COMMENTS OF THE CHICAGO BAR ASSOCIATION
April 7, 2003
Delivered By E-Mail
Mr. Jonathan G. Katz, Secretary
Dear Mr. Katz:
The Chicago Bar Association submits this brief, but strongly felt, letter of comment on the Commission's proposed alternative to mandatory noisy withdrawal by an attorney. The Commission's original proposal would require an attorney to notify the Commission upon withdrawal from representation of an issuer in the event the attorney's issuer client fails to make an "appropriate response" to the attorney's up-the-ladder reports of evidence of a material violation. The alternative proposal would require the issuer to provide public notice of the attorney's withdrawal, shifting the burden from the attorney to the client and insuring that the attorney's decision--even if no-one else agreed with the attorney--would be public.
The alternative proposal does not remedy the problems of the original proposal. In some respects, it exacerbates them.
In our December 18, 2002 comment letter, The Chicago Bar Association stated our grave concern that the noisy withdrawal requirement would undermine the confidential attorney-client relationship and thwart the most effective means of promoting lawful behavior. If the client must fear that its own counselor, to whom it would confide its most problematic concerns, may turn into its judge of no recourse, resulting in mandatory public disclosure, the client will hesitate to confide. Correspondingly, the attorney will hesitate to probe if she may become an auditor or police officer if she learns too much. Informed attorney advice is the most effective means of promoting adherence to the law. Discouraging candid disclosure and discussion makes effective advice impossible.
For those fundamental reasons, The Chicago Bar Association opposed and continues to oppose the noisy withdrawal requirement. The alternative proposal, requiring the issuer to notify the Commission-and the public-of the attorney's decision to withdraw, is at least as destructive of the attorney-client relationship. It will not protect the investing public because it will discourage attorney-client communication. It does nothing to solve the fundamental problem caused by mandatory reporting of an attorney's conclusion that she is not satisfied with her client's response to the attorney's concerns. Indeed, by requiring that the report be made public, it may worsen the problem.
The Commission should resist populist pressures to "do something, anything," and recognize that, long-term, the fully-informed advice of competent attorneys is the best and most effective way to secure compliance with the law. The original noisy withdrawal proposal and the alternative self-reporting proposal may generate congratulations from some who do not represent clients, but both threaten to cripple effective attorney-client communication and law enforcement in the long run.
Other aspects of the current proposals, including the apparent requirement that an attorney (and her law firm?) dissatisfied with the issuer's response withdraw from all representation of the issuer, are also inappropriate. However, we leave elaboration on those matters to others. Our primary and deeply felt concern is with the mandatory notice of withdrawal proposals.
cc: Hon. William Donaldson, Chairman