Federal Judge Rules on Attorney-Client Privilege and AI-Assisted Materials in Fraud Case

A Manhattan federal judge has ruled that documents prepared by a corporate executive using an artificial intelligence tool and later shared with counsel are not protected by attorney-client privilege or the work-product doctrine.

Pete Brush reports for Law 360 on the decision in a pretrial dispute in U.S. v. Heppner, a pending case in the United States District Court for the Southern District of New York. It addresses how courts may treat AI-assisted materials created outside counsel’s direct involvement. The ruling also indicated potential complications if the materials are used at trial.

Former Beneficient CEO Bradley Heppner faces charges including fraud and making false statements to auditors. Prosecutors allege that beginning around 2018, the fintech executive misappropriated funds from GWG Holdings, a public company he controlled that invested heavily in Beneficient, contributing to significant investor losses following GWG’s bankruptcy.

Heppner disputes the allegations and contends the indictment improperly assigns him responsibility for the company’s collapse. After learning he was a law enforcement target in 2025, Heppner used an unnamed AI service to prepare 31 documents related to his defense and provided them to attorneys at Quinn Emanuel Urquhart & Sullivan LLP.

Judge Jed S. Rakoff rejected the attorney-client privilege claim because the defendant created the materials and not counsel. The judge also declined to apply work-product protection, agreeing with prosecutors that the documents did not reflect defense legal strategy.

The court noted that the AI platform’s terms state that user inputs are not confidential, weakening any expectation of privacy. The judge acknowledged, however, that introducing the materials could create a witness-advocate issue if defense counsel became fact witnesses.

The ruling signals heightened privilege risk when clients use third-party AI tools outside supervised legal workflows. Transactional teams should incorporate AI-use diligence into internal controls, data governance, and cross-border data transfer assessments, particularly where platform terms disclaim confidentiality.

Counsel should also evaluate engagement protocols, regulatory exposure, and litigation readiness to mitigate waiver risk and avoid conflicts that could disrupt trial strategy or deal execution.