"The legal community is battling a plan that would require lawyers to alert regulators if a corporate client is about to inflict financial harm, such as inflating profit."

"Under current ethics rules, lawyers would not be obligated to blow the whistle on their business clients. But the Securities and Exchange Commission could change that, under a proposed rule that would require lawyers to tell the SEC about problems that companies refuse to fix."

What's wrong with this? Susan Hackett, general counsel for the Corporate Counsel Association, the trade association for full-time, in-house company attorneys, gets it right: Lawyers are not policemen (or women). "Clients have to feel free to bring dirty laundry or problems or questions to their lawyer," Hackett said. "When a client doesn't know if the lawyer might take something to a regulator, the client is not likely to tell the lawyer anything significant."

There is a sanctity accorded the attorney-client relationship. A lawyer can only represent a client effectively if the client discloses all pertinent facts. What client is going to do this once he knows the lawyer might have to divulge his confidences to the SEC? We think it runs afoul of our Code of Professional Responsibility and our Canons of Ethics. We also think it's bad policy. So do the American Bar Association and many other organizations.

If a company fails to take corrective action, then an attorney should stop representing the company, they say. But they argue that lawyers shouldn't be forced to take two additional steps that the SEC's proposal would require. Those steps would be for lawyers to notify the SEC that they no longer represent the company and to make clear which documents filed with the SEC -- such as an annual report -- they believe are "tainted" or no longer accurate. These two steps amount to what the business community calls a "noisy withdrawal."

Think of "noisy withdrawal" like a red flag. Critics of the proposed rule say "its practical effect would be to turn lawyers into police who, by raising an alert, would be betraying their clients. That's because alerting the SEC to a problem usually leads to an investigation by the agency..."

Critics of the proposed rule argue that "if a lawyer learns that a company's annual report contains misleading statements, the lawyer's obligation is to alert the company, not the SEC."

"Critics also object to a federal agency imposing national conduct codes on states, which traditionally have set professional standards for lawyers based on model codes attorneys write for themselves. Hackett describes it as the "nose under the camel's tent" that could lead to more agencies seeking to turn lawyers into spies."

Our view: The Government's plan to turn lawyers into snitches, having already implemented a system under the Federal Sentencing Guidelines in which they apply enormous pressure upon our clients to become snitches, will render our criminal justice system morally bankrupt.

[comments now closed]