NEW YORK COUNCIL OF DEFENSE LAWYERS
c/o Heller Ehrman White & McAuliffe LLP
New York, New York 10036
Telephone: (212) 847-8795
Fax: (212) 763-7600
Victor J. Rocco
Edward M. Shaw
Majorie J. Peerce
BOARD OF DIRECTORS
David E. Brodsky
Nicholas M. De Feis
Sharon D. Feldman
Robert J. Jossen
Aaron R. Marcu
Diana D. Parker
Catherine L. Redlich
Gerald L. Shargel
December 18, 2002
John R. Wing
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
E-mail address: email@example.com
Attention: Jonathan G. Katz, Secretary
Re: File No. S7-45-02
Implementation of Standards of Professional Conduct for Attorneys
Release No. 33-8150
Dear Mr. Katz:
On behalf of the New York Council of Defense Lawyers ("NYCDL") we write to express our dismay over certain provisions of the proposed rules (the "Proposed Rules") to implement Section 307 of the Sarbanes-Oxley Act of 2002 (the "Act").
STATEMENT OF INTEREST
The New York Council of Defense Lawyers ("NYCDL"), established in 1986, is a not-for-profit professional association whose select membership consists of approximately 200 lawyers, many of whom are former federal prosecutors, who devote a substantial part of their practices to the defense of clients who are investigated or prosecuted for alleged criminal offenses including securities laws violations and representing clients before the SEC. Many of our members have had substantial experience in prosecuting securities fraud matters for various United States Attorney offices, the SEC, and defending clients in such matters. The Council believes that effective corporate governance and the elimination of fraud is not inconsistent with maintaining inviolate the attorney client privilege, client confidences, and the protections of the attorney work- product doctrine.
The NYCDL's principal mission is to engage the Bench and Bar, including government attorneys, in a continuing professional dialogue - through symposia, retreats, lectures, testimony, amicus submissions, and special programs - concerning the legal, ethical and practical issues confronting attorneys and judges in the criminal justice system, particularly in the federal courts. Because of the wide experience and expertise of its members, the NYCDL has been invited to appear as amicus curiae by federal and state appellate courts. Representatives of the NYCDL have also testified before Congress and before the United States Sentencing Commission.
The membership of the NYCDL has a deep professional commitment to the preservation of the attorney client relationship and its fundamental component--client confidences. Our purpose in submitting this letter is to assist the Commission in its determination of the meaning, purpose, legislative history, necessity for, and constitutional questions raised by the scope of certain provisions of the Proposed Rules. The Commission's Proposed Rules go well beyond the statute, undermine the attorney client privilege for securities attorneys, potentially conflict with state ethics and professional responsibility rules, and pit the attorney against the client. Although the Commission's Proposed Rules will not cover all attorneys, it will create broad new federal standards governing both in-house and outside counsel who are involved with public companies. These sweeping new federal standards will affect adversely the fundamental relationship between not only securities attorneys and their clients but also all attorneys and their clients.
Like many other bar associations, professional associations, and law firms we urge the Commission not to rush to judgment with regulations that radically go beyond the requirements of Section 307 of the Act. See, e.g., letter of Edward H. Fleischman dated November 25, 2002.1 There must be more time for comment, reflection and debate to fully consider the damage to the attorney-client relationship and applicable privileges (attorney-client and work product) since this was never authorized by the Act, and indeed, if it were, might not pass constitutional muster. The Commission must, of course, do what it is required by the statute. Effective enforcement of our securities laws, however, does not require attorneys to become policemen, informants, or to be anxious about their own self-protection. Along with numerous other organizations, law firms, and commentators, we urge that the Commission exercise caution and restraint, and if it believes that it must go beyond the Act, that it do so only after due deliberation.
Under Section 307 of the Act a lawyer who appears and practices before the Commission is required to report evidence of a material violation of securities law or breach of fiduciary duty by the company to the chief legal counsel or to the CEO. If they do not respond appropriately, the attorney continues to report "up the ladder" from top management to the Board if need be.2 If the client fails to rectify material violations of law, the Commission proposes to require a lawyer to effect a "noisy withdrawal." See Proposed Rules § 205.3(d)(1). There can be no doubt that this triggers a wholesale disclosure of otherwise privileged information and will have a chilling effect on attorney client consultations. "... The observance of the ethical obligation of a lawyer to hold inviolate the confidences and secrets of a client not only facilitates the full development of facts essential to proper representation of the client but also encourages non-lawyers to seek early legal assistance." New York Code of Professional Responsibility, Ethical Consideration, 4-1.
The noisy withdrawal regulations have a pernicious effect on advocacy:
- They put a premium on the attorney's self-protection, not the client's interests.
- Clients will view their attorneys as adversaries rather than trusted advisers.
- If the Commission rather than state disciplinary committees regulates "ethical" conduct, it will have a chilling effect on robust and effective advocacy before the Commission.
- The proposed rules create a conflict of interest between the client and the securities lawyer, forcing the client to use other counsel to defend itself.
- Lawyers should not forced to depend on the agency for its good will or discretion. Lawyers should not have to look to protect themselves in dealing with the agency, These concerns foster supplication and submission--not effective representation before a regulatory agency.
- The requirement that lawyers maintain contemporaneous records relating to possible material violations, Proposed Rule § 205.3(b)(2), poses a significant risk to the attorney-client privilege and ethical duties of confidentiality.
- The definition of "appearing and practicing before the Commission" in §205.2(a) is broader than the definition in existing Rule 102(f) of the Commission's Rules of Practice and encompasses persons who are not within the jurisdiction of the Commission.3
These are only some of our concerns with the Proposed Rules. The short time, only 30 days, for comment, unfortunately, does not permit the opportunity for many more to respond to the proposals. The NYCDL supports many of the features of Section 307 of the Act. Section 307 is largely consistent with ethical constraints on lawyers that are extant, for example, in the New York Code of Professional Responsibility and in the American Bar Association's Model Rules of Professional Conduct. The Commission's Proposed Rules, however, go beyond those well-considered standards, and not only exceed the prescriptions of the Act but, in some respects, are actually contrary to its intent and language.
Very truly yours,
Elliot G. Sagor
Chair, Ethics Committee, NYCDL
|2|| Section 307 is similar to existing requirements under New York law, viz., DR 5-109 and other disciplinary rules of the Code such as DR 4-101(C)(5) thereunder (permitting lawyers to reveal confidences or secrets to the extent implicit in withdrawing ). Section 307 is also consistent with Rule 1.13 of the Model Rules of Professional Conduct.
|3|| "[T]he Proposal [even] reaches those attorneys who advise that no filings are required, who do not serve as counsel but act in a business capacity, and attorneys advising clients in connection with the Commission's own investigations, subpoenas, and administrative proceedings, including even those filing Wells Submissions, which are an advocate's partisan plea on behalf of a client, not a submission of public disclosure material. This latter category places the Commission in the position of being a party to a litigated proceeding while simultaneously having the capacity to investigate counsel appearing in that proceeding concerning counsel's decision whether to disclose confidential matters that may bear on the matters in dispute. " Letter of the Federal Bar Council dated December 18, 2002, pp. 11-12.