Lawyers Balk at New SEC Rules

New rules established by the Securities and Exchange Commission encourage lawyers to break their client confidentiality compact when clients are suspected of financial fraud.

The SEC rules, part of the fallout from the Sarbanes-Oxley Act of 2002, require lawyers to report concerns of violations of securities laws to corporate executives. If companies continue the violations after discussions with lawyers, the SEC wants lawyers to become whistle-blowers, advising federal regulators that a company is engaged in fraudulent activities.

The SEC also wants to require lawyers to resign and notify the government if a company warned about securities laws violations continues to engage in such activities.

Lawyers have traditionally stood behind the attorney-client privilege to prevent them from having to disclose client wrongdoing. "One way to ensure greater transparency is to make sure clients and lawyers have free-flowing discussion," said Scott Falk, partner in Chicago law firm Kirkland & Ellis.

State and local bar associations have sent letters to regulators stating their opposition to the rules, as has the Securities Industry Association and the Business Roundtable, an organization made up of chief executives from the nation's largest companies.

Several states already allow voluntary whistle-blowing by lawyers. The ABA is expected to vote on this issue at its annual meeting later this month. An ABA task force on corporate governance has recommended that lawyers voluntarily disclose situations of fraud to an outside party but not be required to publicly resign from an engagement.

You may like these other stories...

Koskinen warns filing season could be most complicated yetImplementation of the Foreign Account Tax Compliance Act and the Affordable Care Act, combined with a tight budget and the possibility of Congress passing a late...
Curious as to what the fastest-growing accounting and finance jobs might be for the next several years? According to the new 2015 Salary Guide from staffing firm Accounting Principles, some of those jobs include bookkeeping...
Read more from Larry Perry here and in the Today's World of Audits archive.The first part discussed the principles of revenue recognition under the FRF for SMEs. This part will focus on auditing issues, including some...

Already a member? log in here.

Upcoming CPE Webinars

Oct 23Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Oct 30Many Excel users have a love-hate relationship with workbook links.
Nov 5Join CPA thought leader and peer reviewer Rob Cameron and learn ways to improve the outcome of your peer reviews while maximizing the value of your engagement workflow.
Nov 12This webcast presents basic principles of revenue recognition, including new ASU 2014-09 for the contract method. Also, CPAs in industries who want a refresher on revenue accounting standards will benefit.