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The stunning revelations pouring forth about Arthur Andersen’s conduct in the Enron collapse are putting the accounting firm’s counsel, New York-based Davis Polk & Wardwell, in an increasingly awkward position, observers say, due to the firm’s concurrent representation of one of Enron’s biggest creditors. Davis Polk is representing Arthur Andersen in the investigations being carried out by the Securities and Exchange Commission and the U.S. Department of Justice. As such, Davis Polk attorneys have been getting first wind of the destruction of documents and e-mails at Arthur Andersen. But the firm is also creditor’s counsel to J.P. Morgan Chase, which has said its Enron-related losses may total about $2.6 billion, in the Enron bankruptcy proceedings. The possibility of creditors seeking recovery from Arthur Andersen has now increased dramatically, given recent developments. “I would be very surprised if [Davis Polk] continued to represent both parties,” said an attorney involved in the bankruptcy proceedings who asked to remain anonymous. “The world has changed in the last eight weeks,” he continued. “What was undoubtedly a potential conflict has, with the passage of time, sharpened into a real and actual conflict.” Speaking for Davis Polk, Christopher Mayer, a member of the firm’s management committee, said the firm had carefully reviewed potential conflicts before deciding to proceed. “Based on our current assignments for each client, we believe there are no conflicts,” Mayer said, adding that the firm was in regular communications with both clients about the situation. Neither Andrew J. Pincus, general counsel for Arthur Andersen, nor William H. McDavid, general counsel for J.P. Morgan, could be reached for comment. It is not illegal or unethical for Davis Polk to represent both parties, as Arthur Andersen and J.P. Morgan Chase are not currently adverse parties. Moreover, both clients have signed conflict waivers giving their informed consent to their continued representation by Davis Polk. But those waivers were signed before the Enron bankruptcy filing chased the war in Afghanistan off the front pages, and long before Arthur Andersen’s destruction of documents and e-mail messages came to light. Those waivers may now be untenable, said Lester Brickman, a professor of professional responsibility at the Benjamin N. Cardozo School of Law at Yeshiva University in New York City. Before Arthur Andersen’s recent disclosures, Professor Brickman said, it might have seemed possible for Davis Polk and its two clients to draw a distinction between the bankruptcy proceeding and the government investigations. “Now the distinction to be made is gossamer-thin,” said Brickman. “The results of the investigation will obviously have great bearing on any future litigation against Arthur Andersen.” As J.P. Morgan’s representative on the Enron creditors’ committee, Davis Polk would be privy to deliberations and communications concerning the committee’s intentions and strategies concerning lawsuits against third parties, including Arthur Andersen. REVIEW PROCEDURES With large New York firms representing so many major financial institutions, conflicts of the kind Davis Polk is facing have become increasingly common, said Bruce Green, a professor at Fordham University School of Law. The major difference is the scale and the public nature of these proceedings, he said. “What are the odds Arthur Andersen can find a law firm in New York that doesn’t represent at least one creditor?” Green asked. As a result, firms have set up elaborate conflicts review processes and built so-called Chinese walls meant to prevent improper communications between practice groups. Davis Polk, Green said, has almost certainly taken measures as a matter of course to make sure confidential information is not shared between attorneys working for Arthur Andersen and J.P. Morgan. The attorney involved in the proceedings who spoke on condition of anonymity agreed that Davis Polk had probably taken every precaution, but pointed out that the already somewhat unusual arrangement is part and parcel to what is sure to be among the most scrutinized business failures of all time. Davis Polk, one of the most elite firms in New York, counts J.P. Morgan as one of its largest and most important clients. However, if the firm decided to withdraw representation from one of the two clients, Professor Green said, it might have to drop the banking giant. “Arthur Andersen can probably make a much stronger case for hardship if they have to change counsel,” he said. The Davis Polk team working for Arthur Andersen is headed by litigation partners Daniel F. Kolb and Michael P. Carroll. The team working for J.P. Morgan counts five partners, headed by corporate partner Donald S. Bernstein.

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