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Legal-Ethics Lessons
for
Actuarial Professionalism
September 3, 2015
Mike Geske
GESKE COUNSEL, LLC
Washington, DC
202.904.1077
Introduction
M.A., Religious Studies-Ethics, Indiana University (1988)
J.D. summa cum laude, Indiana University – Bloomington (1989)
Clerk to Judge Selya (U.S. Court of Appeals, 1st Cir.) (1989-1990)
Arnold & Porter, LLP (1990-2007)
Aphelion Legal Solutions (2007-2013)
Geske Counsel, LLC (2014-present)
Overview
Monroe Freedman
1929-2015
“Father of Legal Ethics”
Dean, Hofstra Law School (Ethics Chair)
Prolific and Practical
Ethical issues arise when canons conflict
Policies, motives, consequences are relevant to inquiry
Ethical conduct is recognizing conflict and applying
Reasoned Judgment
“How far should I help this client?”
Professions and the State
Professionals are expected to provide benefits to society.
“…professionals have a mandate from their profession to act consistent with the public
interest.”
Draft Introduction to the Actuarial Standards of Practice (2004) at 5.
Academy “will consider matters of common interest including (1) establishment and
maintenance of adequate professional standards of actuarial practice to insure the
protection of the public's interest; [and] (2) establishment and enforcement
of a code of professional conduct….”
“…Self policing through codes of ethics will preclude (and should so emphasize) an actuary's
practicing in a specialized area in which he is not qualified.”
Rugland, AAA Historical Notes for the Period Prior to Oct. 25, 1965 (1986) at 7, 9-10.
Professions and the State
State need not provide benefits provided by professionals, and
in return, State allows professionals to self-regulate.
A profession is distinct from an occupationin that it has been given the right to control its own work.
… [O]nly a profession can determine “who legitimately can do its work and
how the work should be done.”
Rugland, AAA Historical Notes for the Period Prior to Oct. 25, 1965 (1986) at 12 (quoting Eliot Freidson, The Profession of Medicine).
Professions and the State
PRECEPT 1. An Actuary shall act … in a manner to fulfill the profession’s
responsibility to the public….
D.C. Bar Rule XI.2.a. It is the duty of every recipient of [the license to
practice law] at all times and in all conduct, both professional and personal, to
conform to the standards imposed upon members of the Bar….
Advertising
PRECEPT 11: “An Actuary shall not engage in any advertising or
business solicitation activities with respect to Actuarial Services that
the Actuary knows or should know are false or misleading.”
D.C. Bar Rule 7.1(a): A lawyer shall not make a false or misleading
communication about the lawyer or the lawyer’s services. A
communication is false or misleading if it: … (2) contains an assertion
about the lawyer or the lawyer’s services that cannot be
substantiated.
Confidentiality
PRECEPT 9: An Actuary shall not disclose to another party any Confidential Information unless authorized to do so by the Principal or required to do so by Law.
D.C. Bar Rule 1.6: A lawyer shall not knowingly reveal a confidence or secret of the lawyer’s client [unless authorized by the client or required by law or] … reasonably necessary to prevent a criminal act that the lawyer reasonably believes is likely to result in death or substantial bodily harm….”
Confidentiality
ENRON: Limit of Self-Regulation
ENRON was built entirely as a Risk-Management Enterprise
“Reformed” corporation, not skilled bureaucracy
Teams empowered to take, limit, report financial risks
Alignment of insiders’ financial interests with corporation’s assumed
Managers were trained in energy, not financial risks, hedging
ENRON’s risks were poorly managed
Teams requested outside professional advice
ENRON Online: >100 lawyers, $100s millions
before board-level review
Board and C-Suite review should have recognized insider nature of hedge
Professional capture: long-term lawyers and accountants/actuaries
Reluctant to question opinions, policies provided
Confidentiality
PRECEPT 9: An Actuary shall not disclose to another party any Confidential Information unless authorized to do so by the Principal or required to do so by Law.
D.C. Bar Rule 1.6: A lawyer shall not knowingly reveal a confidence or secret of the lawyer’s client [unless authorized by the client or required by law or] … reasonably necessary to prevent a criminal act that the lawyer reasonably believes is likely to result in death or substantial bodily harm….”
Sarbanes-Oxley: A lawyer must “report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company….” and may reveal confidential client information to investigators if the lawyer believes it will prevent a legal violation or help to rectify losses suffered by investors.
Confidentiality
Nasrawi v. Buck Consultants LLC, 231 Cal.App.4th 328 (Nov. 6, 2014), rev. denied (Cal. Feb. 2015).
Plaintiffs: beneficiaries of county-employees retirement plan
Allegations:
Actuarial firm “aided and abetted” breach of fiduciary duty of plan administrators to
beneficiaries by actuarial negligence
Separate lawsuit against administrator for assuming imprudent 8.16% rate of return and other
underfunding of fund
Actuary knew of, assisted administrator’s breach by affirmatively misrepresenting in public
meetings with beneficiaries that administrator’s practices were actuarially sound
“Avoid adverse results.”
“When in doubt, do the right thing.”
“If someone has to go to jail, make sure it’s the client.”
Internalizing Professionalism
Obligation to teach professionalism is directly proportional to a professional’s
seniority.
Precept 13: …“material violation” of the Code…
Annot. 3-2: …procedures that depart “materially” from those set forth in
an applicable standard of practice…
Share the scandal
Teach ethics as part of the substantive skills
Internalizing Professionalism
