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Do the SEC's Proposed Standards of Professional Conduct Apply to You?

By Kim Baker and David Smith
May 01, 2003

When The Security and Exchange Commission (SEC) or Department of Labor (DOL) or FBI Special Agent investigator knocks on a defense counsel's office door to conduct an interview relating to her client's alleged violation of the Sarbanes-Oxley Act (the Act), she might recall skimming an article and concluding that it did not apply to her role as defense counsel in product liability cases. She should think again. In light of the recent financial debacles, including Enron and World Com, the SEC is fulfilling the Congressional mandate to require public companies to disclose and remediate material violations, breaches of fiduciary duties, and similar violations of the SEC regulations. This article discusses the SEC's definition of an “attorney” under 17 CFR Part 205 and its newly proposed alternative to an earlier draft “noisy withdrawal” ethics rule, attorney withdrawal and disaffirmance with client notification to the SEC of withdrawal. The following scenarios demonstrate when and how an attorney may have to respond under the Act.

Scenario Number 1

You are national coordinating counsel for a publicly owned manufacturer. During the decade that you have represented the company in multi-district litigation, your client has been a beneficiary of several favorable judicial rulings from state and federal courts where most of the allegedly defective products were distributed. However, tort reform favoring plaintiffs has been adopted in the two states where most of the lawsuits are filed. The reform includes two changes that will greatly impact the defense of the product claims. First, the statute of limitations has been extended by a new discovery rule that increases the time for filing suit from 3 years to 8. Second, the cap on non-economic damages is eliminated. These changes dramatically increase the number of suits anticipated by the company since the product was removed from distribution 4 years ago. The values of prior settlements and verdicts used for case evaluations are now meaningless as the “sky is the limit.”

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