Advice of Counsel Safe Harbor Has Limits—And Risks for Attorneys

“Advice of counsel” can be a valid defense to a criminal or regulatory action. But it requires that the lawyer was qualified to give the advice and the client provided all the relevant facts before the attorney advised the client.

As US v. Denkberg, a recent decision of the US Court of Appeals for the Second Circuit makes exquisitely clear, seeking an attorney’s advice doesn’t, by itself, demonstrate that a client doesn’t know they are engaging in potentially fraudulent behavior.

Frequently, individual or corporate clients seek their lawyer’s sign off—actually imprimatur—when planning to engage in particular transactions. They definitely should, especially when they contemplate doing something new or something they feel might raise regulatory, or even criminal, issues.

Some clients credibly lay out all the facts and sincerely want a careful lawyer to raise a stop sign when one is warranted. Others, however, do so solely for the arguably sketchy purpose of wanting to be able to claim that “our lawyer reviewed it thoroughly beforehand and advised us that it was perfectly legal”—should the government later decide to investigate or even prosecute them.

We focus here on the client who recognizes that the contemplated transaction is questionable, on the edge, or fraudulent. Simply put, they have demonstrated bad intent in the business model, and just want a sign off from “a lawyer.” For this client, it doesn’t matter whether the attorney is a hack or is qualified and willing to impart honest advice about the transaction. Put simply, if the client is proceeding in bad faith and a court later determines that they pretextually engaged a compliant attorney simply for cover if needed down the road, it won’t succeed.

In Denkberg, the defendants for 12 years ran an advertising scheme that sent “prize notices” to consumers explaining that they had won large cash prizes but needed to first send the company a $20 to $40 fee to cover expenses. The prize notices were personalized and used fictitious names and businesses with contrived seals and signatures to make them look official.

When the recipients of these notices, often elderly, sent money, they then received a “sweepstakes report” providing publicly available information describing third-party sweepstakes they could enter to win cash prizes. The company “earned” $80 million from this business venture. A large portion of the profits was received after the defendants had received complaints from a number of consumers and state attorneys general, as well as cease-and-desist letters from the US Postal Service, to which they had acquiesced. Even after all this, they continued the scam by employing new shell companies to conduct their business operations.

In the face of these incriminating facts, the vetting counsel, with some minor caveats, gave the clients a sign off on their business model, which resulted in those substantial profits. Notwithstanding their “advice of counsel” claim, the businessmen were indicted and convicted at trial. At trial, they raised “advice of counsel,” in part relying on the trial testimony of one of the vetting attorneys.

The Second Circuit affirmed the convictions and rejected the defense that was offered—in part because of the incriminating facts described above.

The lawyers who approved the defendants’ conduct under scrutiny weren’t themselves prosecuted. Interestingly, though, the court concluded its lengthy opinion with this admonition to lawyers generally who might be called upon by clients to sign off on potentially shaky business models: “Finally, while the conduct of the attorneys who advised Defendants is not directly before us [i.e., they weren’t themselves indicted], the record reveals conduct that may warrant discipline.”

The panel directed the Clerk of the Court to forward the court’s opinion and the trial record to the relevant disciplinary authorities. Typically, prosecutors take such discipline referrals from courts seriously, as they are somewhat rare.

Advice from counsel can be extremely important for those engaged in sophisticated business transactions and models in order to help ensure compliance with law and regulations. The Denkberg decision, however, underscores the need for any client to fully appreciate that a mere sign off from an attorney—whether in house or outside counsel—won’t necessarily provide a valid or successful criminal defense, particularly if the client recognized or should have recognized that the conduct was fraudulent or otherwise potentially illegal. The decision also shows, in no uncertain terms, that if attorneys are too casual in conducting the review and reflexively providing approval they, too, may find themselves facing serious consequences.

The case is US v. Denkberg, 2d Cir., No. 23-6877, decided 6/2/25.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Joel Cohen, a former state and federal prosecutor, practices white collar criminal defense as senior counsel at Petrillo, Klein & Boxer. He is an adjunct professor at both Fordham and Cardozo Law Schools.

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