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“Don’t invest in dot-coms!” Pets.com’s sock puppet told “Good Morning America,” when asked what advice he had for investors shortly after the puppet’s company filed for bankruptcy in November 2000. “Now he tells us,” flashed through the heads of millions of viewers. Pets.com had raised $82.5 million in an initial public offering only nine months earlier. By late 2000 American investors had received fair warning that the Internet bubble had burst. Philip Kaplan started the www.fuckedcompany.com gossip site in early 1999 to track layoffs, cutbacks and bankruptcies in the industry. The New York Post ran a “Dead Dot-Com of the Day” obituary. Spoilsports may ask why it was that a sock puppet, New York tabloid and obscenity-laced Web site were better at warning of dot-com perils than investment houses, lawyers and accountants. The short answer is that the professionals were too busy profiting from the Internet bubble to recognize or warn of its risks. Now the boom is gone, but the sorting out continues, with the investigations of Wall Street stock analysts promising more revelations to come. The Enron/Arthur Andersen collapse is a similar example of economic self-interest eroding the traditional role of professionals in ensuring the integrity of financial markets. The Internet created an extraordinary, ongoing revolution. But one great Silicon Valley/Silicon Alley lie — repeated over and over like a New Age Gregorian chant — was that the boom wasn’t about money. For every dot-com that went public, there were a slew of professional service providers that earned handsome fees. The largest shares went to investment houses and venture capitalists. Law firms and other professionals also did well, especially those who received ownership interests in the companies that they were representing. The my-client-is-my-partner approach seemed a wonderful idea at the height of the boom, as lawyer incomes soared. Palo Alto, Calif., became the center of the most fashionable ’90s practice area, technology law. Individual attorneys began holding themselves out as uber-lawyers who could take companies from startup through the IPO to fully mature, NYSE-listed concerns. Traditional concepts of the law as a body of rules of conduct and action gave way to glib advertisements touting a firm’s view that “the law is a means to accomplish our clients’ business objectives, not an end in itself.” Lawyers exaggerated their importance during the Internet boom, but they’ve been none too eager to take credit for the collapse. In the end, too much money chasing too few legitimate deals led to repeated disasters. Most of the blame belongs with the company founders and venture capitalists. But the responsibility of lawyers, accountants and consultants — the corporate valet class — deserves more scrutiny than it receives in any of a trio of new books detailing dot-com debacles. “Dot.con” by John Cassidy, “dot.bomb” by J. David Kuo and Kaplan’s “F’d Companies” are chiefly about the roles of founders and financiers. Cassidy’s industry history and Kaplan’s idiosyncratic commentary are overviews of the dot-com run-up and rundown. Kuo’s book tells the story of Value America, where he was an executive. The omissions of the books underscore how attorneys and other professionals have flown under the radar while the blame game is being played out. No Enron-style yapping at the heels of the dot-com lawyers means that their firms will not be spending the next decade defending investor and creditor lawsuits, as will be the fate of various Enron and Andersen attorneys. Dot-com investments were always considered speculative in the public mind. There was no significant pension fund investment in them as there was in Enron. The dot-com collapse did not shake investor confidence in the reliability of corporate financial statements. The bubble’s burst never enraged the public in the same way that Enron’s sudden collapse did. But for the legal profession, there remain serious questions. Enron raised issues about client conflicts when professional fees represent a substantial portion of a firm’s income. The dot-com collapse underscored the conflicts resulting from the lawyers’ simultaneous roles as investor and attorney. The profession traditionally has allowed lawyers to invest in clients so long as certain disclosure and consent requirements were met. These arrangements were deemed adequate in the past. But law firms that set up separate investment entities have multiple conflicts that affect a wide variety of parties, including future investors and creditors. Lawyers that stand to make millions of dollars on their stock holdings in a client’s IPO have substantially different interests from the investors who are buying the shares. At some point the client-as-partner paradigm creates conflicts that require the lawyer to choose one role over another. So “Dot.con,” “dot.bomb” and “F’d Companies” tell only part of the story of the Internet bust. A critical look at how lawyers and other professionals performed during the bubble remains to be written. George M. Kraw is a San Jose, Calif., attorney. His e-mail address is [email protected].

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