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Call it music to the ears of corporate counsel. A capital markets reform committee issued a report recommending that the U.S. Department of Justice stop punishing companies under investigation for refusal to waive attorney-client privilege and cutting off legal fees for executives. The 135-page Committee on Capital Markets Regulation report, released on Nov. 30, would be a stake in the heart of the infamous Thompson Memorandum, written by former Deputy Attorney General Larry Thompson at the height of the corporate scandals involving Enron Corp., WorldCom Inc. and others. “That says to me the Department of Justice was under pressure from wide areas to change that memo,” said Fred Krebs, president of the Association of Corporate Counsel in Washington. “We’re aggressively supporting changes to the Thompson memo and policies the DOJ has to press companies to waive privilege and attorney fee advancement,” Krebs said. The Thompson Memorandum has been the object of widespread corporate criticism since it was written. The memo allows federal prosecutors to weigh as factors in bringing criminal charges whether a company waived attorney-client privilege to aid the government’s investigations, and whether a company paid an executive’s criminal defense bills. Named after U.S. Treasury Secretary Henry M. Paulson, who endorsed the reform committee, the Paulson report contains 32 proposed changes to relax oversight of business by regulators and prosecutors, which it claims puts U.S. markets at a disadvantage. “The threat to U.S. competitiveness appears to be real and growing,” said the report, written by Glenn Hubbard, co-chairman of the committee and dean of Columbia Business School, and John Thornton, chairman of the Brookings Institution. Among other things, the report urges that the Justice Department be given the power to block state criminal indictment of corporations “on the grounds of national interest” to prevent the demise of a company. A cold reception “Most Americans and Californians, rightfully so, would reject the notion that to increase this country’s competitiveness we have to make it easier on companies that lie, cheat and steal,” said Tom Dresslar, spokesman for California Attorney General Bill Lockyer. “I don’t think any attorney general is going to support any amendment that allows the federal government to tell them when they can bring criminal charges against corporations,” said Dresslar. And the report is not going to play well with plaintiffs’ lawyers. It calls for setting the bar even higher for private litigation against outside auditors or independent directors if they act in good faith. And it calls for a cap on auditor liability. In addition, it recommends clarification of the meaning of “material,” “scienter” and “reliance” in the context of private shareholder suits. The report has broad market reform proposals that would require the U.S. Securities and Exchange Commission to conduct a cost-benefit analysis of proposed rule changes and calls for limits on “pay-to-play” practices. That means it would extend to the securities litigation bar the same ban that now exists on investment banks being hired by municipal bodies if they make political contributions to officials that serve on those corporate or municipal panels. Under current rules, banks may not be hired for two years after making such political contributions. The proposed change would prevent a private plaintiffs’ lawyer from acting as lead shareholder counsel for municipal pension funds if the lawyer contributes to a politician who serves on the pension board.

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