Subject: File No. S7-16-98
Author:  fsg@hutch.com at Internet
Date:    8/18/98 9:34 AM
     
     
     
I oppose proposed subpart (B) to Rule 102 (e)(1)(i), except in situations 
involving a potential violation of the Securities Act.  In almost all other 
situations, the federal securities laws require scienter in order for a 
violation to occur.  Courts universally have held that negligence does not 
establish scienter.  Accordingly, if the Commission were to adopt 
negligence as a standard under Rule 2(e), it would be adopting a
standard lower than what has been held to be necessary by law to
establish a violation of the federal securities laws.  Secondly, I believe 
that comity with the states would be harmed by the adoption of a 
negligence standard.  Every state has a mechanism by which
administrative action can be taken against an accountant who is found to 
have practiced below professional standards.  The determination of
what conduct is, in fact, negligent and the disciplining of licensed 
accountants whose conduct falls below that standard are 
quintessentially state, not federal, functions.  The Commission will be
transgressing this important component of federalism if it adopts subpart 
(B).  In summary, Rule 2(e) should only allow discipline upon evidence of 
scienter (as defined by the courts), unless a violation of the '33 Act is 
involved.  Otherwise, the Rule should state that if the Commission 
believes that an accountant has been negligent in connection with the 
preparation of a document filed with the Commission, the Commission will 
refer the matter to the licensing authority in the state where the 
accountant is licensed for investigation.