Investing and lawering

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Ed Al

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Investing and lawering

Post by Ed Al » Fri Apr 17, 2020 2:26 am

Is it possible to be an investor (an active investor not someone who buys an index fund) and be a lawyer simultaneously? I‘m thinking of taking up law, but I want to continue a hedge fund that I had started, and I want to continue managing the fund until I die, basically. In the long-term, I’m thinking of maybe even converting the fund into a corporation.

I’m interested in law, and I love investing. The great thing about my investments is that I can hold them and not do anything else for a year or two; I don’t need to make investments every year.

How could someone have two careers at once?

If I pursue working at BigLaw, how would such work affect my investments?

How could I prevent the emergence of fiduciary duty issues, insider trading, and other issues related to conflict of interests?

A response will be greatly appreciated.

Ed Al

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Re: Investing and lawering

Post by Ed Al » Fri Apr 17, 2020 7:19 am

Billionaire Charlie Munger comes to mind as someone who tried a career in finance and a career in law at the same time. He himself said that he “kept one foot at the law firm (Munger, Tolles & Olson) while trying a capitalist career (Wheeler, Munger, and Company)”

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cavalier1138

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Re: Investing and lawering

Post by cavalier1138 » Fri Apr 17, 2020 7:20 am

Ed Al wrote:If I pursue working at BigLaw, how would such work affect my investments?
Significantly. There are restrictions on insider trading that make it very difficult for you to invest in individual companies once you're working at a firm that represents a wide swath of the Fortune 500. For example, say you enter the firm with significant investments in Shady Company. But while at the firm, you become privy to confidential information about Shady Company that would cause any ordinary investor to sell. You now can't sell your stock in Shady Company. But say you don't become privy to the information; if Shady Company is a firm client, you would still have to clear any stock transactions with the firm.

You would also have a particularly rough time in your situation, because you're proposing to manage a hedge fund while working in biglaw, which sounds like a completely unworkable schedule.
Ed Al wrote:How could I prevent the emergence of fiduciary duty issues, insider trading, and other issues related to conflict of interests?
By investing in mutual funds, or by putting your investments into a blind trust arrangement of some kind. But I'm not aware of any way to avoid those ethical issues without in some way taking your investment strategy out of your own hands (or without taking significant risks that you will be bound to not trade certain companies). Since you actually enjoy managing the investments, that's obviously going to be an issue for you.

Ed Al

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Re: Investing and lawering

Post by Ed Al » Fri Apr 17, 2020 8:17 am

cavalier1138 wrote: You would also have a particularly rough time in your situation, because you're proposing to manage a hedge fund while working in biglaw, which sounds like a completely unworkable schedule.
I take it working in big law is a bit of a stretch then, but what about trial work or law firms specializing in criminal law or other kinds of work that's not corporate law?

Besides, I don't see myself investing in Fortune 500 companies. But I understand corporate law and investing can involve ethical issues.

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cavalier1138

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Re: Investing and lawering

Post by cavalier1138 » Fri Apr 17, 2020 8:36 am

Ed Al wrote:
cavalier1138 wrote: You would also have a particularly rough time in your situation, because you're proposing to manage a hedge fund while working in biglaw, which sounds like a completely unworkable schedule.
I take it working in big law is a bit of a stretch then, but what about trial work or law firms specializing in criminal law or other kinds of work that's not corporate law?

Besides, I don't see myself investing in Fortune 500 companies. But I understand corporate law and investing can involve ethical issues.
The same rules are generally in force no matter where you practice, but your client base obviously changes how those rules are applied. If you work in criminal law representing individual clients, then you're less likely to have issues. Biglaw just tends to be the biggest minefield for investing because firms represent so many corporate clients.

But bear in mind that you're always going to have to watch out for this stuff. Say you represent an individual client who works for Nothing-to-See-Here, Inc. Some of the information that client discloses to you about their job could potentially trigger insider trading laws, and you'd be in the same situation, even though you aren't representing the company in any capacity.

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Ed Al

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Re: Investing and lawering

Post by Ed Al » Fri Apr 17, 2020 9:15 am

cavalier1138 wrote: If you work in criminal law representing individual clients, then you're less likely to have issues. Biglaw just tends to be the biggest minefield for investing because firms represent so many corporate clients.
What if the law firm has more than one type of service (which is the majority case it seems)?

For instance:
Law firm X engages in both criminal law and corporate law.
A law firm associate of law firm X is an investor of Nothing-to-See-Here, Inc.
Nothing-to-See-Here, Inc. becomes a client in a case handled by the corporate law department of law firm X.
The case involved Nothing-to-See-Here to disclose confidential information.

Question:
Will the investor who works as a law firm associate expose himself to issues relating to insider trading and to conflict of interest even if he works at the criminal law department and not at the firm's corporate law department?

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cavalier1138

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Re: Investing and lawering

Post by cavalier1138 » Fri Apr 17, 2020 9:28 am

Ed Al wrote:
cavalier1138 wrote: If you work in criminal law representing individual clients, then you're less likely to have issues. Biglaw just tends to be the biggest minefield for investing because firms represent so many corporate clients.
What if the law firm has more than one type of service (which is the majority case it seems)?

For instance:
Law firm X engages in both criminal law and corporate law.
A law firm associate of law firm X is an investor of Nothing-to-See-Here, Inc.
Nothing-to-See-Here, Inc. becomes a client in a case handled by the corporate law department of law firm X.
The case involved Nothing-to-See-Here to disclose confidential information.

Question:
Will the investor who works as a law firm associate expose himself to issues relating to insider trading and to conflict of interest even if he works at the criminal law department and not at the firm's corporate law department?
Yes. At the very least, the associate will need to clear any stock sales of NtSH, Inc. with whoever oversees those things at the firm. And if the associate becomes privy to any confidential information about NtSH (including hallway conversations, firmwide presentations, etc.), then they've probably triggered insider trading rules.

(Also, bear in mind that your described firm likely represents corporate clients in the context of white collar investigations; it's very rare to see a firm that handles corporate work and billable criminal representation for individual clients that have no relation to their corporate client base.)

Ed Al

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Re: Investing and lawering

Post by Ed Al » Fri Apr 17, 2020 9:35 am

Wow. That’s very discouraging.

To reduce the possibility of ethical issues, I guess the only remedy is to find a firm that does not have corporate-law services.

Apologies if my posts reveal an ignorance about law and how law firms work. I’m not a law student or a lawyer.

The Lsat Airbender

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Re: Investing and lawering

Post by The Lsat Airbender » Fri Apr 17, 2020 10:28 am

Ed Al wrote:Wow. That’s very discouraging.

To reduce the possibility of ethical issues, I guess the only remedy is to find a firm that does not have corporate-law services.

Apologies if my posts reveal an ignorance about law and how law firms work. I’m not a law student or a lawyer.
Nothing to apologize for.

One thing you could consider is trusts-and-estates (or maybe tax) work for HNW individuals. It's a service you could bundle or cross-sell with managing their money, kind of like a family office, which would actually be rather synergistic.

But like most legal niches it's not something you can bootstrap your way into practicing; you'd need to learn the ropes at a firm first for at least a few years. There are some threads on this site about T&E (and you should interview real-world attorneys whose career you intend to emulate before deciding on anything anyway).

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Anon-non-anon

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Re: Investing and lawering

Post by Anon-non-anon » Fri Apr 17, 2020 11:30 am

Ed Al wrote:Wow. That’s very discouraging.

To reduce the possibility of ethical issues, I guess the only remedy is to find a firm that does not have corporate-law services.

Apologies if my posts reveal an ignorance about law and how law firms work. I’m not a law student or a lawyer.
Probably safest thing to avoid any conflicts would be like a public defender / local prosecutor not in a big city / a small, not white collar, criminal defense firm. T&E would work too probably, as others have suggested. Big law would be tough regardless, as there's "do not trade" lists and other restrictions.

Going small crim law, you'd be operating in two very different worlds doing totally different stuff, which could be fun, but doesn't really sound like what you're interested in doing. Working for gov might come with other restrictions on managing outside business so that might not even work. Plus having time...

Some big law partners invest in their clients. Becoming more common, but there's an infrastructure set up for it with the firm/partnership, not just some associate with all these outside conflicts.

Basically, sell everything and buy ETFs if you want to go to law school and do big law.

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Re: Investing and lawering

Post by Anon-non-anon » Fri Apr 17, 2020 11:30 am

Ed Al wrote:Wow. That’s very discouraging.

To reduce the possibility of ethical issues, I guess the only remedy is to find a firm that does not have corporate-law services.

Apologies if my posts reveal an ignorance about law and how law firms work. I’m not a law student or a lawyer.
Probably safest thing to avoid any conflicts would be like a public defender / local prosecutor not in a big city / a small, not white collar, criminal defense firm. T&E would work too probably, as others have suggested. Big law would be tough regardless, as there's "do not trade" lists and other restrictions.

Going small crim law, you'd be operating in two very different worlds doing totally different stuff, which could be fun, but doesn't really sound like what you're interested in doing. Working for gov might come with other restrictions on managing outside business so that might not even work. Plus having time...

Some big law partners invest in their clients. Becoming more common, but there's an infrastructure set up for it with the firm/partnership, not just some associate with all these outside conflicts.

Basically, sell everything and buy ETFs if you want to go to law school and do big law.

Ed Al

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Re: Investing and lawering

Post by Ed Al » Fri Apr 17, 2020 11:11 pm

The Lsat Airbender wrote: Nothing to apologize for.

One thing you could consider is trusts-and-estates (or maybe tax) work for HNW individuals. It's a service you could bundle or cross-sell with managing their money, kind of like a family office, which would actually be rather synergistic.

But like most legal niches it's not something you can bootstrap your way into practicing; you'd need to learn the ropes at a firm first for at least a few years. There are some threads on this site about T&E (and you should interview real-world attorneys whose career you intend to emulate before deciding on anything anyway).
I’ve heard many times that Trusts and Estates is a “dying field” among big law firms and that “big firms will get rid of their T&E services”.

I’ve heard that thirteen years ago, yet today firms like Wachtell and Skadden still have T&E services.

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Re: Investing and lawering

Post by Ed Al » Fri Apr 17, 2020 11:31 pm

Ed Al wrote:
Probably safest thing to avoid any conflicts would be like a public defender / local prosecutor not in a big city / a small, not white collar, criminal defense firm.
I actually thought that government service would be the most restrictive because of the public office is a public trust thing.

It may rub people the wrong way when the assistant prosecutor has a sideline job. People be like why would we even trust a guy who doesn’t focus on his job, Doesn’t his investing interfere with the performance of his duties as prosecutor, etc.

Corporate people already face the same dilemma of fiduciary duty problems. It might be worse for those working for the government.

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Re: Investing and lawering

Post by Sackboy » Sun Apr 19, 2020 12:25 am

Ed Al wrote: I actually thought that government service would be the most restrictive because of the public office is a public trust thing.

It may rub people the wrong way when the assistant prosecutor has a sideline job. People be like why would we even trust a guy who doesn’t focus on his job, Doesn’t his investing interfere with the performance of his duties as prosecutor, etc.

Corporate people already face the same dilemma of fiduciary duty problems. It might be worse for those working for the government.
Trust me, nobody cares about what an ADA is doing. Unless someone personally knows an ADA or that ADA has made public news due to committing some crime, there is about 0% chance that person could name an ADA working for their government. If you're the actual DA, there's bound to be some scrutiny, because those are typically elected positions. Still, it probably wouldn't be a problem, unless you're investing in private prisons in your county/state or some other jackassery.

That all being said, intentionally taking low-paid government service in order to have less restrictions on your investing sounds very counterproductive if the goal is to make money. Your low-paying gig is going to give you little money to actually throw around in the market.

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Re: Investing and lawering

Post by LSATWiz.com » Mon Apr 20, 2020 11:27 am

It's harder in a large firm because conflicts are often imputed on everyone at the firm. In general, you could change your investment portfolio to ensure that you don't invest in any clients. It's probably best to avoid it though. If your firm is representing a small biotech company and it comes out through D&D that they're very close to completing a vaccine for a certain type of Cancer, eventual news of this won't only impact their share price but would impact the share price of all their competitors. If you happen to short some of their competitors, could an overzealous ADA argue that's an insider trading? Who knows?

I'd argue that you'd have to worry about so many things that your investment strategy would be too impacted to actively trade. If you're competitive as most investors are, it's painful enough to make a bad trade based on your own judgment. It would be infinitely more painful to make a bad trade based on feeling constrained. The market is unpredictable enough as is and no matter how smart you are, if you're not a top 0.01% investor, you have at best a small advantage over the rest of the market. If you have to alter your judgment due to worries about compliance, it would be hard to actively trade and outperform the S&P. With that disadvantage I'd be more inclined to just put my money in a mutual fund, though I don't know if a mutual fund could create conflict issues and would check with someone first. The safest bet would be to avoid trading for a few years. Even if you're turning a 30% ROI on a $100k each year, you're making an extra $30k. Personally for me to get those returns, I need to research each company I'm invested in each day and be able to know I'm free enough between 9:30-10:30 AM and 3-4 PM that I could time breakouts and dips to get out at something approaching max value. If I didn't have a job with the freedom to do that, it just wouldn't be worth the time and energy.

Assuming you don't have a trust fund or a $500k portfolio, you're ultimately going to make more in big law than you'd make in other areas of law, even those that pay $100k+ and even if you get a 30% ROI. If your goal is to maximize income in law, I'd probably forego trading and do big law. I don't think that it makes a difference as an ADA. The only issue I can see there is if you worked in white collar you may be privy to information that once released will cause a spike to fall. That could technically involve any company in the world. I'm not sure what the ABA requirements are in that situation - whether you are obligated to sell or hold the stock for a certain period. Either one would risk giving the impression of insider trading so this would also be something you'd need to speak to a C&F lawyer about.

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