzel's advice that the law firm could not drop its client "like a sack of potatoes." The withdrawal, he said, "had to be accomplished in a manner least likely to cause injury to the client." Still, Singer Hutner had cause to worry about its own potential liability during the withdrawal period, and the firm took steps to prevent new fraud. Its lawyers refused to proceed with new loans unless Goodman authorized them to check out the collateral with third parties such as Rockwell. They also demanded that O.P.M. cease new "tax-shelter" financing entirely, because they would almost certainly involve violations of the Federal securities laws.

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Once the decision to quit O.P.M. was made, Singer Hutner had to determine what to do with its knowledge that it had been part of a giant fraud. On Putzel's advice, the law firm kept the facts to itself, telling nothing to the corporations and bankers who had been defrauded. Based on Goodman's increasingly implausible assurances that the days of fraud were over, Putzel said that the executive's secrets were still protected by the attorney-client privilege. Singer Hutner accepted that view, even after Goodman acknowledged on September 29 and 30 that the outstanding fraudulent loans totaled $80 million to $90 million, about three times the amount he had confessed earlier in the month. And the law firm held fast even after receiving the worst news of all, that Goodman had been using Singer Hutner to close fraudulent loans from June through September.

The law firm responded to inquiries from lenders and other interested parties by saying that Singer Hutner and O.P.M. had "agreed" to part ways. ("Was that not a lie?" Hutner was asked, during the taking of his deposition. "It was inaccurate," he replied at first, later amending that to "more accurate than not, if not totally accurate.")

This stance played right into the hands of Goodman. He was able to continue obtaining fraudulent loans while spreading the suggestion that he had dismissed Singer Hutner and assuring business contacts that there was nothing wrong with the loans.

The close-mouthed stance was also called for by Putzel as the appropriate way of dealing with the lawyers who would fill Singer Hutner's shoes -- in spite of the considerable risk that Goodman would simply lie to the new attorneys. Thus he advised Singer Hutner that it must honor Goodman's demand that Gary R. Simon, the O.P.M. in-house lawyer who was preparing to handle new loan closings, be kept in the dark.

Fearing that Goodman would use Simon, who was inexperienced in closing loans, to commit new frauds, Singer Hutner in October prepared for Simon a memorandum specifying "due diligence" verification procedures that should be used in all O.P.M. financing. But before the memorandum was delivered, it was shown to Goodman for editing; the final memo had nothing in it to make Simon suspect something was wrong with the Rockwell leases.

It soon became apparent that Simon was unlikely to discover the fraud. At one point, he told Mattioli that "if something is wrong with those deals, then I want to know it today." Mattioli did not respond.

A similar series of events was played out with Kaye, Scholer, Fierman, Hays & Handler, one of New York's largest law firms, which Goodman invited to step into Singer Hutner's place and close new loans for O.P.M. Hutner wanted to warn Peter M. Fishbein, a Kaye Scholer partner and an old friend, to stay away from O.P.M. In his deposition, Hutner quoted Putzel's response to the notion: "Oh my god, that is exactly what you can't do."

Fishbein phoned Hutner in October 1980 asking "if there was anything he should be aware of" in considering Goodman's invitation. Hutner told him only that "the decision to terminate was mutual and that there was mutual agreement that the circumstances of termination would not be discussed." Two years later, Hutner testified that "this specific thing caused me more personal pain than anything I can recall during the course of the entire O.P.M. thing, including learning that Myron was a thief."

The end result of Singer Hutner's close-mouthed policy: Goodman was able to use the unwitting Gary Simon and Kaye Scholer to close more than $15 million in loans for O.P.M. in December 1980 and early 1981 that were secured by fraudulent Rockwell leases.

Finally toward the end of 1980 lawyers at Rockwell International discovered, in response to a bank inquiry, that Rockwell was paying OPM on two leases for which Rockwell lacked documentation. After further investigation, Rockwell and the bank contacted the U.S. Attorney's office in New York. On February 19, 1981 a federal grand jury issued a number of indictments and the following month OPM filed bankruptcy. In December 1982 Goodman pled guilty to 16 counts of conspiracy, mail fraud, wire fraud and making false statements to a bank. He was given a 12 year prison sentence. Weissman also pled guilty and received a 10 year sentence. Although federal prosecutors investigated Reinhard, neither he nor any of the other Singer Hutner lawyers were indicted.

OPM had defrauded banks and other lenders of more than $210 million before the company went bankrupt in 1981. Nineteen of the lending institutions filed civil suits against Singer Hutner, Rockwell, Lehman Brothers and two accounting firms. The suits were settled in 1983 for a total payment of $65 million; Singer Hutner contributed approximately $10 million.