Asymmetrical Information

Sure, and if all criminal defense attorneys whose clients confessed to them were forced to resign, we'd know who to convict as well. Unfortunately, the erosion of the attorney-client privilege means that clients won't confess, and that lawyers won't be provided information that would implicate clients in a material breach. As a result, you might see more lawlessness, not less.

I'm a bit confused. I thought the goal of our justice system was to convict the guilty and not convict the innocent. The adversarial system puts the two lawyers on opposite sides, each pushing their case as well as they can, with the hope that between the two sides, the truth will come out.

If a lawyer knows that his client is guilty, the truth is out and continuing to push the opposite case no longer serves the justice system. I don't want guilty parties feeling free to confess to their lawyers.

The rule, as described, allowed for clients to confess and then work with the lawyer to put a stop to law-breaking. That seems like a good solution. Only a persistently criminal client has to worry. One who broke the law but is willing to clean up his act still gets to keep his lawyers and his privilege.

I also doubt that a lawyer who resigned would be allowed to breach attorney client privilege even after the fact.

Bolie IV

The only danger that I see in this is that every time a lawyer stops working for a corporation, there will be an assumption that the corporation is doing something wrong.

(the following comments are DRIPPING with sarcasm):
I think we can all agree that the legal system has some inherent flaws. Especially that pesky "innocent until proven guilty" one (Louisiana excepted). God forbit we give citizens the best defense they can get, or can afford, then they might actually get away with crimes! Better yet, why don't we reform the whole system so that we base all evidentiary decisions on supposition and conjecture. Between that and a guilty person having to lie to get an attorney, we can stick everyone...even you're old sainted aunt in jail for whatever we want.

Sure some innocent people might be jailed too...but there's a price to everything.

But isn't continuing to work with a company when you know they're in material breach of the law a violation of the legal canon? I'm not trying to fracture attorney-client privilege, but I don't think it should be a shield for attorneys who are complicit in fraud, either.

The SEC rule has its good points, including that it reminds lawyers who the client is (hint: it's not the executives they golf with).

As a lawyer for a Fortune 500 company - in-house, rather than outside counsel - I don't think this rule would apply to me. But it's a really bad idea. Commneter #1 had it right: It discourages full communication between client and attorney. Comment #2 misconstrues that point.

It is the job of counsel to inform the client what the law is; board members have their own areas of expertise, they hire lawyers because the law isn't among them. The vast majority of companies are perfectly law-abiding, they neither try or want to break the law. It is the role of counsel to help them navigate the shoals of the law to ensure that they can accomplish their goals without running afoul of the law (which is altogether too easy to do, even if one is acting innocently). To accomplish this, the attorney needs to have access to all relevant information - any rule that undercuts attorney-client privilege will therefore end up doing more harm than good IM(NS)HO.

It's been a while since I took Professional Responsibility, but you may continue to represent a company that is in material breach of the law. Lawyers represent guilty people and corporations all the time. A lawyer may not represent a company who continues to break the law. If your client persists in breaking the law, then you have to withdraw. Silently.

And attorney-client privilege can be ethically broken in some situations. It differs from state to state, but usually, it's if the client is about to seriously harm someone physically. Some states are trying to loosen that up to even include financial crimes.

Other lawyers out there -- please correct any of the above if it's wrong. I didn't have time to look stuff up.

The social progressive in me applauds this reform, just as it thinks that corporations in willful and continuous violation of environmental or workplace safety regulations should be ratted out to the EPA or OSHA. However, the lawyer in me recognizes that that isn't how the system, however flawed, can work.

The model codes of professional responsibility do allow and in fact advise silent (shh!) withdrawal if a client is in continous material breach of the law. However, mandatory reporting to the SEC--essentially the "adversary"--is somewhat Gestapo-esque. I believe that mandatory reporting only makes real sense in the client places others in imminent physical danger (which might apply to certain environmental or workplace safety violations, but probably not to financial crimes).

I agree that the mandatory reporting is unworkable. However, threatening silent withdrawal is a big stick to use with a recalcitrant client. The agency will notice, and will start looking harder.

I've thought about this long and hard, and I don't like the SEC's proposal. However, I have made what I think is a decent compromise suggestion on my blog (www.indefinitearticles.com) - allow lawyers to voluntarily register themselves as "snitches".

Dodd, as an non-lawyer, I don't understand your reasoning or that of other commentors that this would discourage people from confessing to law breaking.

If MD is correct, then the phrase "and the board won't stop" is pretty significant. Why would a board whose counsel discovered a material but unintentional breach stop communicating with them? I'm making the assumption that they would "stop" i.e. try to repair the situation that caused the breach. Even though they are guilty, this rule doesn't appear to apply.

I was always under the assumption (maybe false since it's derived from non-legal sources), that a client who expected to lawyer to mount a defense to could never 'confess' (in the strictess definition) to the crime. Not meaning that they might not eventually be found guilty, but that there had to be some reasonable doubt presented from the start that they were, in fact, guilty.

In the criminal context, where a defendant is entitled to counsel, a criminal can confess his guilt to his lawyer. The lawyer is still there to make sure the government proves its case beyond a reasonable doubt. What the lawyer cannot do is suborn perjury by putting his client on the stand and letting him lie. The lawyer also cannot affirmatively misrepresent the truth to the court. But again, lawyers represent guilty people all the time. They have to because someone has to.

I want a legal system that protects the innocent, not the guilty. Of course, when you don't know if someone is guilty or innocent, you have to assume they are innocent. However, I don't particularly care if it's difficult for guilty people to get representation. Lawyers should be able to represent guilty people in court. They should not be able to lie (as someone already mentioned, they can't) nor should they be able to help their client break the law in any way. If a company (or anyone else) who has a lawyer tells the lawyer that they are breaking the law and will continue to do so, the lawyer should not be compelled to or even allowed to protect them. If they stop breaking the law, fine, help them out, especially if they want to fix things.

This all assumes that the lawyers in question have proof that their client is guilty. If they don't have any, then they should keep doing their job. If they do, then they should quietly quit. Attorney-client privilege should remain intact, though.

Bolie IV

The rule is not about whether lawyers have to disclose past behavior to teh SEC; obviously not. But I think it's not unreasonable to put penalties in place for those who continue to represent companies they know are continuing to break the law.

Dodd - the rule applies to ALL attorneys, in-house or outside counsel, who do any SEC work for the company (i.e., render any advice about anything to do with the SEC). In-house attorneys are NOT required to quit the company if they believe that the appropriate officers or the Board hasn't addressed the violation of the securities laws, but rather must contact the SEC and disaffirm the documents containing the violations.

I am a securities lawyer for a large NY firm (not quite partner yet). Virtually every securities lawyer I know thinks this rule is stupid. A number of them said frankly that they will ignore it, as the SEC doesn't have the right to regulate the legal profession; they expect that it will be challenged in court immediately and that the SEC will lose. OTOH, I actually like it. I don't want to be working for a client who I believe is violating the securities laws, and this gives me an excuse to get out of that relationship. (Er, perhaps you can tell that I don't have any large public company clients yet :-))

Bolie makes a good point that clients often hide the truth from their lawyers because they know the rules and know that their lawyer might withdraw. Also, when it comes down to accounting fraud, sometimes it's really hard to tell where the line is between acceptable and unacceptable. It's just not as cut and dry and people like to think. There are unethical lawyers out there -- and ones who skate close to the edge. But we're not all like that.

I was in no way trying to imply that all lawyers are helping their clients cheat.

Most people are discussing this as if securities violations were clear-cut. If they were, securities lawyers woudn't earn so much money. The question, for example, of whether a particular piece of information is "material" can almost always change with hindsight. When a board asks its counsel "can we do This?", the answer is rarely definitive.
Although companies have had to deal with this uncertainty since securities laws were developed, forcing attorneys to be personally responsible for the uncertainty is different in kind, because it poisons the very attempt to analyze the question. Let's say the answer to "Can we do This?" is a very borderline "Yes." Corporate insiders should be able to reasonably rely upon this as justification for doing This (whatever This is). But the attorneys (1) have no one to point to the way the corporate insiders do and (2) have a lot less to gain from taking the risk. So attorneys now know that if they give a borderline "yes" they are taking a big risk on behalf of their clients. This will induce attorneys to be more conservative in giving advice.
"Aha," some people say. That's a good thing. But it isn't. (1) When the law is unclear, people are supposed to be allowed to be aggressive. Aggressive business practices are often nothing more than positive, productive activities. Creative can be good. If you want absolute compliance write a damn simple rule. (2) The corporate insiders will eventually figure out that their attorneys are being more conservative and spin and control the information they provide to those attorneys accordingly, which doesn't help anyone.

[I]The rule is not about whether lawyers have to disclose past behavior to teh SEC; obviously not.[/I]

Jane, note that the rule DOES address past violations of the securities laws. Just like for current violations, if an attorney becomes aware of evidence of a PAST material violation of the securities laws, s/he must report it "up the ladder". The difference for past violations is that if the Board doesn't respond appropriately to the lawyer's allegation and the the lawyer reasonably believes that the violation is likely to have resulted in substantial injury to investors, the lawyer MAY, BUT IS NOT REQUIRED TO, make a "noisy withdrawal".

> But I think it's not unreasonable to put penalties in place for those who continue to represent companies they know are continuing to break the law.

Since when are lawyers judges? (And, if the internal lawyer is a judge+prosecutor, who's the defense?)

They're unlikely to have knowledge of all relevant facts and defenses. Heck - they're not even especially likely to be correct about interpretation.

Moreover, prosecutors IGNORE crimes all the time. (So do police, for that matter.) Why should an employee or vendor have greater obligations?

Actually, this is not all that different from Professional Responsibility rules stipulating that a lawyer may make a "noisy withdrawal" from representing a client--i.e., a withdrawal where the lawyer doesn't state that the client is involved in wrongdoing, but basically hints at it.

See this newsletter, written by Professor George Cohen, who teaches Professional Responsibility at the University of Virginia School of Law, and whose statement responding to the proposed rule change by the SEC included the following passage:

"We're basically backing the direction the SEC is trying to go, especially in the 'noisy withdrawal' provision. That's key and we strongly support it," Cohen said. "'Noisy withdrawal' gives the lawyers the threat leverage that may on rare occasions be needed to induce compliance," Cohen said. "Moreover, the noisy withdrawal concept is nothing new. The ethics rules of almost every state already permit it, and an ABA ethics opinion says it may be required in some cases to avoid assisting in the fraud."

Additionally, according to Nix v. Whiteside, 475 U.S. 157 (1986), an attorney's duty is defined in the following pertinent manner:

Although counsel must take all reasonable lawful means to attain the objectives of the client, counsel is precluded from taking steps or in any way assisting the client in presenting false evidence or otherwise violating the law.

Id. at 166.

Hope this helps.

Attorney-client privilege does not cover future illegal acts. Those with knowledge of future illegal acts are obliged to notify the authorities, whether they're attorneys or not. So what's the problem?

Here's a link to a story on the subject.

http://www.nylawyer.com/news/03/01/010903b.html

A point everyone should remember: the professional responsibility codes that we're all familiar with have nothing to do with what the SEC is doing. The SEC is claiming the right to make up entirely new rules, inconsistent with the current codes.

I think the rules will either be disregarded or will cause clients to use a variety of law firms. If Enron were around, they wouldn't use Vinson for everything--Vinson would know too much and would have to withdraw. Instead, it'd use Vinson for financings, and someone else for securities disclosures, and someone else again for securities litigation. The securities litigators might know everything, but they'd never be expected to withdraw. Everyone else knows only their piece.

I believe no one is obligated to report future illegal activities to the authorities -- lawyer or not. Lawyers may (or even have to) report their clients if they are about to kill or harm someone.

And Jane, I didn't mean to imply that you thought all lawyers help their clients cheat. The problem is that some do. It makes it difficult for the authorities to trust the rest of us. The state bars should really crack down on lawyers who break the law in this way by publicly sanctioning and disbarring them. However, the fact remains that it is a treacherous balance between zealously advocating for your client and upholding your obligation to the justice system and the public to not break the law. Actually, it was Professor Cohen (mentioned above) who taught me that. He's a great professor, by the way.

What the hell are "future illegal activities"? Have you folks seen Minority Report a few too many times?

My take: any lawyer that advises his client that the actions he's planning are illegal and then continues to advise and accept money from that client when the client ignores them, deserves to have a world of shit come down on them. How and when said shit should descend on them is quite outside my ability to say, however.

This is a bit OT, but can give an explaination to the last post: Here in CA, about 25-30-something years ago, a psychiatrist was treating a college student who was obsessed with a woman, and during the course of treatment, talked about killing her, which did happen a little bit later. The family sued the doc, he invoked the patient-doctor privilege. The courts ruled against the doc, saying that saving human life and/or possible physical danger was a strong enough reason to qualify for an exception from the c-d privilege. So I'd not be surprised if this would also apply to the attorney-client privilege as well.

Now we know why people mistrust lawyers.

I can't even stand to hear another lawyer babble about client priviledge. Oh please! This is not the same as defending a guilty party, this is representing a party which is in the middle of commiting a crime and will continue it. You can not facilitate in the commission of a crime and you can not remain silent in the face of the commission of a future crime. We should already be working on sending the Enron and Global Crossing lawyers to jail.

This is just lawyers once again maintaining this masters of the universe mentality that people need them and care much for them. They are just doing a job like everyone else out there.

If you go to your shrink and tell him that you plan on killing your lawyer, although most people would be ok with it, he has an obligation to prevent the commission of a future crime. He can not remain silent if he thinks it is a viable threat.

By the way, I am a non-practicing attorney because I can no longer be surrounded by the garbage that makes up the corporate attorney world I was stuck in. No money is worth that.

The key is in Pejman's comment. That this rule is only defensible by the SEC where it requires a lawyer to withdraw when his work would continue or assist the fraud. Otherwise, the SEC is wrong and as others have said probably beyond its jurisdiction.

I am a criminal defense lawyer in Texas. When I discuss a case with a client, I want to know everything, all the facts. I only want facts though. If the client thinks he's guilty, I tell him that's a spiritual matter, and between him and his maker. Generally, the client is not trained to make a legal determination as to his guilt. Too many ways to be not gulity to let a non-lawyer with an interest in the case make the call.

Attorney-Client privilege is the sine qua non of the adversary system. It is the very first topic of discussion with every client. I would not trust an attorney whose mouth I couldn't stop myself. And I wouldn't want to have to tell every client that if he tells me enough to convince me he broke a law, I'd have to turn him in. Rather flip burgers.

I am worried that the SEC's newly announced rule will "trickle down" in the present political environment. This rule should not be viewed in a vacuum, but in the context of Ashcroft's DOJ and Bush's world view.

As always this case has two sides and as the most regulations this one will have positive and negative influence.

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