Anthony J. Horan
Corporate Secretary
Office of the Secretary

April 9, 2003

Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0609
Attention: Mr. Jonathan Katz,

Re: File No. S7-45-02

Ladies and Gentlemen:

J.P. Morgan Chase & Co. ("JPMC") appreciates this opportunity to comment on the Commission's final rules implementing Section 307 of the Sarbanes Oxley Act, as published in Release Number 33-8185 (the "Final Rules"), and on the Commission's proposed "noisy withdrawal rules", as published in Release Number 33-8186, including comments on Rule 205.3 as originally proposed (the "Original Proposal") and the Commission's Alternative Proposal (the "Alternative Proposal"). JPMC also filed a comment letter on December 20, 2002 with respect to the Original Proposal, objecting generally to a noisy withdrawal requirement. We will not repeat any of those comments in this letter.

I. Comments on the Final Rule

The Commission has solicited additional comment on the Final Rules, particularly insofar as adoption of the "noisy withdrawal" provisions of the Alternative Proposal might require conforming changes. Our comments relate primarily to parts of the Final Rules that were changed as a result of comments on the Original Proposal.

1. The QLCC Record-keeping requirement.

The Explanation of the Final Rules states "In the final rules we have eliminated all requirements that reports and responses be documented and maintained for a reasonable period." It discusses the comments of numerous commenters who opined that the documentation requirement might "increase the issuer's vulnerability in litigation". Yet paragraph (2) of the definition of "Qualified legal compliance committee", Section 205.2(k), requires the QLCC to have adopted written procedures for the confidential receipt, retention, and consideration of any report of evidence of a material violation under Section 205.3. This record maintenance requirement may have been an oversight, and we suggest that the world "retain" be eliminated. The QLCC should be free to determine what records they will maintain.

Our principal concern is with the preservation of the attorney-client privilege with respect to reports of evidence of material violation (each hereafter in this letter referred to as an "REMV" or "Report"). As noted in some of the comment letters on the Original Proposal, courts have held that records required by law or regulation to be maintained are not privileged. See Comments of New York State Bar Association, Business Law Section.1 The members of a QLCC will naturally determine the extent to which it is useful for them to maintain records of the receipt of REMVs and of the QLCC's investigation of such reports. However, this determination should be the result of their own business judgment, and not a Commission requirement.

We also believe the existence of the record retention requirement may be a deterrent to some issuers in determining to adopt a QLCC. We therefore urge the Commission to clarify this requirement; just as there are no record keeping requirements for REMVs made to the CLO, there should be none for REMVs made to a QLCC.

2. The Prohibition against a QLCC Being Formed to Address a particular REMV

Rule 205.3(c) provides that an attorney may report evidence of a material violation to a QLCC and a CLO may refer a REMV to a QLCC, but only if the issuer has "previously" formed such a committee. The Explanation of the Final Rules indicates that the addition of this requirement resulted from a comment on the Original Proposal. See footnote 87 to the Final Release, and the Comments, dated December 18, 2002, of Professor Richard Painter. See also Comments, dated December 17, 2002, of Professors, Koniak, Cramton and Cohen ("the establishment of the QLCC should be an independent choice that is made in advance of a report of a material violation. Thus the rule should provide that the QLCC must be in place before a material violation has been reported rather than after the events in question have become known to the CEO and the board.")

Neither these comment letters nor the explanation in the Final Rule explains why a QLCC formed after the CLO receives the REMV would be any less independent or less likely to provide an appropriate response to the report than one formed before receipt of the REMV. The implication seems to be that the authority that designates board committees will be more likely to choose directors they believe will be likely to find that no violation occurred.

We believe this assumption is not well founded. First, under corporate law, Board committees are designated by the Board, and not the CEO. See, e.g. Delaware General Business Law Section 141(c)(1)("The board of directors may, by resolution passed by a majority of the whole board, designate 1 or more committees", DGBL Section 141(c)(2)("The board of directors may designate 1 or more committees"), New York Business Corporation Law Section 712 ("the board, by resolution adopted by a majority of the entire board, may designate from among its members an executive committee and other committees"). Second, if a standing committee of the Board, such as the issuer's Audit Committee, could be designated a QLCC before receipt of the REMV, it is difficult to see why the same standing committee of the Board would become a less reliable QLCC if designated after receipt of the REMV, as long as it meets the composition requirements set forth in Section 205.2(i)(1). Finally, corporations have for decades been using special board committees of independent directors formed to evaluate reports of wrongdoing or litigation brought derivatively by shareholders. We are not aware that any courts have discounted the work product of those special committees merely because they were formed after the Board was aware of the basic allegations to be investigated by the special committee.

We believe that some corporations will be hesitant to establish a QLCC before determining whether service on such a committee will be burdensome for the director/members. This will depend upon the number of REMVs received. The Rules clearly encourage over-reporting of evidence of wrongdoing by requiring the report to be made without any investigation by the reporting attorney to determine whether the possible "violation" actually, or even probably, occurred. The CLO may therefore wish to avoid burdening a board committee until the likely extent of its work is better known.2 We believe the "wait-and-see" approach to QLCCs is a reasonable one, and we do not believe the Commission should penalize corporations that follow this approach.

3. Effect of CLO Filing REMV with QLCC.

Paragraph 205.3(c)(2) provides that a CLO may refer a report of evidence of a material violation to a QLCC "in lieu of causing an inquiry to be conducted under paragraph (b)(2) of this section". We urge the Commission to consider removing the quoted language. In a normal operating environment, the CLO encourages lawyers to raise questions on matters they cover. Those questions may be resolved by discussions between the CLO and the attorney raising the issue, including an investigation of the facts and analysis of applicable law. If the initial questions and efforts at resolution were deemed to constitute a report and an investigation, the CLO would be precluded from referring the matter to a QLCC. This could lead either to premature reports to a QLCC as a matter of course, or removal of the CLO from the initial consideration of legal issues, neither of which seems desirable. Moreover, we see no reason to prevent a CLO from conducting an initial investigation of an REMV to determine whether it is more likely than not that a material violation has occurred, is ongoing or will occur, before referring the matter to the QLCC.

Similarly, we urge the Commission to give protection to an attorney who files an REMV with the CLO, if the CLO then files the REMV with a QLCC. Paragraph 205.3(c) provides that an attorney who reports evidence of a material violation to a previously formed QLCC is relieved of the obligation to assess whether the issuer has made an appropriate response.3 However, an attorney who files an REMV with the CLO must determine whether the issuer's response is appropriate. This apparently is the case even if the CLO, in accordance with Paragraph 205.3(c)(2), refers the REMV to a QLCC and notifies the reporting attorney that the report has been so referred. The Rule does not provide that, if the CLO turns an REMV over to the QLCC, this constitutes an "appropriate response" with respect to the original REMV, unless the issuer retains or directs an attorney to review the evidence, and that attorney advises that the issuer may assert a colorable defense. We believe that, if the CLO files an REMV with the QLCC, then both the CLO and the original reporting attorney should be relieved of any further reporting requirement.

With respect to each of the above points, what should be important in determining whether the reporting attorney is entitled to the relief is whether the Report eventually makes its way to the QLCC in a timely fashion, and not the route it takes to get there.

4. Reporting Authority of Subordinate Attorneys.

We have become aware that subordinate attorneys are confused as to their reporting options under Rule 205. One possible reading of the rule is that subordinate lawyers may make a Report either (i) directly to the CEO or a QLCC under Section 205.3(b), (c) and (d), or (ii) to a supervisory lawyer. Another possible reading is that a subordinate lawyer must make a Report to his or her Supervisory Attorney, and may take the steps permitted or required by Section 205.3(b), (c) and (d) only if the subordinate attorney reasonably believes that the supervisory attorney to whom he or she made the report has failed to comply with Section 205.3. The reason for the confusion seems to be two-fold. On the one hand, Section 205.3 speaks only of an "attorney", and does not distinguish between supervisory and subordinate attorneys. Section 205.5(c) states that a subordinate attorney "complies" with his or her obligation to report under Section 205.3 by reporting to a supervisor, but it does not by its terms require such a report. In addition, Section 205.5(d), which authorizes a subordinate to report in accordance with Section 205.3(b) and (c), does not authorize such reporting only if the subordinate reasonably believes the supervisor has failed to comply. On the other hand, the Original Proposal stated "Paragraph 205.5(c), which obligates subordinate attorneys to report evidence indicating a material violation to their supervisor, is related to paragraph 205.4(c) . . . . [P]aragraph 205.5(c) is premised upon the concept that supervisory attorneys are in a better position than subordinate attorneys to report instances of possible material violations to appropriate individuals in the issuer." (emphasis added). This language, however, was not repeated in the explanation of the Final Rule.

We believe the second of the two interpretations (i.e. the subordinate attorney should make a Report to a supervising attorney, and not directly to the CEO or QLCC) makes more sense and that the Commission should clarify that this is the case. This could be done by amending Section 205(d) to provide that a subordinate attorney should make an REMV to his or her supervisor unless the subordinate attorney reasonably believes a report to the supervisor would be futile or that the supervisor has failed to comply with the requirements of the Rule.

II. Comments on the Original Proposal on Noisy Withdrawal/Disaffirmance

Our December 20, 2002 comment letter contained our objections in principle to the Original Proposal. We continue to believe that the Noisy Withdrawal/Disaffirmance Proposals are not in the best interest of shareholders, because of the risk they will result in less communication between issuers and their lawyers with respect to unsettled matters of law. If the Commission determines to adopt that proposal, we believe it should make some technical amendments in the requirements for in-house counsel.

In the Original Proposal, if the issuer does not respond appropriately to a Report, an in-house lawyer must (1) within one business day, notify the Commission in writing that he or she intends to disaffirm an opinion or document or the like that the attorney believes may be materially false or misleading, and (2) promptly disaffirm such document. See Section 205.3(d)((1)(ii) and (d)(2)(ii). We have two comments. First, it is not clear when the one business day time frame begins running. The time period may run from the date of the response or the date the lawyer concludes too much time has passed without a response. However, there is nothing in the rule to so indicate. Second, the reason for the 2-step notification process - first notify the Commission of the intention to disaffirm documents, then disaffirm documents -- is not clear, and we believe it makes little sense. Both requirements seem designed to be parallel to the requirements for outside counsel, who must (1) withdraw from representing the issuer, (2) within one business day of withdrawal, give written notice to the Commission of the withdrawal, and (3) promptly disaffirm relevant opinions, documents and the like. If the Commission decides to adopt this proposal, clarification would be in order.

III. Comments on the Alternative Proposal.

The Alternative Proposal requires an issuer, rather than the attorney who has made an REMV, to report to the Commission that it has received a written notice of withdrawal or failure to receive an appropriate response. On balance, we believe the Alternative Proposal is less desirable than the original noisy withdrawal proposal, because (1) the reporting requirement will have a negative effect on the attorney-client relationship, and (2) the fact that reporting out is directly to the public as well as to the Commission may result in substantial detriment to the issuer and security holders. Each of these problems is discussed more fully below. For all of the reasons set forth in our original comment letter and below, we urge the Commission not to adopt either the Original Proposal or the Alternative Proposal. Instead, we believe the Commission should obtain experience with the new rule and evaluate that experience before determining that further changes are required.

1. Effect on the Attorney-Client Relationship.

The fact that the final step in "reporting out" process was a report by the issuer and not its attorney does not change the fact that the critical triggering event was a determination by the attorney that the issuer's response to his or her REMV was inadequate. Consequently, we believe that even the Alternative Proposal will have a profound effect on the willingness of employees of the issuer to discuss any past or ongoing conduct whose legality may be questioned. Moreover, it is likely that the Alternative Proposal will have a significant effect on an issuer's willingness to consult with counsel on proposed future conduct. This will be particularly true if counsel is known for conservative interpretations of law. Ultimately, that negative effect on the attorney-client relationship will be detrimental to compliance with law by the issuer.

2. Reporting Directly to Security Holders.

If the issuer receives notice from outside counsel that it is withdrawing from the representation, or from inside counsel that counsel does not believe it has responded appropriately to a Report, then the issuer must immediately file a public disclosure document with the Commission, even if it disagrees with the reporting lawyer. This public disclosure is likely to have serious negative consequences for the issuer, and, consequently, for security-holders of the issuer. The Commission recognizes this problem in the proposing release, by asking whether any circumstances exist in which an issuer should not be required to disclose an attorney's written notice under the rule, e.g. where a committee of independent directors determines, based on the advice of counsel, that the attorney acted unreasonably in providing the notice of withdrawal or that the issuer has later implemented an appropriate response, and asking whether the issuer's report should be public or only confidential correspondence with the SEC.

If the Alternative Proposal is adopted, we believe the effects of a publication of a withdrawal decision by a single lawyer may be so detrimental to the issuer that the Commission should allow the issuer's Board or a committee to which a report of a material violation could be made to determine that there was no material violation, the violation has been remedied, or that there are colorable defenses. We do not believe it is appropriate for the test to be whether the resigning lawyer acted unreasonably, given that the range of reasonableness may encompass many different responses to the evidence of material violation.

IV. Comments Applicable to both Proposals: The Extent of Withdrawal.

Both withdrawal provisions require that if an outside attorney who has reported evidence of a material violation does not receive an appropriate response in a reasonable time, the attorney must withdraw "from representing the issuer" if the attorney reasonably concludes that there is substantial evidence of a material violation that is ongoing or is about to occur and is likely to cause substantial injury to the financial interest or property of the issuer or investors. This requirement contrasts with Section 205.3(d)(1)(B), which requires an attorney employed by the issuer to cease participation or assistance in any matter concerning the violation, but not all matters on which the attorney may be working. In the release accompanying the Original Proposal4 the Commission explained the difference between the rules governing in-house and outside counsel by stating that requiring an in-house attorney to resign "appears to be unreasonably harsh". Thus the harshness of the remedy is measured by the effect on the lawyer, not the issuer and the holders of its securities.

We believe that the Commission should consider the potential impact a total withdrawal could have on portions of the issuer's business that have nothing to do with the suspected material violation. We do not believe that it would be in the best interests of shareholders for an attorney to withdraw from representing the issuer in matters that are not affected by the suspected material violation, especially where the trigger for withdrawal falls short of knowledge that a material violation has in fact occurred, is ongoing or is will occur in the future. While the Alternative Proposal contains an exception where the attorney would be prohibited from withdrawing by order or rule of any court, administrative body or other authority, the exception is likely to apply solely with respect to litigation matters, and withdrawal from a corporate matter may be just as detrimental to the issuer.

* * * *

We would like to express our appreciation to the Commission to its responsiveness to the many comments on these rules, and our hope that the Commission will continue its efforts to strike a balance between the goal of investor protection and the traditional role of lawyers as confidential advisors to their clients.

Very truly yours,

Anthony Horan

1 "Courts have held that records that are maintained by an individual or entity as a result of a statutory or regulatory requirement are subject to disclosure even as against Fifth Amendment self-incrimination claims. See Marchetti v. United States, 390 U.S. 39, 55-56 (12968); Grosso v. United States, 390 U.S. 62, 67-68 (1968); In re Grand Jury Subpoena Duces Tecum Served Upon Underhill, 781 F.2d 64, 67-69 (6th Cir. 1986); People v. Doe, 59 N.Y.2d 655, 656-57 (1983). Regardless of the Commission's intent, there can be no guarantee that the `required records' doctrine would not be applied to bar claims of attorney-client privilege with respect to documents prepared and retained by a lawyer confronted with evidence of materials violations of law by a client." The same would be true of communications from a lawyer to a QLCC retained by the QLCC in accordance with Rule 205.
2 Rule 205 authorizes a QLCC to ask the CLO to conduct an investigation of a report of evidence of a material violation, but boards worried about being second-guessed in the climate of the past year are as likely to turn to outside counsel, with concomitantly greater expense.
3 Under Paragraph 205.5(c), "an attorney who reports evidence of a material violation" to a supervising attorney is also relieved of the obligation to determine the appropriateness of the response.
4 See "In House Attorneys" in Release No. 33-8150.