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Jerusalem, 18 December, 2002

Via Email:

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Re: File No. S7-45-02
Proposed Rule: Implementation of Standards of Professional
Conduct for Attorneys

Dear Mr. Katz:

I write pursuant to your request in File Number S7-45-02 for comments from "foreign attorneys" with respect to those provisions of Release Number 33-8150 that impact upon those of us who "appear before the Commission." The implementation of your proposals is likely to affect many Israeli attorneys, because as of December 31, 2001, there were ninety-one Israeli companies registered and reporting with the Commission, a number exceeded only by Canada and the United Kingdom1. Because I am sure you will have ample comments on other aspects of your proposal from the American securities bar, I limit my comments to those issues that specifically affect foreign attorneys.

An Israeli attorney who must decide whether to disclose a client confidence is guided by two sometimes-conflicting principles. On the one hand, Section 48 of the Evidence Ordinance, 5731-1971, exempts an attorney from testifying in court, so long as his testimony would relate to professional services being provided by the attorney to a client. Section 90 of the Bar Association Law, 5721-19612 goes further and forbids an attorney from disclosing such information to a third party, unless the client specifically waives the attorney-client privilege.

On the other hand, Section 262 of the Criminal Code, 5737-1977, makes it a crime for everyone - including attorneys - not to inform law enforcement agencies when one is aware that someone else intends to commit a crime, provided that crime is what is classified under Israeli law as a "pesha" (felony). A felony is a crime that is punishable by at least three years imprisonment in Israel.

We are not aware of any court in Israel that has considered whether one must disclose information to foreign authorities regarding another's intention to commit a felony punishable by more than three years imprisonment outside of Israel. However, given the state of relations between this country and its undemocratic neighbors, and what might constitute crimes in those countries, it is possible that Section 262 would not require Israelis to inform foreign authorities of another's intention to commit a felony outside of Israel. Moreover, the Israeli bar has sought to limit Section 262's applicability to attorneys to situations where human lives are at stake3. The bar, which is self-disciplining, may not be sympathetic to members who disclose client confidences to a non-Israeli authority.

Moreover, the release's "noisy withdrawal" provision could be problematic for Israeli attorneys. Under Rule 13(a) of the Bar Association Rules (Professional Ethics), 5746-1986, unless the attorney is otherwise required to disclose a client's intent to commit a felony, an attorney who wishes to withdraw from a matter must do so innocuously. An attorney who attributes his withdrawal from a matter to "professional considerations," a term that is meant to indicate that the client intends to do something wrong, would likely subject himself to bar association discipline - and worse - for breaching a client confidence.

Against this background, I wish to comment on one additional issue raised by former Commission staff member Charles E. H. Luedde in his letter to the Commission dated December 2, 2002.

Mr. Luedde notes that as drafted, proposed rule 205.2(a)(4) "would include, for example, an attorney who participated in the drafting of an agreement or document being filed as an exhibit even though that attorney might not otherwise have any background or exposure to the securities laws or any participation in or review of the resulting filing." Elsewhere in his letter, Mr. Luedde raises the lack of a defined role for attorneys in the drafting process. These are serious concerns for Israeli attorneys for three reasons.

First, many Israeli attorneys who furnish exhibits to filings are not fluent in English. Often, Hebrew exhibits are filed with an English summary or translation, and the attorney who is familiar with the original Hebrew is incapable of meaningfully reviewing the translation.

Second, the capital markets in Israel operate by different rules than the American capital markets. Unlike American attorneys who practice in other fields, who likely have some basic familiarity with United States Securities Laws, the average Israeli attorney is probably unfamiliar with the entire American system. For example, an Israeli attorney, who drafts or negotiates a lease on behalf of an issuer, may not know that lease may be filed with the Commission. She may also be unaware of the significance of that lease's being an exhibit to the issuer's registration statement, and of its subsequent incorporation by reference into other issuer filings. If that attorney later discovers that the lessor never had good title to the property, she may not think to disclose that fact to the Commission. Yet, that attorney arguably was "preparing… any writing which the attorney has reason to believe will be filed with or incorporated into any registration statement … or other document filed with or submitted to … the Commission, or its staff" unless "reason to believe" is limited to an actual knowledge standard.

Third, because of the expense to the issuer, Israeli attorneys' involvement in the drafting process with respect to Israeli companies is often limited to reviewing the drafts produced at the printer, and does not include attendance at each drafting session. When the issuer is an American company with an Israeli subsidiary, the Israeli attorney will often be even less involved. Today, in opinions given to underwriters, Israeli attorneys often limit their 10b-5 opinions to exclude matters discussed at drafting sessions that we did not attend. Unless the Commission intends to mandate, for example, the attendance of all attorneys whose names appear in the registration statement at all drafting sessions, which would be an onerous requirement for the issuer and for its attorneys, I don't see how an Israeli attorney could fairly be accountable for anything in the registration statement that is outside his actual knowledge, even if he were not risking his license to practice law here by reporting to the Commission.

In conclusion, I urge the Commission not to subject attorneys in Israel and other foreign countries to the new rules. The new rules are designed to work with the American legal system and not with the legal systems in effect in foreign countries. Subjecting foreign attorneys to the new rules would likely have a chilling effect on offerings in the United States securities markets by foreign companies and by United States companies with mostly foreign operations.

Alternatively, the Commission may wish to consider allowing foreign attorneys to fulfill their "whistle blowing" duties by reporting to the authorities in their home countries. In this country, at least, the Commission could then use its existing MOU with the Israel Securities Authority to obtain the required information. In any event, however, foreign attorneys should only be liable for matters of which they have actual knowledge, with respect to both the matter itself and the duty to disclose it to the Commission or to their host country's securities regulator.

I should conclude by giving you some sense of my own background. I am admitted to the bar in New York and in Israel and represent Israeli public companies whose securities are registered under US securities laws.


Very truly yours,
Carl M. Sherer, Adv.


2 Membership in the organized bar is required for attorneys practicing in Israel.
3 Gabriel Kling, "Ethics for Lawyers" (2001) at 415-16. Kling, a former Chief Judge of the Tel Aviv District Court, and now a law professor, is considered the country's chief expert on ethics for lawyers.