A Sidestory About Sina.com

Around 10 years ago, a friend of mine told me a story which I believe is worth sharing with young lawyers. Let’s call my friend “David”, which is not his real name. David told me that one of the biggest mistakes in his life was that he followed the advice of his lawyer, Josephine (not her real name). According to David, he was offered an opportunity to invest in Sina Corporation (“Sina”) in 1999, before its IPO on Nasdaq in 2000. David turned down the offer because Josephine advised him not to invest in Sina. David would have made tons of money if he had taken the offer.

In case you are not familiar with the so-called “Sina-Model” or “VIE structure”, let me explain briefly here. Foreign investment in certain industries or businesses in Mainland China was restricted by law. Sina, a company incorporated in Cayman Islands, tried to get around the restriction by operating through some domestic companies. Sina did not own such domestic companies, but it controlled them through certain contractual arrangements (e.g. share pledge, share option, loan, service and license agreements.)

The first moral of the story is that the lawyer should not make any decisions for his or her client. Assuming that Josephine is qualified to advise on the law of Mainland China, Josephine might be justified to consider the investment in Sina to be highly risky given that the Sina-Model was new and had not been endorsed by the Chinese government. However, Josephine should not have advised David to turn down the investment opportunity. She should have let David make the decision himself. She only had to make sure David understood the risks involved.

A lawyer must act in the best interest of his client. However, a lawyer must not assume that he knows what is in the best interest of the client. Arguably, the spectacular rise in the share price of Sina after the IPO in 2000 proves that it was indeed in David’s best interest to invest in Sina.

To be fair to Josephine, whom I have never met, she might not have advised David to turn down the offer. She might have simply advised David of the risks of the deal, but David misunderstood her advice. Clients often misunderstand lawyers’ advice. The client’s flawed logic is that since my lawyer is advising me on the risks of the deal, my lawyer must be against the deal. The client does not understand that the lawyer has a duty to advise the client of the risks of a deal even if the lawyer believes the deal is in the best interest of the client. Therefore, a lawyer must be careful to ensure that his advice on the risks of a deal is not mistaken as advice not to proceed with the deal. This is not easy especially if the client is not very intelligent.

I was not privy to the discussions between David and Josephine. Josephine might have given proper advice to David and David understood her advice. David just blamed Josephine for his own mistake. The final moral of the story is that lawyers must be prepared to be blamed whenever something goes wrong. This is human nature.


Head of Legal Department, A Listed Company