January 16, 2003
Via Electronic Filing
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W. Mailstop 6-9
Washington, DC 20549
|Re:||Implementation of Standards of Professional Conduct for Attorneys, Release Nos. 33-8150, 34-46868; File No. S7-45-02|
Dear Mr. Katz:
The Investment Counsel Association of America1 appreciates the opportunity to submit comments related to the Commission's proposed rules under Section 307 of the Sarbanes-Oxley Act of 2002 (Section 307) that would establish standards of professional conduct for attorneys who, as part of their representation of issuers, appear and practice before the Commission.2 We write in support of the arguments made by the Investment Company Institute (ICI) in its comment letter dated December 18, 2002 with respect to investment advisers to mutual funds.3 In particular, we have serious concerns regarding the Commission's proposed position that an attorney representing an investment adviser to a mutual fund "jointly represents" the investment company. In addition, we join other commenters in urging the Commission to defer adoption of provisions that go beyond the statutory mandate of Section 307 until the Commission has a more reasonable opportunity to conduct a considered review of the comments.
Section 307 directs the Commission to adopt a rule imposing a reporting requirement on attorneys who appear or practice before the Commission "in the representation of issuers." This includes any attorney who acts "on behalf of, at the behest of, or for the benefit of" any issuer. The Commission proposes to take the position that an attorney employed by an investment adviser who prepares or assists in preparing materials that will be filed with the Commission on behalf of an investment company is representing the investment company before the Commission. The Commission asserts that the attorney for the investment adviser has joint clients"- the so-called "Joint Representation Position."
We believe that the Commission's Joint Representation Position is misplaced and goes beyond the scope of regulation mandated by Section 307. An attorney employed or retained by an investment adviser to a fund should not be deemed to be jointly representing the fund.4 Investment companies and investment advisory firms are two separate entities, each entitled to their own counsel. Attorneys for investment advisers are employees of the advisory firm and have professional responsibility duties to their own employer. The relationship between a mutual fund and its investment adviser is contractual. As part of the contract, the investment adviser may perform services that include preparation of certain documents to be filed with the Commission. However, this contract is between the investment advisory firm and the investment company - not between the investment company and the adviser's attorneys.5 Indeed, in most instances, mutual funds have separate counsel. In addition, as part of a fund board's fiduciary duties to its shareholders, the board must be independent from the adviser and the independent directors of the board often retain their own independent counsel.
The Commission's proposed position would undermine the attorney-client privilege between an adviser and its attorneys. In addition, the position may result in increased legal expenses for funds, as advisory personnel may feel compelled to cease assisting in the preparation of fund filings.
Accordingly, we urge the Commission to eliminate its proposed position that attorneys employed by or retained by an investment adviser to a fund are deemed to be jointly representing the fund.6
We also support the ICI's position that attorneys that serve in a non-legal capacity at the fund adviser's firm should not be subject to the Proposal. These individuals are not members of the advisory firm's legal department and do not act in their capacities as lawyers. Therefore, they are not "practicing before the Commission" or "involved in the representation of an issuer." We agree that this would be "an unjustified expansion of the proposed rule's reporting obligations."7
The Proposal would require an attorney appearing or practicing before the Commission who does not receive an appropriate response regarding a material violation to effect a so-called "noisy withdrawal" and to notify the Commission of the withdrawal. Many commenters have already raised concerns with the "reporting out" and "noisy withdrawal" requirements under the proposed rules, especially in light of its effect on the attorney-client privilege and possible conflicts with state law. We share some of these concerns and believe that these provisions require additional consideration and refinement.
We understand that the Commission is under a very short timeframe and must adopt "minimum standards of professional conduct" for attorneys by January 26 of this year. Accordingly, we join other commenters in urging the Commission to limit its rulemaking at this time to solely the minimum required rules under Section 307 by adopting an effective "up the ladder" reporting requirement within the issuer organization. We recommend that the Commission defer adoption of the more complex and difficult provisions (some of which are outlined in this letter) until such time as the Commission has additional opportunity to review and seek comment on them.
We appreciate the opportunity to comment on the proposed rules and would be pleased to discuss any questions the Commission or its staff may have with respect to the adviser-fund relationships raised by the Proposal.
Karen L. Barr
|cc:||Harvey L. Pitt, Chairman|
Cynthia A. Glassman, Commissioner
Roel C. Campos, Commissioner
Harvey J. Goldschmid, Commissioner
Paul S. Atkins, Commissioner
|1||The ICAA is a not-for-profit association that exclusively represents the interests of SEC-registered investment advisers. Founded in 1937, the Association's membership today consists of approximately 300 investment advisory firms that collectively manage in excess of $3 trillion for a wide variety of institutional and individual clients. For additional information, please consult our web site at www.icaa.org.|
|2||Implementation of Standards of Professional Conduct for Attorneys, Release Nos. 33-8150; 34-46868; IC-25829; File No. S7-45-02 (November 21, 2002) ("Proposal").|
|3||Letter from Craig S. Tyle, Investment Company Institute, to Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission (December 18, 2002) ("ICI letter").|
|4||Similarly, we do not believe that sub-advisers to a fund should be treated as jointly representing the fund. Typically, a subadviser to a fund has an independent contractual relationship with the fund's adviser to manage all or a portion of the fund's assets. The subadviser is not retained by the fund to serve as its attorney.|
|5||An adviser's fiduciary duty to its client, the investment company, does not convert the adviser's attorneys into attorneys for the investment company.|
|6||In this regard, we also support the comment letter submitted by the Committee on Investment Management Regulation of the Association of the Bar of the City of New York (Dec. 16, 2002).|
|7||ICI letter at 5.|