Fear can be a great motivator. While US regulators increase their vigilance in a bid to prevent future scandals on the Enron model, an even greater fear of the courts is leading banks and securities lawyers to change the way they work.
After a decade of court decisions that seemed to limit the liability of outside advisers in securities fraud lawsuits brought by private plaintiffs, recent decisions have raised the spectre of class action lawsuits once again. More than new regulations and the attorney reporting rules discussed by the US Congress in February, fear of litigation is driving better diligence.
"Everybody is watching their backs very carefully," says Thomas Morgan of George Washington University Law School in Washington. At a conference last month, Richard Walker, general counsel for Deutsche Bank Securities, said that there has been "quite a raising of the bar" in terms of liability.
Both in-house counsel at investment banks and private practice lawyers insist that they can increase scrutiny of the deals they work on and are doing so – particularly in structured finance. "What we're being asked to do is very do-able," says Steven Berkenfeld, a Lehman Brothers managing director.