The Ethics of Owning Stock in a Client of the Firm

Ellen Lockwood, ACP, RP

Ellen Lockwood, ACP, RP

Conflicts and insider trading issues seem to get more complicated every day. In addition to the usual conflicts issues and avoiding trading on confidential and privileged information a paralegal may be exposed to, more and more firms are instituting policies and procedures that take these concerns to a higher level.

Do you or your immediate family own stock? If so, you may want to be sure none of the companies in which you or your family own stock are clients of the firm for which you work. Paralegals should also check your firm’s policies regarding ownership of stock in companies the firm represents. Many firms have implemented such policies to try to limit the potential for conflicts and insider trading.

The potential for conflicts and insider trading allegations may also be raised when any employee of a firm has a family member who works for a client of the firm, regardless of which section of the firm the employee works. For example, a paralegal works in the immigration section of a law firm and her husband works for the XYZ Corporation, a client of the firm. The firm doesn’t do any immigration work for XYZ Corporation, only tax work. Although the paralegal does not work in the tax section of the firm, the paralegal may learn information about the work the firm is doing for XYZ Corporation. The paralegal may also get information from her husband about XYZ Corporation’s business that, combined with information from her job, may constitute a conflict. While all law firm employees should be well aware that any information to which they are exposed through their work should be considered confidential and privileged, some employees may consider discussions with their spouses either the exception to the rule, or necessary to ensure their spouses’ position or advantage with the spouses’ employer.

Because of this potential problem, paralegals should be careful not to discuss their work with firm employees other than those directly involved in the project. Paralegals should also take care not to discuss confidential or client proprietary information where it may be overheard by anyone, including other firm employees.

It is important to note that not everyone associated with a particular client is necessarily entitled to the same information. Paralegals should ask their supervising attorneys for a list of the people associated with the client with whom information may be shared. If someone other than one of the previously identified people contacts the paralegal for information, the paralegal should confirm with the supervising attorney what information may be provided to the requester. Providing information to the wrong person may not only violate the attorney-client privilege, but could provide a basis for an opportunity for insider trading.

With so many people hoping to gain any advantage, and clients ever more sensitive to the implications of misappropriated information and even the appearance of impropriety, paralegals must be ever vigilant to protect and preserve confidential, proprietary, and privileged information.

Ellen Lockwood, ACP, RP, is the Chair of the Professional Ethics Committee of the Paralegal Division and a past President of the Division. She is a frequent speaker on paralegal ethics and intellectual property and the lead author of the Division’s Paralegal Ethics Handbook published by West Legalworks.