From: Charles Murdock [CMURDOC@wpo.it.luc.edu] Sent: Friday, April 04, 2003 4:36 PM To: rule-comments@sec.gov Subject: File No. S7-45-02 Jonathon Katz, Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549-0609 rule-comments@sec.gov April 4, 2003 Re: File No. S7-45-02 "Noisy Withdrawal" Proposal Comment of Prof. Charles W. Murdock, Loyola University Chicago School of Law In general, I support the "noisy withdrawal" proposal in Rel. 33-8186, but would like to also comment on the ALAS suggestion that withdrawal not be mandated but rather the issuer should have the obligation to report that the attorney has notified the issuer that it has not made an appropriate response. To the extent that such approach would mute arguments that the SEC proposal (i) violates client confidences and (ii) puts an unnecessary economic burden of withdrawal on the attorney as the trigger to disclosure, it is an acceptable alternative. I would also agree with the ALAS concern that "likely" should mean "more probable than not;" however, it should not mean "having a high probability of occurring." In supporting the SEC proposal, I basically concur with the comments on your initial proposed rule submitted by Susan Koniak, et al and the other law professors joining with that comment. I think it is particularly important for the SEC to be aware of the history of "noisy withdrawal" and disclosure which that comment well documents, beginning at page 17 of 42 when I downloaded the comment. I think it is also important to appreciate the "straw men" raised by some of the opposing comments. The argument that the SEC proposal is outside the scope of S-O 307 is simply fallacious. The fact that it was not mandated by Section 307 does not mean that it is not authorized by such section. The other straw man is that the Commission proposal will submit securities attorneys to state law discipline when the state rules would not authorize noisy withdrawal. The Koniak Comment addresses the Supremacy Clause rebuttal to this argument. The AFL-CIO Comment raises the basic issue: how is the investing public to be protected when the attorney goes up the ladder but the directors fail to respond. At the risk of over-simplification, let me suggest the following model. If we mandate noisy withdrawal or its alternate, attorneys will never need to withdraw because the Board, concerned with adverse disclosure, will respond to the attorneys. And probably few issues will reach the Board because management is now aware of the up-the-ladder requirement. Thus, paradoxically, the requirement to act or report mitigates the likelihood that reporting will be necessary. I am sympathetic to, but not persuaded by, the concerns raised by opponents who argue that there will undoubtedly be difficult situations. I believe the "likely" standard adequately deals with this problem. Generally, what we are talking about is disclosure and management should defer to counsel on issues of materiality. Rather than generally taking "aggressive" positions in favor of non-disclosure, we should be taking conservative positions in favor of disclosure. The issues here basically come down to tone and culture. We need to change both in the boardrooms and the bar. The complicity of attorneys in wrongdoing from Carter and Johnson to Enron does not inspire confidence in the legal profession. We need to worry less about our economic well-being and more about our responsibilities to the issuer and the investing public and not to management. As a New Jersey court recently stated "An attorney is not merely a hired gun, but, a professional required to act with candor and honesty.... [T]he practice of law is not easy. Attorneys are frequently faced with difficult decisions. They must make the right decision." Davin, L.L.C. v. Daham, 746 A.2d 1034, 1045, 1046 (N.J. App. 2000).