| Bar Bulletin |
February, 2003 |
|
|
SEC Announces Rules For Attorney Professional Conduct
By Kenneth B. Abel and Benjamin J. Rubin
On
January 23, 2003, the Securities and Exchange Commission (SEC) adopted
standards of professional conduct that will apply to any attorney
“appearing and practicing” before the SEC. The rules were adopted pursuant
to the Sarbanes-Oxley Act of 2002 - the legislation adopted by Congress
last summer in response to the Enron debacle.
Because of the SEC’s expansive view of attorneys who appear and practice
before it, the rules will affect a broad range of attorneys.
Specifically, the rules will apply not only to attorneys who represent
clients in SEC proceedings and who are responsible for preparing
registration statements and other SEC filings on behalf of clients but
also to attorneys who are engaged to provide advice with respect to
specific aspects of an SEC filing but who are not responsible for the
filing. For example, an environmental attorney engaged for the specific
purpose of assisting a client in preparing environmental disclosures in
the client’s SEC filings but who is not the client’s primary counsel would
be subject to the rules.
Attorneys governed by the rule are required to take part in an
“up-the-ladder” reporting scheme if they discover credible evidence, based
upon which it would be unreasonable for a prudent and competent attorney
not to conclude that it is reasonably likely that a material violation of
securities law has occurred, is ongoing or is about to occur.
If an
attorney obtains such information, he or she must report the evidence to
the client’s chief legal counsel or the CEO. An attorney can also fulfill
the reporting requirement by reporting the evidence to the client’s
qualified legal compliance committee if the client has such a committee as
defined by the rule.
An
attorney who receives a reasonable response from the chief legal counsel
or CEO officer does not have any further obligations under the rule. If
the attorney believes that the officer did not provide an appropriate
response, the attorney must then report the violation to the client’s
audit committee, another committee of independent directors or the full
board of directors.
The
SEC did not adopt its controversial “noisy withdrawal” requirement;
instead, it extended the comment period for that aspect of its proposed
rules. As proposed, if the attorney believed that the client, including
the audit committee or board of directors, had not responded appropriately
and that a violation of securities law was likely to injure the issuer or
shareholders, the attorney was required to take additional measures.
Specifically, the attorney was required to withdraw from representing the
issuer, give written notice to the SEC of the withdrawal indicating that
the withdrawal was based on professional considerations and disaffirm to
the SEC any information that the attorney reasonably believed was false or
misleading.
Similar to Maryland’s rules of professional conduct, the SEC’s rules
provide that a lawyer, without the consent of his or her client, may
reveal confidential client information in order to prevent the client from
committing a material violation likely to cause substantial financial
injury. The SEC’s rules will govern in the event the rules conflict with
state law, but states may impose more rigorous obligations on attorneys.
The
final rules reflect many of the comments provided the SEC by bar
organizations and other interested parties, including the American Bar
Association and the Securities Law Committee of the Business Law Section
of the Maryland State Bar Association. All of the comments can be found at
http://www.sec.gov/rules/proposed/s74502.shtml. The final rules
are posted at
http://www.sec.gov/rules/final.shtml. They become effective180
days after their publication in the Federal Register.
|
