Attorney Conduct Rules

Summary

Standards of professional conduct for attorneys appearing and practicing before the SEC
in the representation of an issuer

Adopted per Sarbanes-Oxley Act § 307 and § 602
Final release summary 2003
SEC's noisy withdrawal proposal was criticized

SEC reproposed this proposal for additional comment
Yet to be adopted

ABA made changes to its Model Rules of Professional Conduct (2003) in response to SEC rules

Developments

SEC Commissioner speech - Role of bond counsel 2005

Noisy Withdrawal

SEC proposal still under consideration

SEC reiterates that proposal is still under consideration

Final action is not yet scheduled
Could still occur in 2006
See SEC Semi-Annual Agenda (at page 20) April 2006

SEC general counsel speech 2004

Proposal Release 33-8186 2003

Comment letters

Would require an attorney to publicly disclose
withdrawal from representing an issuer

Following the attorney learning of a material violation
To address concerns over attorney-client privilege reproposal includes an alternative where issuer
-- rather than the attorney --
would be required to make the disclosure

SEC Releases

Proposal Release 33-8186 2003

Re: resubmission of noisy withdrawal proposal
Still pending
Comment letters

Final Release 33-8185 2003

17 CFR 205

Rule 1 Purpose and Scope

Rule 2 Definitions

Rule 3 Issuer as Client

Representing an issuer
Duty to report evidence of a material violation
Alternative reporting procedures
For attorneys retained or employed by an issuer that has established a qualified legal compliance committee
Issuer confidences

Rule 4 Responsibilities of Supervisory Attorneys

Rule 5 Responsibilities of a Subordinate Attorney

Rule 6 Sanctions and Discipline

Rule 7 No Private Right of Action

SEC Rules of Practice

SEC rules of practice (generally)

Rule 102
Appearance and practice before the Commission

Note: Rule 102(e) -- Suspension and disbarment
Has been used against attorneys primarily in cases involving willful participation in fraudulent securities offerings

SEC Enforcement Actions

2006

Tyco general counsel (Mark Belnick)

Received $14mm in loans that weren't disclosed
in Tyco's SEC filings
Acquitted in criminal proceeding
Barred from acting as an officer or director
of a public company for five years
Litigation release 5.01.06
Litigation release 9.12.02

Enron attorney (Dale Rasmussen)

Participated in transactions to circumvent GAAP
revenue recognition rules
Including by hiding side agreements from auditors
Barred from practice before SEC for three years
C&D order 4.17.06

Busybox.com general counsel (Jon Bloodworth)

With others, secretly purchased shares in an IPO with company funds
In order to complete a firm commitment underwriting
Barred from acting as an officer or director
of a public company
Barred from practice before SEC
C&D order 3.16.06

Symbol Technologies general counsel (Leonard Goldner)

Manipulated stock option exercise dates and
backdated transactional documents
Criminally convicted, including for income tax violations
Barred from practice before SEC
Litigation release 3.02.06
C&D order 2.27.06
Also see Equity Compensation Accounting

2005

Rite-Aid general counsel (Franklin Brown)

Participated in fraud that overstated company's
net income by $1.6 billion
Helped conceal related party transactions
with Rite-Aid executives
Criminally convicted; Sentenced to ten years
Barred from acting as an officer or director
of a public company
Litigation release 9.30.05

FFP Marketing general counsel (Craig Scott)

Submitted late filing notices without disclosing that delay was due to internal investigation of accounting issues
"Boilerplate" failed to disclose details that would lead to later financial restatements
General counsel was also the company's CFO
Barred from SEC practice,
subject to reinstatement after three years
C&D order 2.14.05

Gemstar general counsel (Jonathan Orlick)

Facilitated fraudulent revenue recognition
by providing false certifications to auditors
Barred from SEC practice
C&D Order 1.26.05

Google general counsel (David Drummond)

Failed to inform board of change in legal analysis
Switch from relying on Rule 701 exemption for option grants
Consented to C&D order
C&D Order 1.13.05

SEC press release
Fried Frank client mailing Feb 2005

2004

Electro-Scientific general counsel (John Isselmann)

Failed to contradict CEO/CFO when they misrepresented to the board what the general counsel had reviewed
CEO/CFO were involved in fraud
Consented to C&D order
Litigation release 9.23.04
SEC complaint

Computer Associates general counsel (Steven Woghin)

Failed to stop use of backdated contracts
to improperly recognize revenue
Coached employees on how to respond to investigation
Barred from acting as an officer or director
of a public company
Litigation release 9.22.04
Complaint

Warnaco general counsel (Stanley Silverstein)

Participated in release of misleading annual report that misstated reasons for financial restatements
Barred from SEC practice
C&D Order 5.11.04
Press release

Pre-2004

LinkNet counsel (John Milling)

Participated in an unregistered offering that purported to rely on Regulation D to raise nearly $10 mm from over 1,000 investors
Participated in an unregistered rescission offer
C&D order 11.21.02

FLIR Systems general counsel (James Fitzhenry)

Provided false management representation letters
to outside auditors
Agreed to a five-year ban from practice before the SEC
C&D order 11.21.02

In re George Kern 1991

SEC alleged that M&A lawyer was cause of company's failure to comply with Rule 14d-9 during a takeover fight
M&A lawyer also served as a director of the company
Litigation release

American Bar Association Response

ABA web page

ABA approves proposals to:

Report -- ABA task force on corporate responsibility
3.31.03

ABA press release 4.29.03

Qualified Legal Compliance Committees

Precedent committee charters

Precedent

Akin Gump sends "reporting up" notice to TV Azteca (Mexico)