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March 2017 Newsletter

In this month’s Feder Law Firm newsletter, we will focus on one of the lesser known testimonial privileges available in Colorado, the accountant-client privilege.  While most of us are more familiar with the attorney-client privilege, we had a recent matter where the accountant-client privilege was at issue.   

Accountant-Client Privilege 

Under Colorado law:

"A certified public accountant shall not be examined without the consent of his or her client as to any communication made by the client to him or her in person or through the media of books of account and financial records or his or her advice, reports, or working papers given or made thereon in the course of professional employment; nor shall a secretary, stenographer, clerk, or assistant of a certified public accountant be examined without the consent of the client concerned concerning any fact, the knowledge of which he or she has acquired in such capacity."
C.R.S § 13-90-107(1)(f)(I).
 
Criminal investigators and civil regulatory authorities investigating alleged fraud or financial wrongdoing both often seek to “follow the money,” and will request financial books and records as part of their investigation.  Depending on the circumstances of the case, investigators may also attempt to interview or subpoena the certified public accountant of a target to testify regarding the books and records prepared by the accountant.  In these instances, the accountant-client privilege comes into play.
 
Colorado is one of only a few states that expressly recognize the accountant-client privilege.  The privilege prevents an accountant from disclosing confidential information provided by the accountant’s client for the purpose of rendering accounting services.  Similar to the attorney-client privilege, the accountant-client privilege is designed to create an atmosphere in which a client is able to provide confidential information to an accountant without fear that the information will later be disclosed to the client’s detriment.
 
The accountant-client privilege is not absolute, and there are several exceptions.  First, the privilege is a creation of state law.  This means that if suit is filed in federal court, and involves federal issues, the federal courts will not recognize the privilege.  Second, the privilege can be waived.  Just like the attorney-client privilege, if a client does not maintain the confidential nature of the information provided to his or her accountant, then a court might find that the client has waived the privilege and allow the accountant to testify.  Third, the crime-fraud exception may apply under certain circumstances. 

Recent Case Demonstrates Importance of Accountant-Client Privilege 

In our recent defeat of claims brought by the Colorado Division of Securities and the Colorado Attorney General, the state contacted our client’s CPA, asked the CPA about communications with the client, and then requested work papers from the CPA.  Apparently feeling the pressure of a state investigation and wanting to comply with the requests of the government investigator, the CPA neglected to notify the client of the request, did not obtain the client’s consent to disclose information, and then provided the state with the client’s work papers and communications.  This was a violation of the accountant-client privilege.  
 
The question then became what was the remedy.   We took the positon that the Colorado Attorney General and the Division of Securities should have been aware of the privilege, should have discussed the privilege with the CPA, and should have given the CPA an opportunity to discuss the request with the client before the CPA disclosed privileged information.  Here the state blindly disregarded the accountant- client privilege and we were able to make a convincing argument that its conduct was deserving of sanctions, including dismissal of the claims.  Ultimately, the claims were dismissed on other grounds before there was a determination of the appropriate sanctions for the state’s mishandling of the accountant-client privilege issue. 
 
If you would like more information, please do not hesitate to reach out to us.  And feel free to share this newsletter with anyone else who may find it helpful.

Regards,

Steve Feder

ABOUT FEDER LAW FIRM

Feder Law Firm represents the complex and sophisticated legal needs of clients throughout Colorado. Our Denver lawyers are known for our broad client base, knowledge of the securities industry, business acumen and the effective resolutions achieved for our clients.

www.federlawfirm.com

April 2017 Newsletter
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