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Public Statement by SEC Official:
Letter Regarding Washington State Bar Association's Proposed Opinion on the Effect of the SEC's Attorney Conduct Rules


Giovanni P. Prezioso

General Counsel, U.S. Securities and Exchange Commission

July 23, 2003     

J. Richard Manning
President, Washington State Bar Association
925 Logan Building
500 Union Street
Seattle, WA 98101-4073

David W. Savage
President-Elect, Washington State Bar Association
1230 SE Bishop Boulevard
Pullman, WA 99163-0604

Re:  Washington State Bar Association's Proposed Interim Formal Opinion Regarding the Effect of the SEC's Sarbanes-Oxley Regulations on Washington Attorneys' Obligations Under the Rules of Professional Conduct.

Dear President Manning and President-Elect Savage:

The Securities and Exchange Commission ("Commission") has authorized me to submit, on its behalf, these comments on the above-referenced Proposed Interim Formal Opinion, which I understand the Board of Governors will shortly take up at its annual meeting. As you know, earlier this year the Commission issued final rules governing the conduct of attorneys appearing and practicing before it. The Commission is particularly interested in the Proposed Interim Formal Opinion because it interprets the Washington Rules of Professional Conduct in a manner that affects the intended operation of the Commission's rules. As the Board of Governors considers the Proposed Interim Formal Opinion, and as the WSBA RPC Committee contemplates revisions to Washington RPC 1.6, perhaps these comments will aid your deliberations by providing the Commission's perspective on the relevant sections of its new attorney-conduct rules.

Let me note at the outset that actual conflicts between the Washington Rules of Professional Conduct and the Commission's new attorney-conduct rules are likely to be rare, as the Commission's rules do not address the overwhelming majority of attorney conduct, which remains fully covered by applicable state bar rules. Instead, the Commission's rules apply to attorneys only in the limited scope of their "appearing and practicing" before the Commission. See 17 CFR 205.2(a) (defining "appearing and practicing before the Commission").

Despite the narrow scope of the Commission's rules, the Proposed Interim Formal Opinion does identify potential areas of conflict. First, the Proposed Interim Formal Opinion opines that WSBA members appearing and practicing before the Commission are prohibited - under threat of liability and bar disciplinary action - from disclosing to the Commission certain information that the Commission's rules permit them to disclose. Second, the Proposed Interim Formal Opinion opines that a Washington attorney cannot claim to be complying in "good faith" with the Commission's rules under Section 205.6(c) of the rules, if the attorney acts contrary to the Formal Opinion.

In opining that the Washington RPC 1.6 bars attorney disclosures permitted by Section 205.3(d)(2) of the Commission's rules, however, the Proposed Interim Formal Opinion is inconsistent with prevailing Supreme Court precedent. The Court has consistently upheld the authority of federal agencies to implement rules of conduct that diverge from and supersede state laws that address the same conduct. See, e.g., Sperry v. State of Florida, 373 U.S. 379 (1963) (Florida could not enjoin non-lawyer registered to practice before the Patent and Trademark Office from prosecuting patent applications in Florida, even though non-lawyer's actions constituted unauthorized practice of law under Florida bar rules). In particular, where, as here, a conflict arises because a state rule prohibits an attorney from exercising the discretion provided by a federal regulation, the federal regulation will take priority. See Fidelity Fed Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 155 (1982) (holding that a conflict between an agency's regulations and state law "does not evaporate because the [agency's] regulation simply permits, but does not compel," what state law prohibits; state law is preempted because its prohibition removes the "flexibility" provided by the agency's regulation). Thus, Section 205.3(d)(2) of the Commission's rules will take precedence over any conflicting provision of RPC 1.6.

Federal law will also determine whether, under Section 205.6(c) of the Commission's rules, an attorney has complied in "good faith" with the Commission's rules. Section 205.6(c) shields an attorney from discipline and liability under inconsistent state-law conduct rules if the attorney complies in "good faith" with the Commission's conduct rules. Because the issue whether an attorney has acted in "good faith" under Section 205.6(c) requires an interpretation of a Commission rule, states must defer to the Commission's construction. See Barnard v. Walton, 535 U.S. 212, 122 S. Ct. 1265, 1269 (2002) (agency's interpretation of regulation must be sustained if based on a permissible construction). The purposes of the Commission's "good faith" provision would be frustrated by a state-based definition of "good faith" that is inconsistent with the Commission's interpretation. Thus, a conflicting state definition of "good faith" would be preempted. See United States v. Locke, 529 U.S. 108, 110 (2000) ("a federal agency acting within the scope of its delegated authority may pre-empt state regulation"); City of New York v. FCC, 486 U.S. 57, 64 (1989) (federal agency regulations preempt any state law that frustrates the purposes of those regulations).

The Commission's rules would also be frustrated if, as contemplated by the Proposed Interim Formal Opinion, the WSBA were to initiate a disciplinary proceeding against an attorney who, in complying in "good faith" with the Commission's rules, did not comply with a conflicting RPC. Even if the WSBA proceeding exonerated the attorney, the proceeding itself would thwart the purposes of the Commission's rules by subjecting attorneys to disciplinary proceedings for attempting in good faith to comply with a Commission rule that conflicts with an RPC.

Please do not hesitate to contact me, or Richard Humes or Tom Karr of our office, if you should have any questions regarding this letter.


Sincerely yours,


Giovanni P. Prezioso
General Counsel



Modified: 07/25/2003