Some of the company's principals could face jail time, and the lawyer who advised them on the formation of their business and capital-raising scheme faces sanctions for legal malpractice.
"They got themselves involved in this, in no small part, by the way they structured their business," says Jaffe, a lawyer with Schnader Harrison Segal & Lewis. "Had they had experienced securities counsel, the deals would have been structured entirely differently."
Jaffe, who specializes in venture capital, corporate finance, mergers and acquisitions, corporate governance and restructuring transactions, points to the case as a good reason why it pays to take pains to pick the right lawyer.
Jaffe has been on both sides of the transaction of lawyer selection, as a practicing lawyer, then as CEO of US Interns, a dot-com that later folded, and then back to practicing law.
Too many consumers of legal services don't have a clear notion of the difference between one lawyer and another in terms of competencies and figure that the lawyer who handled their divorce can handle a business acquisition, secure a patent or complete an IPO. Some lawyers, says Jaffe, can't resist taking a case, even if it's not within their area of expertise.
"They're loathe to turn down an engagement because we're in a very competitive business," says Jaffe.
But a lawyer's competence in the particular area where you require expertise is critical.
"One size doesn't fit all when it comes to lawyers,"says Laura Ellsworth, partner in charge of the 60-lawyer Pittsburgh office of Jones Day. "Just as you wouldn't go to a general practitioner if you needed heart surgery, you should not use a lawyer for your important business matters unless he or she is demonstrably competent to handle the specific legal problem at hand."
But technical competence isn't enough. A good lawyer will understand both the legal issues that are at the core of your business and the competitive challenges you face.
"Consumers of complex legal services want lawyers that understand both their business and their industry," says Fran Murraca, a shareholder with Buchanan Ingersoll.
And, Murraca adds, your lawyer should be able to understand your business and craft legal strategies that help you achieve your goals for it.
A good business lawyer, says Jaffe, will be able to balance the legal requirements of a situation with the realities of doing business in your industry.
"Sometimes the very best technical solution, legally, is not the optimum solution from a business perspective," Jaffe says.
Another common mistake business people make is to sharpen the pencil too much when it comes to purchasing legal services.
"Unfortunately, what happens is, all too often, the first criteria is cost," says Jaffe.
But picking a lawyer because his or her fees are low can be risky. While small firms or individual practitioners might charge less, they may not have the depth, experience or expertise that a mid-sized or large firm possesses. Their shortcomings may mean bad counsel or the need to retain additional outside counsel to fix a problem or take on a matter the first lawyer can't handle.
That doesn't mean that small necessarily equates with a lack of skill. Small firms can have very well-developed skills in specialized areas of the law.
"For many years, I have used both large and small firms," says William Day, president and CEO of St. Barnabas Health System. "I have had good results with both. I retained them based on the opinions I received from other CEOs, from exposure I had to them on other boards of directors on which I and they served."
Where to begin
Referrals can be a good place to start when choosing a lawyer, but there are plenty of other ways to identify competent counsel.
Murraca says the best firms' Web sites can provide plenty of information about their core competencies and experience.
Ellsworth agrees, and also suggests checking court dockets online to find out which firms have won cases similar to yours. She recommends checking newspaper articles that mention firms involved with similar situations and consulting business surveys to see what others are reporting about law firms and lawyers.
"Look for a lawyer who listens to you," says Ellsworth. "A lawyer who does all the talking is not listening carefully enough to the specific needs of that given client."
And a lawyer should be able to relate to you and your business issues in clear, everyday language.
"I also sized them up based on lawyer-speak," says Day. "That is, if the attorney spoke at length but said little, I crossed him (or) her off my list."
Making the choice
Jaffe suggests interviewing several lawyers for the job at hand, just as you would if you were hiring someone to fill a key position. You'll get a feel for which is the best fit for your company, and you'll learn something from each that you can apply to the others.
"In the process of interviewing a number of lawyers, the client will become smarter about competencies," says Jaffe.
Jaffe says that any lawyer should have at least a couple of clients willing to provide references that attest to their competence.
"Once you narrow the list to competent, experienced counsel, pick the person whom you like and trust," says Ellsworth. "You'll be spending a lot of quality time with them, so you should like them, and you will need to be able to trust their judgment."
"If (the relationship) is going to be beneficial, it's going to involve pretty frequent communications between you and the other people in your organization," says Jaffe.
Ultimately, a lawyer needs not only technical competence but also the ability to understand the client's business and industry, relate effectively to the business owner and his associates and adversaries, and earn and retain his client's trust and confidence.
Says Murraca: "In the end, it's the entire package." How to reach: Schnader Harrison Segal & Lewis, www.schnader.com; Jones Day. www.jonesday.com; Buchanan Ingersoll, www.bipc.com; St. Barnabas Health System, www.stbarnabashealthsystem.com
Where do lawyers fail?
Some lawyers fail to take the basic steps when it comes to interacting with a client. While technical skill is a requirement for any lawyer, some fundamental business and interpersonal skills are necessary to land and hold onto a client.
William Day has hired, fired and retained a number of lawyers during his 29 years as president and CEO of St Barnabas Health System, and he has plenty of stories about good and bad lawyers.
"I had retained a large Pittsburgh law firm to do some negotiations for St. Barnabas Health System," says Day. "The problem was assigned by the firm to the expert in this specialized area. After warning the partner in charge of our account several times that my telephone calls were not being returned, I suggested a luncheon meeting during which my complaint would be aired."
The partner in charge assured him that the situation would improve, says Day, but his calls continued to go unreturned. Day fired the lawyer and gave the firm another chance, "but the firm nearly lost our business over telephone calls," says Day.
On another occasion, St. Barnabas used a large local firm to handle a critical matter. The lawyer, it turned out, hadn't prepared very well.
"On the way to a hearing, the attorney to whom the case had been assigned asked one of my vice presidents how to spell my name and what my title was," Day says. "By the end of the day, that attorney and firm were fired, and we have not retained them again."