One of the hot topics at this weekend’s ABA Annual Meeting was the early June proposal by the FASB that would require companies to disclosure more about their litigation risks (here is Dave’s blog outlining the proposal). Here is the ABA’s comment letter that was just submitted; comments are due now. Here are the rest of the comment letters.
One member called the proposal a “Summertime Submarine” as many lawyers feel that the accountants are mounting a major attack on the attorney-client privilege and a disturbance on the ABA’s Accord regarding lawyers’ responses to auditor inquiries adopted back in 1975. Many lawyers also see that the proposal’s change in FAS 5’s disclosure requirements as inevitably increasing auditor demands for information and that auditors also will seek greater justification for what is disclosed. I don’t remember seeing such strong opinions expressed by law firms in their client memos on any other topic – see these memos posted in our “Contingencies” Practice Area.
California Court of Appeal: Coerced Disclosure Doesn’t Waive Privilege
From Keith Bishop: Here is a significant decision – UC Regents v. Superior Court – issued a few weeks ago by the California Court of Appeal. I think the following quotation from the case pretty much sums up the holding:
“Although no California cases have considered this issue directly, the cases which have discussed waiver of the privileges have found that the holder of a privilege need only take “reasonable steps” to protect privileged communications. No case has required that the holder of a privilege take extraordinary or heroic measures to preserve the confidentiality of such communications. Here, the threat of regulatory action and indictment posed the risk of significant costs and consequences to the corporations such that they could cooperate with the Department of Justice’s investigation without waiving the privilege.”
While this holding may seem protective of the privilege, I think that it may well have the effect of eroding it. Ultimately the attorney-client privilege may be weakened by allowing selective disclosure without waiver. Another thing to keep in mind is that this decision relates to the California Evidence Code. I always tell my clients that there is no one attorney-client privilege as it depends upon the court in which the question arises.
More Fraud Reported Through Tips Than Audits
This SmartPros article – that contains stats from a survey – about how more fraud is caught through tips than the auditing process caught my eye. It’s interesting that despite increased focus on anti-fraud controls in the wake of Sarbanes-Oxley – and mandated consideration of fraud in financial audits due to SAS 99 – the latest data shows that occupational frauds are much more likely to be detected by a tip than by audits, controls or any other means.
I’m a little surprised, although I guess I shouldn’t be – Section 16 is probably the best enforced provision of the securities laws and it’s mainly due to the enforcement mechanism is driven by greed…
– Broc Romanek