New Rules Leave Lawyers In Bind on Whistle-Blowing (Ethics vs. the Bar)

Washington Post ^ | Wednesday, August 6, 2003 | Brooke A. Masters

[anymouse]

Under new Securities and Exchange Commission rules that kicked in today, attorneys for public companies are permitted and encouraged to tip off federal regulators when they believe their clients are committing fraud.

But many lawyers who take up the federal government on its invitation could find themselves in legal hot water at the state level -- client-confidentiality rules in the District and eight states prohibit lawyers from divulging client confidences, except to prevent death or bodily harm.

But the SEC disagrees, citing both the Sarbanes-Oxley law, which empowered the commission to set standards for the lawyers practicing before it, and the principles of federalism. "A federal rule that says you may do something should prevail over a state rule that says you may not. . . . States don't have the authority to interpret federal rules," SEC General Counsel Giovanni P. Prezioso said in an interview.

The same issue is also scheduled to come up next week at the American Bar Association meeting, because the ABA's ethics code prohibits lawyers from voluntarily reporting financial fraud committed by their clients.

Most states, however, do not put their lawyers in such binds. Forty-two states, including Maryland and Virginia, allow voluntary whistle-blowing by lawyers. Virginia goes even further, requiring lawyers to tell authorities whether a client plans an illegal act that would cause significant financial harm.

Lawyers who spot misdeeds at a public company they are advising must now "report up" to either the company's general counsel or, if that fails to draw an appropriate response, to its board of directors.

[anymouse]

This only proves that the Bar system is ethically bankrupt.