Bring on \u27Da Noise: The Sec\u27s Proposals Concerning Professional Conduct for Attorneys Under Sarbanes-Oxley

In the wake of Enron\u27s and numerous other corporate scandals, Congress enacted the Sarbanes-Oxley Act, which empowered the Securities and Exchange Commission (the Commission) to establish rules of professional conduct for attorneys who appear before it. In November 2002, the Commission released a proposal where attorneys would be required to report perceived violations of corporate governance and Commission rules up-the-ladder. Additionally, if the company failed to make an appropriate response, the attorney would be required to make a noisy withdrawal. After an onslaught of comments against the proposal, the Commission issued an alternative proposal for comment. Under the alternative rule, the issuer, rather than the attorney, would be responsible for notifying the Commission of an attorney\u27s withdrawal. The alternative rule has sparked a fair amount of controversy. Many support the rule as consistent with the Commission\u27s duty under Section 307 of the Sarbanes-Oxley Act and necessary to effectuate up-the-ladder reporting. Others oppose the alternative rule because they believe the rule is in conflict with attorney-client privilege rules. The alternative rule will aid in the restoration of market integrity by granting corporate attorneys the ability to call public attention to violations of securities laws without destroying the attorney-client privilege. Because the reason for adopting rules concerning professional conduct of attorney is ultimately to protect the investing public, placing the burden of disclosure on the issuer, rather than the attorney, will result in sufficient disclosure to put the public on notice of serious problems. As a result, corporate executives and accountants will be less likely to enter into fraudulent transactions on behalf of the issuer