April 7, 2003
Public Citizen Urges SEC to Take Strong Measures to
Implement Sarbanes-Oxley Act
WASHINGTON, D.C. – Public Citizen today submitted comments to the Securities and Exchange Commission (SEC) calling on the agency to implement a proposed rule requiring corporate lawyers who learn of wrongdoing by corporations to alert regulators and the public to any ongoing fraud.
The commission’s proposed rule, referred to as the “noisy withdrawal” proposal, would provide that attorneys who are unable to persuade a corporate client to take appropriate measures to remedy wrongdoing must notify the SEC that they are withdrawing from representing the corporation. They also must identify any filings or other documents that they believe are false or misleading.
The “noisy withdrawal” rule would implement provisions of last year’s Sarbanes-Oxley Act, which required the SEC to issue rules regulating the conduct of securities attorneys. In January, the commission issued a rule requiring attorneys who learn of corporate wrongdoing to report it within the corporation to responsible officers and boards of directors. But at the urging of groups that represent the interests of corporate lawyers and their clients, the commission deferred action on whether to require “noisy withdrawal” if the attorney’s internal report fails to bring about appropriate remedial action.
Instead of issuing the “noisy withdrawal” rule in January, the commission requested additional comments. Public Citizen’s comments, available here, answer a number of arguments made by opponents of the rule.
Specifically, Public Citizen noted that the commission’s proposed rule is within the authority granted by the Sarbanes-Oxley Act, and that it is fully appropriate for the SEC to displace state bar standards when regulating the conduct of attorneys who appear before it. In addition, Public Citizen refutes the claim that the rule will undermine attorney-client confidentiality. The American Bar Association’s own model rules for attorneys, and the standards of most states, already provide that “noisy withdrawal” does not violate client confidentiality.
“Many of the objections to the SEC’s proposal are based on the misleading suggestion that it will completely overturn settled rules governing the attorney-client relationship,” said Public Citizen attorney Scott Nelson. “In fact, the SEC’s proposal is consistent with the organized bar’s own standards of confidentiality. The SEC shouldn’t let the misguided assertions of corporate attorneys with a vested interest in avoiding tighter regulation stand in the way of needed reform.”