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Reactions to the Securities and Exchange Commission’s proposed regulation governing attorney conduct have revealed a fissure in the profession, between practitioners and professors. While securities law practitioners have been quite vocal in their objections to the regulation since its November unveiling, the national press has given little attention to the 51 ethics and securities law professors who support the regulation and indeed urge that it be made more stringent. In their Dec. 17 comment letter to the SEC, the professors — led by Susan P. Koniak of Boston University, Roger C. Cramton of Cornell and George M. Cohen of the University of Virginia, all co-authors of an ethics textbook — claim that what lies behind practitioners’ “heated reaction” and “exaggerated concerns” is a desire to avoid regulation altogether. In their view, the SEC must take a prominent role in policing the securities bar because state courts are ill-equipped to do so: “We are experts in this field and none of us knows of a single instance in which bar counsel has successfully prosecuted (or even brought charges against) a major law firm relating to securities law practice.” While many practitioners were initially critical of the regulation’s “up-the-ladder” reporting requirement (which says that lawyers, both in-house and retained, must go over the heads of corporate officials who ignore misconduct, all the way to the board of directors, if necessary), their comment letters to the SEC show that they seem to be resigned to that rule. For instance, a Dec. 18 letter signed by 77 law firms, including most of the biggest names in securities law, takes issue with some of the details of that rule, but not its substance. (The comment period for the regulation closed on Dec. 18; in the Sarbanes-Oxley Act, Congress mandated the SEC to have a regulation in place by Jan. 26.) ‘NOISY WITHDRAWAL’ Most practitioners who filed comment letters focus instead on the regulation’s “noisy withdrawal” rule, which says that if up-the-ladder reporting fails to halt misconduct and if the corporation has not set up a special compliance committee with responsibility for reporting misconduct to the SEC, then the company’s attorneys must notify the SEC that they are withdrawing from representation for professional reasons and must disavow any filings tainted by wrongdoing. One of the most common accusations in practitioners’ comment letters is that the SEC has no congressional authority to issue the noisy-withdrawal rule. University of Illinois Professor Richard W. Painter, who was instrumental in getting Congress to include an attorney-conduct provision in Sarbanes-Oxley and who is one of the 51, said in an interview that the charge “borders on the frivolous.” He notes that when he first approached Congress earlier this year, he proposed that the SEC be required to issue a single up-the-ladder rule. Without prompting from him, he said, Congress changed his proposal, commanding the SEC to issue multiple rules governing attorney conduct, “including” an up-the-ladder rule. Dechert partner Margaret A. Bancroft, who researched the legislative history for her firm’s comment letter, argues that floor statements by Senate sponsors show that the up-the-ladder rule was all that they expected of the SEC and that noisy withdrawal is contrary to their intent. She points to a July 10 statement by Senator Mike Enzi, R-Wyo., that “There is no obligation to report anything outside the … corporation.” In an interview, Bancroft conceded that courts rarely look to the legislative history if a statute itself is clear, but she insists that the provision is in fact ambiguous. Painter and the other professors hint that the congressional authorization argument is disingenuous, since the American Bar Association warned House and Senate conferees beforehand that the provision would give the SEC sweeping powers. In interviews, both Bancroft and ABA President Alfred P. Carlton Jr. claimed that the July 10 floor statements were meant to allay those concerns, but that argument doesn’t jibe with the chronology, since the ABA sent its warning letter to conferees on July 19. The two camps are not entirely monolithic or all-encompassing. For instance, George Washington University ethics professor Thomas D. Morgan did not join the 51 and opposes the noisy-withdrawal rule. Moreover, while some practitioners and organizations, including the American Corporate Counsel Association (ACCA) and the 77 law firms, argue that the noisy-withdrawal rule is inherently damaging to the attorney-client relationship, the ABA takes a somewhat different tack. For example, the ABA’s Dec. 18 comment letter concedes that “under virtually all state court rules of lawyer conduct … a lawyer must withdraw from representing a client if the lawyer’s services will be used to assist the client to commit a crime or fraud.” In addition, the letter notes, the ABA’s Model Rules make clear that in some situations it may be necessary for a lawyer to give notice of his withdrawal and disaffirm filings (i.e., make his withdrawal noisy). ABA’S CRITIQUE While the ABA does argue that some of the details of the noisy-withdrawal rule would disrupt the attorney-client relationship, the main thrust of its letter is that state courts are already doing a good job of enforcing similar rules, thus the SEC need not get involved. In an Aug. 12 speech to the ABA’s business law section, outgoing SEC Chairman Harvey L. Pitt said, “I’m not impressed, or pleased, by the generally low level of effective responses we receive from state bar committees when we refer possible disciplinary proceedings to them.” Carlton said that he exchanged correspondence with Pitt over that remark and will follow up to get information about specific cases. In the meantime, he stands by the ABA’s claim. The 51 professors argue that the problem of attorney-client discord is greatly exaggerated, particularly since companies can sidestep the issue entirely by creating the special compliance committees. They believe that going up the ladder in an intransigent company would be of little effect unless an attorney can wave the stick of noisy withdrawal. Many of the practitioner comment letters, including that of the 77 law firms, make no mention of the compliance committees. The comment letters may not represent the views of all practitioners. For one thing, several ABA committees that include practitioners have recommended over the years that the Model Rules be strengthened in ways similar to the regulation (though they did not contemplate SEC enforcement). In addition, an ACCA poll of 1,216 of its members found that “More than 7 in 10 in house counsel � believe that clearly defining by law instances of mandatory reporting, regardless of attorney-client privilege, would help ensure the well-being of their company,” according to an Oct. 21 ACCA press release. ACCA President Frederick J. Krebs said that ACCA took a contrary position in its comment letter because discussions with in-house counsel led him to conclude that poll participants had not understood that the question referred to reporting outside of a company. Those discussions indicate strong opposition to noisy withdrawal among GCs, he said.

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