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Indeed, Grmovsek said his trading had become "moronic" by 2008. And sure enough, the U.S. Financial Industry Regulatory Authority caught wind of the trades and began an investigation. The evidence led to Cornblum, who was con- fronted by Dorsey & Whitney personnel. He initially denied the allegations, but was fired anyway. Soon afterwards, he tried to kill himself on two separate occasions. Investigations by the RCMP and OSC, the SEC and U.S. Department of Justice ensued, with the two men agreeing to co-operate with them. It took more than a year to sort out the whole mess. S TILL, THE GRMOVSEK and Cornblum case was straightforward thievery. Many corporate lawyers get into hot water by simply carrying out their jobs. Just not always very well. How does it happen? Large corpo- rate law firms are where the worlds of Canada's business, financial, political, and legal establishments all collide. Canada's economy is ruled over by dynastic fami- lies via holding companies and preferred stock. The Thomsons have Woodbridge Co. Ltd.; the Rogerses have Rogers Communications Inc.; and the Bronfmans have Brookfield Asset Management Inc. The country's elite lawyers, captains of industry, and bankers live in the same leafy upscale neighborhoods in major cit- ies, such as Toronto's Rosedale and Forest Hill. They send their children to the same schools and sit on the same non-profit boards. And they work together. Mega law firms regularly represent several related parties in one corporate family. The ties binding lawyers, the wealthy, and our political elites is why Philip Slayton believes conflicts of interest are the biggest problem facing corporate law firms, especially when they represent both public companies and CEOs, whose inter- ests are often different. "My view is that you can only represent one of that set," he remarks. Lawyers who work for big corporate law firms insist these conflicts of interest are manageable. "There are conflicts that arise in those representations from time to time and in my experience they are generally dealt with responsibly by law firms involved," asserts Gavin MacKenzie, a partner with Heenan Blaikie LLP in Toronto, who is considered the guru of legal ethics in Canada. Still, one of the cases that best sums up the potential pitfalls for corporate law firms is the Torys-Conrad Black-Hollinger fiasco. Torys LLP's ties to Canada's finan- cial and political leadership are profound; it counts client relationships in genera- tions, not years, and includes among its major clients the country's largest banks and public pension funds. So it was no surprise that Black and his media empire were among the firm's clientele. Black and his then-right-hand man David Radler once controlled Hollinger International Inc., a U.S.-listed company that owned newspapers through a holding company, Hollinger Inc., and a manage- ment company, Ravelston Corp. Ltd. Yet Torys represented all of these parties to one degree or another. Which was fine until 2000, when Black and Ravelston decided to sell off many of its newspa- pers to CanWest Global Communications Corp. for US$3.2 billion. This deal, however, also included US$80 million in non-compete agree- ments paid by CanWest to Black, Radler, and two other Hollinger executives. These payments would become a focal point of Black's 2007 fraud trial in Chicago, exam- ining whether he and the other executives were entitled to the money and if the payments had been properly disclosed to shareholders and the SEC. Two of Torys' lawyers, Beth DeMerchant and Darren Sukonick, worked on the Hollinger-CanWest deal, including handling the non-compete payments. However, at one juncture, Torys' lawyers gave Black and the other executives an opinion that the non-compete payments didn't need to be disclosed to shareholders or the SEC as executive compensation. This one bit of legal advice came back to haunt DeMerchant, Sukonick, and Torys. Indeed, when Hollinger International struck a special committee to examine how Black was spending the company's money, Torys' actions came under scruti- ny. In 2004, the committee issued a report in which Torys was severely criticized, arguing the law firm had worked hard to ensure Black et al. got the non-compete payments, although this might not have been in the best interest of shareholders. It accused the law firm of a conflict of interest, that it had a duty to Hollinger's shareholders to ensure the non-compete payments be properly disclosed. Instead, the report said the law firm expressed no concern about the non-compete pay- ments, noting that Black, Radler, and the other executives "strongly resisted public disclosure of these amounts, and Torys, which represented not only Hollinger, but also Ravelston and Hollinger Inc., gave them the legal advice they sought that these inconvenient rules did not apply to large portions of the cash transferred to Black and Radler through Ravelston. The result was to obscure the magnitude of what Black, Radler, and their associates were taking at the expense of Hollinger's shareholders." In 2005, on the verge of Hollinger International suing Torys, the law firm settled the matter for US$30.3 million, although it denied any wrongdoing or conflict of interest. Two years later, during Black's trial, DeMerchant and Sukonick were grilled about their role. DeMerchant admitted Torys had dropped the ball and made a serious disclosure error. Sukonick went through 14 hours of intense inter- rogation. The affair has hurt their careers. DeMerchant quit Torys and is no longer working as a lawyer. And while Sukonick stayed on at the firm, he was shunted aside before resuming his practice after Black's conviction. He now leads the pro bono efforts for the firm in Toronto. Their ordeal is far from over, however. Last fall, both lawyers were charged with profes- sional misconduct by the LSUC for failing to disclose various conflicts of interest. A hearing on this matter is scheduled to begin April 26. Meanwhile, Torys says it has put in place safeguards to ensure a similar occurrence of this situation won't happen again but calls to the firm's man- aging partner, Les Viner, for this article were not returned. But Torys is not the only Bay Street megafirm that has suffered major embar- rassment due to a miscalculation in recent years — and paid a steep price. In 1996, former Ontario premier David Peterson, chairman of Cassels Brock & Blackwell LLP, invested $50,000 www. C ANADIAN Law ye rmag.com M ARCH 2010 35