Can a lawyer buy warrants or stock from a corporate client whose public stock offering the lawyer is handling?
Apply this to your situation
This page answers the general question as of 1981. Ezel answers yours: whether it's allowed on your facts, under the current Massachusetts Rules of Professional Conduct, with citations.
Plain-English summary
A lawyer advising a closely held corporate client that was considering going public asked whether he could buy warrants the corporation planned to issue (at one-sixth the public offering price) to fund the offering, while he prepared and filed the registration statements and coordinated the process. He asked the committee to assume the transaction complied with securities laws (a substantive-law question on which the committee gave no opinion) and that the client had consented, with proper disclosure, to his purchase.
The committee built on its Opinion 76-16, which had found no impropriety in a firm taking its fee in a client's stock for non-litigation corporate work, reading DR 5-103(A) (a lawyer shall not acquire "a proprietary interest in the cause of action or subject matter of litigation he is conducting for a client") not to apply to such services. Opinion 76-16 had distinguished ABA Opinion 279 (improper where the work involved a competing FCC application with litigation-like elements) and left open the case of an application to an administrative agency rather than a traditional litigated cause of action.
Here the warrant purchase plainly gave the lawyer a "proprietary interest," so the only question was whether it was in a "cause of action or subject matter of litigation." Because the public offering did not involve a traditional cause of action litigated between two parties, the committee declined to stretch the terms "litigation" and "cause of action" that far, even acknowledging the argument that the SEC's protective role resembles an adversary. It read DR 5-103(A)'s outright prohibition narrowly, noted that acquiring stock in clients is a well-known phenomenon, and said that if such acquisitions should be barred in particular settings, that should be done explicitly rather than by an expansive reading. The committee cautioned, however, that owning the warrants could create problems during the offering where personal ownership might interfere with the lawyer's independent professional judgment (DR 5-101(A), DR 5-104(A)), and that the consent already given to the purchase would not suffice as consent to continued representation once actual conflicts arose; the matter would then have to be discussed anew with the client.
Currency note
This opinion was issued in 1981, before Massachusetts's adoption of the 2015 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.
Common questions
Q: Is it a per se violation for a lawyer to buy stock or warrants from a client he is advising?
A: Per the opinion, no. The committee held that DR 5-103(A)'s bar on acquiring a proprietary interest applies only to a cause of action or the subject matter of litigation, which a public stock offering is not, so the purchase was not in itself improper.
Q: Does the client's consent to the purchase end the analysis?
A: No. The committee said personal ownership of the warrants could interfere with the lawyer's independent judgment during the offering (DR 5-101(A), DR 5-104(A)), and that the consent to the purchase would not serve as consent to continued representation if actual conflicts arose; the lawyer would have to discuss the matter with the client again.
Q: Why didn't the proprietary-interest rule apply here?
A: The committee read DR 5-103(A) narrowly and declined to extend "litigation" and "cause of action" to a securities offering before the SEC, saying any prohibition of acquiring client stock in such settings should be made explicit rather than implied.
Background and rules framework
The opinion applied DR 5-103(A) (no proprietary interest in a client's cause of action or subject matter of litigation), DR 5-101(A) (the lawyer's own interests affecting professional judgment), and DR 5-104(A) (business transactions with a client). Those correspond today to Model Rule 1.8(i) (proprietary interest in litigation), Model Rule 1.8(a) (business transactions with a client), and Model Rule 1.7 (personal-interest conflicts). The committee relied on its Opinion 76-16 and distinguished ABA Opinion 279.
Citations and references
Rules of Professional Conduct:
- DR 5-103(A) / Model Rule 1.8(i) (proprietary interest in litigation)
- DR 5-104(A) / Model Rule 1.8(a) (business transactions with a client)
- DR 5-101(A) / Model Rule 1.7 (personal-interest conflict)
Other opinions cited:
- MBA Opinion 76-16: taking a fee in a client's stock for non-litigation corporate work is not improper
- ABA Opinion 279: proprietary interest improper where the work had litigation-like elements
See also
- MA Bar Ethics Op. 85-4: Charging costs and a staff investigator in a contingent fee case
- MA Bar Ethics Op. 86-1: Representing a client who is suing you for malpractice
Source
Get today's answer for your situation
You just read a 1981 opinion on this question. Ezel checks the current Massachusetts Rules of Professional Conduct and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the rules it relies on.