November 25, 2002
By e-mail and via Fedex
Securities & Exchange Commission
Re: File No. S7-45-02
Mr. Chairman and Honorable Commissioners:
In your effort to implement Senator Edwards' goal that public company lawyers "work for the corporation, and...[thereby] work for the shareholders, the investors..." -- a goal that all the signatories to this letter fully share --you have proposed rules which, going beyond anything explicitly or implicitly required by the Edwards amendment to the Sarbanes-Oxley Act, demean and directly undermine those lawyers' prime professional "responsibility" (also described by Senator Edwards) "to represent that corporation, their client, zealously, the same way [Senator Edwards] had the responsibility to represent kids and families."
Your assessment of lawyers and of the relationship lawyers have to their clients, as articulated in Commissioners' comments at your public meeting:
bespeaks a view at odds with the principles underlying Senator Edwards' Senate floor statement. Equally important, your assessment presumes a body of empirical evidence concerning public company lawyers' misconduct, evidence which simply does not exist. And, most important of all, your assessment rejects the Bill-of-Rights-enshrined value of a Bar independent of government agencies, motivated by standards of professional ethics, and unburdened by concern over self-protection when engaged in the vindication of clients' rights. Think John Adams and his defense of the redcoats after the Boston Massacre.
We do not question the Congressional determination, reflective of the prevailing trend in ethics rules of the various Bar associations and state courts, that mandates lawyers' up-the-ladder reporting of material violations in the public company context, nor do we question those portions of your proposals necessary to implement that determination. We do, however, object strongly to your decisions
to subsume within "appearing and practicing before the Commission" the rendering of lawyer-to-client legal advice or opinion that a company "is not obligated to...file a registration statement...or other document with the Commission" -- for example, that an exemption from registration or filing has not been forfeited;
to set as a standard for up-the-ladder reporting whether the lawyer, "acting reasonably, [should] believe" that (as repeatedly described by your Senior Counselor at the recent PLI Annual Institute) the Commission's Enforcement Division would prevail in an administrative proceeding under Section 13(a) -- that is, in a proceeding requiring neither bad faith nor mal-intention but merely omission or misstatement of facts determined in the clear vision of hindsight to have been "material";
to apply the proposed rules "when an attorney appears and practices during Commission inquiries, investigations and administrative proceedings" despite reassurance to Congress, companies and practicing lawyers, repeatedly, at your public meeting, that the Commission intends no interference with or adverse impact on enforcement defense;
to presume an administrative agency has the non-specified authority to take from the courts the determination of what conduct by a lawyer will or will not waive her or his client's attorney-client privilege;
At issue in these six decisions is the willingness of client entities' managers to raise disclosure and compliance matters with the entities' lawyers -- the very process in which the vast bulk of deterrent legal advice is rendered, privately, professionally and without publicity. At issue in these six decisions, unlike the mandates of Senator Edwards' amendment, is the very role and responsibility in American society of what former Chairman Garrett, speaking for the Commission, once called "our bar".
We, each in an individual capacity as a lawyer now (or formerly) proudly practicing his or her profession "before the Commission", put to you as forcefully as we can that lawyers for public companies (as for others) must be free to give advice on matters of compliance and disclosure that disagrees, or may be found later to disagree, with the Commission's view of the law, must be free to provide advice in connection with novel issues on which the Commission's views are yet inchoate, must be free to represent public companies in a variety of adversarial contexts against the Commission -- and must be free to do so competently and zealously without concern for self-exposure and self-protection. The threat of prosecution for violation of those portions of your proposed rules that grow out of your six decisions specified above would necessarily impact, and impair, public company lawyers' willingness to render independent legal advice on those matters and to afford independent legal representation in those contexts, as well as public companies' capacity to obtain advice, and advocacy, from legal professionals of their choice.
"Your bar", in the independence and professionalism of its relationships with its client companies in all but the smallest minority of instances, buttresses your administration of the law. To preserve and encourage independence and professionalism in the lawyer-client relationships presently conducted by "your bar" should be your goal as much as it is each of ours. To diminish the professionalism of "your bar" and to detract from its independence, as reflected in your statements and current proposals, would disserve both the mandates you are each sworn to uphold and the fundamental values each of us, like you, believes important. Adapting somewhat from Federalist Paper No. 78: In a monarchy the Bar along with the Judiciary is an excellent barrier to the despotism of the prince; in a republic the two are a no less excellent barrier to the encroachments and oppressions of legislative and administrative agencies of government -- no matter how well-intentioned.
You need not take the six decisions cited above in order properly to implement the Edwards amendment. All the signatories to this letter -- each of whom is (or was) a practitioner of long standing and known to the Commission and its staff -- urges that you ought not take those decisions in implementing the Edwards amendment.
Very truly yours,
Edward H. Fleischman
cc: Alan L. Beller, Senior Counselor to the Commission