TheCorporateCounsel.net

November 6, 2002

Despite Chairman Pitt’s resignation last night, the Chair is staying on in transition mode – and presided over this morning’s open meeting. At the open meeting, the SEC proposed rules regarding attorney responsibility standards – and the SEC must adopt rules by January 26th pursuant to Section 307 of the Sarbanes-Oxley Act.

These proposed rules should prove to be quite controversial (as noted in our november ezine in the section regarding the ABA’s Professional Responsibility Task Force hearings). It was noted that the proposing release will be approximately 120 pages long – and that the Office of Economic Analysis didn’t have sufficient time to get a real grasp about the costs of the proposal (such as malpractice insurance rates). Commissioner Goldschmid noted that he generally had reservations about the proposals – but did not specify what are his reservations.

As proposed, Rule 205 would require “up-the-ladder” reporting – and many terms in the proposal are broadly defined. For example, the terms “appearing and practicing before the SEC” and “in the representation of the issuer” are broader than they appear on their face.

The scope of the rule also is quite broad as it would apply to all attorneys – defined as “any person qualified to practice law in any jurisdiction.” This means the rule would apply regardless if a person was formally in the legal department (e.g. someone who received a legal degree but serving as a business development officer would have to comply). The proposed rule would apply to both in-house attorneys and outside counsel. Finally, the rule would apply to non-US attorneys – including lawyers who are not licensed to practice in the US.

Among the other issues likely to be controversial include the “noisy withdrawal” process (whereby a “reporting attorney” reports “out” to the SEC in certain circumstances); the impact on the attorney-client privilege and attorney-client relationships in general; the concept of a “QLCC” (qualified legal compliance committee); and the fact that reporting attorneys would have to report violations that are “about to occur.” I’m sure there are more pricky issues – and they will be identified once the proposing release is available for review. The related press release is at http://www.sec.gov/news/press/2002-158.htm.