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One year after the Sarbanes-Oxley Act became law — and with today’s implementation of controversial rules governing their own conduct, lawyers are still navigating its labyrinthine standards for their clients. The most substantial overhaul of securities law since the Securities Act of 1933, Sarbanes-Oxley is proving a mixed blessing for the corporate and securities bar. On one hand, the act has been a financial windfall for lawyers helping nervous in-house counsel comply with rules on corporate governance and anti-corruption. At the same time, the law has imposed new obligations on lawyers, creating unprecedented federal regulation of their professional behavior. “It’s changed the rules by which we practice law,” says Thomas Sjoblom, a Chadbourne & Parke partner who represents Richard Scrushy, the former HealthSouth CEO charged by the SEC in a $1.4 billion accounting fraud. Still, some remain skeptical that the provisions will in fact raise the bar for ethics reporting requirements, and say that they may prove extremely difficult to enforce. In many ways, Sarbanes-Oxley was a boon in a year in which transactions nearly flat-lined. For in-house counsel at many publicly traded companies, compliance with the rules mandated by the statute has ratcheted up legal costs and increased reliance on outside counsel. According to a Foley & Lardner survey of mostly mid-cap companies, the average costs directly associated with being public — like the price of preparing and filing the required financial statements to the SEC — has almost doubled, from $1.3 million to almost $2.5 million since Sarbanes-Oxley was passed last July. “I’ve spent countless hours personally on compliance with Sarbanes-Oxley,” says Russell Stevenson, the general counsel and senior vice president of the Ciena Corp. “And in every single hour I’ve thanked my lucky stars that I was at one time a securities lawyer.” Stevenson says he’s chosen to do most of the Linthicum, Md.-based software company’s Sarbanes-Oxley compliance in-house. Despite that, he has still sought help from firms like Hogan & Hartson and says his total outside counsel budget has risen between 5 percent and 10 percent as a result. Arnold & Porter securities partner Steven Sacks says he has seen a significant uptick in time spent counseling individual committees at corporations, particularly audit committees. The rush of compliance and related white collar defense work could be comparable to the savings and loan crisis in the 1980s, says Gibson, Dunn & Crutcher white collar litigator John Sturc. “There was increased activity in that area, but after a while it works through the system. “At some point, the activity level will decline,” says Sturc, adding that it may play out differently because with a budget that was recently nearly doubled, the SEC has more aggressive enforcement capabilities. Still, corporate lawyers say they’ve also spent countless unbilled hours trying to decipher the rules. Linda Griggs, a Morgan, Lewis & Bockius securities enforcement lawyer, says she visits the SEC Web site almost daily. “It’s hard, quite frankly, to keep up,” says Griggs. “Making sure that you understand what’s requested is tough.” Some of the most bewildering rules pertain to attorney conduct. For example, University of Virginia School of Law professor George Cohen points to a section of the final rule addressing what trigger a lawyer should use to determine whether to report a suspected violation up a company’s chain of command: 205.2(e): Evidence of a material violation means credible evidence, based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation has occurred, is ongoing, or is about to occur. “It could be that the practicing bar is scared enough to act as if this is going to be enforceable,” says Cohen, who was one of the authors of a Dec. 17 letter to the SEC advocating federal regulation of the securities bar. “But when push comes to shove, what’s going to happen when the SEC really tries to discipline someone under this? “The main concern that we have is, is the rule going to do what we intended it to do, which is encourage up-the-ladder reporting?” Cohen asks, referring to the regulations that require lawyers to report potential violations to an issuer’s senior officers and board of directors. When the rules were passed in January, predictions abounded that the up-the-ladder reporting would amount to a millstone for corporate lawyers. The SEC backed down on its original guideline for how the reporting should be done, altering its requirement from a written report to communication as informal as a phone conversation. Practicing lawyers maintain that the rules, mandated in � 307 of the Sarbanes-Oxley Act, are still cumbersome, but say the ultimate consequences are hard to predict. One policy that some feared would amount to a big chink in the armor of attorney-client privilege was scaled back by SEC regulators after the American Bar Association and the American Corporate Counsel Association lobbied against it. Known as “noisy withdrawal,” the clause would have required lawyers to report to the SEC the severing of their representation of a public company if a client didn’t respond to counsel’s warnings about misconduct. Nonetheless there is still concern among corporate lawyers that the clause isn’t dead. The SEC has benched the factious provision for now, but is still considering an alternative rule that would require the corporation to report a lawyer’s withdrawal to the commission. Sjoblom, a former assistant chief litigation counsel with the SEC’s Enforcement Division, says the noisy withdrawal requirement would undoubtedly increase the burden of responsibility for transactional lawyers. But for litigators representing a client in an SEC investigation, he says, such a requirement would be “unthinkable.” Or, as Gibson Dunn’s Sturc puts it, “If a client thinks that sooner or later you’re going to be a conduit to the outside world, they won’t talk to you.” For now, those worries remain speculative, since the rules that go into effect this week require lawyers to report up the corporate ladder only if they suspect malfeasance. Richard Painter, a University of Illinois law professor and an unflagging advocate of federal ethics regulation for the private bar, says the conduct rules mark a positive shift in codification of the principles governing the conduct of corporate attorneys. “Advisers will generally get more attention,” says Painter, an expert on securities law and legal ethics who helped to set the tenor of much of � 307. “The notion that a lawyer can advise a client on structuring a deal and not be responsible for the end result is wrong.” Most lawyers don’t quibble that the sections of the new rules relating to their conduct also codify standards of sound professional behavior. Dixie Johnson, co-head of Fried, Frank, Harris, Shriver & Jacobson’s securities regulation and enforcement practice group in the District, says that, despite ambiguities, the finalized rules implementing � 307 are at root common sense guidelines for good lawyers. Ralph Ferrara, a Debevoise & Plimpton attorney who represents Global Crossing in about 50 suits against the bankrupt telecommunications giant, says he hopes the SEC will see if the rule it has adopted works before making a decision about noisy withdrawal. “There was a lot of concern,” Ferrara says. “But now we are resigned that what’s out is doable and workable and right.”

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