Attorney-Consultant Privilege? Tips for Preparing an Engagement Letter for, and Implementing, a Kovel Arrangement (Part Two of Three)

The decision by a fund manager and its legal counsel to extend the attorney-client privilege to a consultant relationship through a so-called “Kovel arrangement” is only the first step in a complicated process. The next and most important step is ensuring that the entire Kovel engagement is performed correctly so the privilege will be recognized by the SEC, other regulators and the judicial system. If the arrangement is deemed invalid, the fund manager could be liable when documents detailing its operational deficiencies are made available to regulators or litigants. This article, the second in a three-part series, sets forth practical guidance on provisions that need to be included in a consultant’s engagement letter and how the parties must maintain the arrangement on a daily basis to ensure it remains Kovel-compliant. The first article in this series detailed the legal requirements of the Kovel doctrine, as well as considerations for fund managers when deciding whether to invoke or waive the privilege. The third article will examine circumstances when it is and is not appropriate for fund managers to employ Kovel arrangements. For more on the attorney-client privilege, see “Federal Court Decision Narrows the Scope of Attorney-Client Privilege Available to Private Fund Managers in Internal Investigations” (Jan. 23, 2014); and “Six Recommendations for Private Fund Managers Seeking to Protect Themselves From Waiver of Attorney-Client Privilege When Faced With SEC Document Requests” (Jan. 17, 2013).

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