When a Legal Assistant Stole $92 Million
Chen, Paul Hsu and Kwan-Tao Li, the firm’s three senior partners at the time, were shocked by the news. But Chen says they knew they had to try to make Sandisk whole. “The client is the client,” he says. “We made a mistake, we didn’t control well.”
Was there another way?
“I guess one thing we could have said back then was that we didn’t have that much money, so we could have negotiated with the client [to pay] 10 percent, 20 percent or maybe 30 percent [of the total value],” says Chen. “Or we could have said, ‘Sorry, we are not paying you a dime, you can sue us.’ But we didn’t think that was the right thing to do. We never really even considered these options.”
Lee and Li was and remains a general partnership, meaning that all partners are personally liable for claims against the firm. Most international firms today are limited liability partnerships, meaning that liability can be confined to those partners directly involved in a claim. But such a structure is still is not available to firms in Taiwan. Nor, says Chen, is suitable, cost-effective insurance.
“There is simply no meaningful policy available,” he says.
New York University legal ethics professor Stephen Gillers says it’s hard to exactly compare Lee and Li’s situation to that of U.S. firms because of its lack of insurance. “It would be quite unusual for a US firm that handled that amount of money not to have insurance against employee theft,” he says.
Gillers notes, though, that Lee and Li would clearly be liable for a theft under similar circumstances if it were a U.S. firm.
“This is no different from, say, FedEx being liable if its driver is negligent and causes injuries in an accident or if a driver steals a package containing valuables,” says Gillers, adding, “In the U.S., the firm would have to pay—or, more likely, its insurer would pay up to the limit of the policy.”
Chen and his partners quickly accepted that they were responsible for Liu’s actions, and decided they wanted to act in “a professional and noble way” and not force SanDisk to take them to court. “If this had become a lawsuit, the client wouldn’t be satisfied,” he says, “It would also have seriously tarnished the firm’s image among the Taiwanese public.”
Just a month after discovering the theft, Lee and Li reached a deal with SanDisk. Though Liu sold the UMC shares for $92 million, SanDisk had acquired them for $83.3 million and agreed to value their loss at this amount. Over the next few weeks, Lee and Li paid SanDisk $20 million in cash. It then paid $45 million in 16 quarterly installments over the next four years. The firm also gave Sandisk an $18.3 million credit toward legal services that the company could use over the next 18 years. It is this credit that Chen says should be exhausted by next year.