Jackson Ross PLLC

Can a Lawyer Buy Shares of a Client that is IPOing?

I am an associate in a large law firm who is currently working on an IPO for one of our clients. Can I buy shares of the client company in the IPO?

The ABA Model Rules of Professional Conduct do not prohibit an attorney from buying shares of a client company, and I know of no state rules of professional conduct that prohibit this practice either. The ABA Model Rules of Professional Conduct Disciplinary Rule 5-104, and the corresponding state ethics rules, governs transactions between lawyers and clients, and prohibits any business transactions for which the lawyer and his/her client have “differing interests”. One point of view is that in an IPO both the lawyer and the client have the same interest: taking the company public. On the other hand, there are times when an attorney will need to advise caution, such as when a material weakness has been found in the company’s internal controls or when the company does not have sufficient corporate governance controls in place. This concern will be negated if your law firm has determined the client is ready to go public and you would simply be buying stock in the company the way any other investor would.

Regardless, you should communicate with your law firm’s general counsel before purchasing shares of your client company. Your firm will have its own ethics policies (a copy of which you most likely received and acknowledged receipt of on your first day of employment), and these could prohibit employees from making such investments in clients.