ÿWPCý 49y@ÒÂèD"F<àJ’ÎÍ"C±T†ëà4˜oA¹KUz.y?ï DŠ£NDŸ\©<¨g4A|åÓÁ›²¥ Ôh–3Ä—ÏjìQ·jJÓ–iÍ°é½ "¡YŸmgX‡4%v.ÞùEû©gŽ¥Ž–l†¾Z¸£˜û®qù­3>EÀ»†´LÐuwÆöE4jÕùsҮ݂™ Ó uJ•ÀÏ$ãâê€JǶ—Í~äu×(¯9aóB®Ô ´kƒñ!wá»+&|š‡FZ2 Ù‹ã#bÅ–Xêzr¯Y!6Ÿ0RôÑÑ`U‹í³›rðy•Ih0¸Â{R¿-o˜ÎÐÅù"ÞÎt (|¹…L §¬f FW<ÛƒÉ2¨Õõ†¥™kšÔ%mh‘yÖuslŸtÂ'³äŠÛLXÝXî Gõ“7Ö±‹vÿjkëÙbYB>wb]¦?Ñ/›eŸ\Å Fµñ41±÷®8…%¨¤dò¸t SFoSXǯ¼KûÕ7,>»¥83¶4$ÕØðÀ»Úæ.â8ÓálFâw;L¸à[L4öÆTöè‹úÍ Ä6_öýW¤ß'l§ztx…ˆ?öi8¥¡ZFVy=Á戼Ð$¡#!ÄUNå %3 0:9^ sw@4¿Óâ mäªû 0V¥Nû˜HP LaserJet 4L,ü,,,,,ü0(ÖÃ9 Z‹6Times New Roman RegularX(üœ$¡¡ÔUSUS.,ÔS’-‰ `abDcDdUeDfEghi¥}„-‘-„ Backup3|xiÿU‹ÿÀÀÀ  Ý ƒ ½Þ'ÝÔUSUS.,ÔÝ  ÝÔ_ÔJonathan€Katzà€ ! ! !(#àPage€Ú  Ú2Ú  ڈР° ÐDecember€18,€2002(.3½Þ$§§Ý ƒüœ!ÝÔUSUS.,ÔÝ  ÝÝ ƒüœ!ÝÔUSUS.,ÔÝ  ÝÔ_Ôà@^^!ìàÔ‡¼,»XXÔò òBoston€University€Ô#†X'bX»¼,O#ԈР° Ðà@$ìàSchool€of€LawˆÌà@>>ìà765€Commonwealth€AvenueˆÌà@ìàBoston,€Massachusetts€02215ˆÌÌÔ‡ôðõXX'bÔNancy€J.€MooreÐ t Ä ÐProfessor€of€LawÌÌ617/358„0501ÌFax:€617/353„3077ÌE„mail:€nmoore@bu.eduó óÔ#†X'bXõôð8#ÔÐ \ ¬  ÐñeñÌñeñÌà  àà ` àà ¸ àà  àà h àDecember€18,€2002ÌñcñÌñcñÌJonathan€G.€Katzà ¸ àà  àà h àÐ è8  ÐSecretaryÌSecurities€and€Exchange€CommissionÌ450€Fifth€Street,€NWÌWashington,€D.C.€20549„0609ÌÌà  àRe:à0 ` àòòProposed€Rules:€Implementation€of€Standards€of€Professional€Conduct€forÐ pÀ ÐAttorneys€pursuant€to€Section€307€of€the€Ô_ÔSarbanesÔ_Ô„Ô_ÔOxleyÔ_Ô€Act€of€2002óóÐ\¬` (#` (# ÐÌDear€Mr.€Katz:ÌÌà  àI€am€writing€in€response€to€the€Commissionððs€request€for€public€comment€on€proposedÏrules€issued€by€the€Commission€to€implement€Section€307€of€the€Ô_ÔSarbanesÔ_Ô„Ô_ÔOxleyÔ_Ô€Act€of€2002.€IÏam€a€professor€of€law€at€Boston€University€School€of€Law€and€have€taught€various€courses€on€theÏlaw€and€ethics€of€lawyering€for€over€25€years.€I€served€as€Chief€Reporter€to€the€Ethics€2000ÏCommission,€which€drafted€extensive€amendments€to€the€ABA€Model€Rules.€In€addition,€I€amÏchair€of€the€Ô_ÔMPREÔ_Ô€Test€Drafting€Committee.€I€am€also€one€of€the€signers€of€the€letter€drafted€byÏProfessor€Richard€Painter€urging€the€SEC€to€adopt€an€ð ðup„the„ladderðð€reporting€requirement€forÏlawyers€representing€public€held€companies.ÌÌà  àWith€one€exception,€I€support€the€comments€of€Professors€Susan€P.€Ô_ÔKoniakÔ_Ô,€Roger€C.ÏÔ_ÔCramtonÔ_Ô€and€George€M.€Cohen.€In€addition,€I€write€to€make€several€additional€points€that€relateÏprimarily€to€clarification€in€the€drafting€of€the€proposed€rules€and€comments.ÌÌ1.à0  àòòThe€Commission€should€defer€regulating€foreign€lawyers€who€are€licensed€abroad€and€whoÐ 'X"& Ðdo€not€either€practice€in€the€United€States€or€communicate€or€file€documents€with€theÏSECóó.Ðà(0$((#(# ÐÌà  àThe€one€exception€I€have€to€the€comments€of€Professors€Ô_ÔKoniakÔ_Ô,€Ô_ÔCramtonÔ_Ô,€and€CohenÏâ ârelates€to€the€Commissionððs€proposal€to€regulate€foreign€lawyers€under€an€expansive€definition€ofÐ ¤+ô&+ ÐÔ_Ôwhat€Ö€ ÿÿÖconstitutes€practice€and€appearance€before€the€Commission.€I€believe€that€it€is€important€toÏgather€further€information€regarding€the€practice€of€foreign€lawyers€with€respect€to€securitiesÏwork,€particularly€in€its€preliminary€stages€and€in€consultation€with€United€States€counsel,€and€toÏengage€in€further€discussions€with€representatives€of€various€foreign€bar€associations.ÌÌà  àWith€regard€to€domestic€law,€it€has€been€black„letter€law€that€a€lawyer€licensed€to€practiceÏin€one€state€may€give€legal€advice€with€regard€to€the€law€of€another€state€without€submitting€toÏthe€jurisdiction€of€the€other€state€for€purposes€of€discipline.€The€ABA€Model€Rules€were€recentlyÏamended€to€assert€disciplinary€jurisdiction€over€lawyers€not€admitted€by€the€host€jurisdiction,€butÏwho€provide€(or€offer€to€provide)€legal€services€òòin€that€jurisdictionóó.€(Rule€8.5(a))€Using€currentÐ œL  Ðdomestic€law€as€an€analogy€to€the€problem€that€arises€when€a€foreign€lawyer€gives€a€foreign€clientÏlegal€advice€with€regard€to€the€law€of€the€United€Statesð"ðbut€does€not€provide€legal€services€òòinÐ t$  Ðthe€United€Statesóóð"ðthere€is€at€least€some€question€regarding€both€the€authority€and€the€desirabilityÐ `  Ðof€asserting€disciplinary€authority€over€such€foreign€lawyers.€ÌÌà  àTo€illustrate€my€concern€that€the€SEC€may€be€sweeping€too€broadly€in€its€efforts€toÏregulate€foreign€lawyers,€consider€the€following€hypothetical.€A€foreign€company€is€required€toÏfile€documents€with€the€SEC€and€retains€United€States€counsel,€either€here€or€abroad.€€InÏpreparing€the€documents,€United€States€counsel€finds€it€necessary€to€consult€with€foreign€counselÏ(either€employed€or€retained€by€the€issuer)€with€regard€to€certain€matters,€e.g.,€the€nature€andÏsignificance€of€certain€transactions€handled€by€the€foreign€counsel.€The€foreign€lawyer€consultedÏmay€have€little€or€no€experience€with€either€securities€law,€the€SEC,€or€the€requirements€of€UnitedÏStates€ethics€codes€or€other€law.€The€lawyer€may€have€evidence€that€United€States€counsel€wouldÏunderstand€to€require€reporting,€but€being€unfamiliar€with€either€securities€law€or€the€proposedÏ(and€hypothetically€final)€regulations,€does€not€report€such€evidence.€The€foreign€lawyer€is€nowÏsubject€to€discipline€by€the€SEC.€Although€some€might€wonder€why€the€foreign€lawyer€wouldÏcare,€since€he€or€she€is€not€practicing€here,€it€is€my€experience€that€lawyers€care€very€deeply€aboutÏeven€potential€discipline;€moreover,€an€increasing€number€of€foreign€lawyers€anticipate€futureÏpractice€in€the€United€States€and€would€be€fearful€of€the€consequence€of€any€disciplinaryÏproceedings€against€them.€Moreover,€even€assurance€that€the€SEC€intends€to€act€reasonably€andÏwould€be€unlikely€to€proceed€against€such€a€lawyer€will€not€eliminate€the€fear€that€some€foreignÏlawyers€will€have€over€being€subject€to€the€disciplinary€authority€of€such€an€unfamiliar€body.ÌÌà  àFurther€consultation€with€foreign€lawyers€and€representatives€of€foreign€bar€associationsÏmay€help€the€SEC€to€craft€more€carefully€tailored€regulations€as€they€apply€to€such€lawyers.€ForÏthat€reason,€ñfñI€submit€that€ñfñthe€SEC€should€defer€regulating€foreign€lawyers€who€are€licensed€abroad€and€who€doÏnot€either€practice€in€the€United€States€or€communicate€or€file€documents€with€the€SEC.ñdñÌñdñÌñbñÌÌÌñbñ2.à0  àòòThe€Commission€should€clarify€which€state€ethics€rules€have€been€preempted€and€shouldÐ X*#& Ðnot€preempt€state€rules€that€require€more€of€securities€lawyers€than€the€CommissionððsÏrules.óóÐ0,à$((#(# ÐÐ -Ì%) Ðà  àI€support€the€recommendations€by€Professors€Koniak,€Cramton,€and€Cohen€with€regard€toÏpreemption.€I€am€particularly€concerned€that€the€Commissionððs€regulations€not€preempt€stateÏethics€codes€that€prohibit€lawyers€from€knowingly€counseling€or€assisting€a€clientððs€crime€or€fraud.Ï(ABA€Model€Rule€1.2(d).)€For€example,€even€when€the€issuer€refuses€to€take€appropriateÏremedial€measures,€the€Commissionððs€regulations€do€not€require€in„house€counsel€to€resign;Ïnevertheless,€state€ethics€codes€prohibit€such€a€lawyer€from€further€participating€in€the€matterÏitself,€when€the€lawyer€òòknowsóó€that€the€lawyerððs€participation€would€assist€the€client€in€criminal€orÐ Ø ˆ Ðfraudulent€conduct.€Similarly,€even€when€the€issuer€refuses€to€take€appropriate€remedial€measures,Ïa€reporting€lawyer€need€not€make€a€ð ðnoisy€withdrawalðð€or€make€certain€disclosures€under€certainÏcircumstances€(e.g.,€when€a€subordinate€lawyer€has€reported€to€his€or€her€supervisor€or€when€aÏCLO€has€reported€to€a€QLCC);€nevertheless,€when€precluded€from€doing€so€by€state€ethics€codes,Ïsuch€lawyers€should€not€be€permitted€to€further€participate€in€the€matter€itself,€when€the€lawyerÏòòknowsóó€that€the€lawyerððs€participation€would€assist€the€client€in€criminal€or€fraudulent€conduct.€ForÐ `  Ðthis€reason,€ñgñI€recommend€that€ñgñthe€Commission€ñhñshould€ñhñexplicitly€state€that€it€is€not€preempting€state€rules€that€requireÏmore€of€securities€lawyers€than€the€Commisñiñsñiñionððs€rules,€including€Rule€1.2(d).Ìà0  àÐ (#(# Ð3.à0  àòòThe€Commission€should€clarify€that€a€Qualified€legal€compliance€committee€(QLCC)€hasÐ À Ðauthority€and€responsibility€to€retain€counsel€for€any€advice€with€regard€to€itsÏresponsibilities€under€these€rules.óóÐè˜(#(# ÐÌà  àUnder€Section€205.2(j)(4)(ii)(C),€a€Qualified€legal€compliance€committee€is€defined€toÏinclude€a€committee€that€has€the€authority€and€responsibility€ð ðto€decide€whether€an€investigation€isÏnecessary€to€determine€whether€the€material€violation€described€in€the€report€has€occurred,€isÏoccurring,€or€is€about€to€occur€òòand,€if€soóó,€to....[r]etain€such€additional€expert€personnel€as€theÐ „4 Ðcommittee€deems€necessary.ðð€(Emphasis€added.)€€I€assume€that€lawyers€so€retained€represent€theÏcommittee€itself€(and€not€the€issuer)€and€that€the€issuer€must€pay€for€the€representation,€but€itÏmight€be€helpful€to€so€specify€either€in€the€regulations€themselves€or€the€commentary.€MoreÏimportant,€the€committee€should€be€authorized€to€retain€counsel€for€purposes€other€than€toÏconduct€an€investigation;€for€example,€to€assist€the€committee€in€deciding€whether€anÏinvestigation€is€necessary.€To€clarify€this€point,€subparagraph€(ñ`ñ(4)(ñ`ñii)(C)€could€be€deleted€andÏrelocated€to€a€new€subparagraph€(4)(iv).ÌÌ4.à0  àòòThe€Commission€should€consider€imposing€stricter€requirements€for€the€independence€ofÐ Ð$€  Ðthe€non„audit€committee€members€of€a€QLCC.óóм%l!(#(# ÐÌà  àUnder€Section€205.2(j)(1),€a€QLCC€must€consist€of€at€least€one€member€of€the€issuerððsÏaudit€committee€and€two€or€more€board€members€who€are€not€employed€ð ðdirectly€or€indirectlyððÏby€the€issuer.€(Additional€requirements€are€imposed€for€registered€investment€companies.)€If€theÏgoal€is€to€insure€the€ð ðindependenceðð€of€the€two€additional€board€members,€it€may€not€be€sufficientÏto€limit€the€disqualification€to€current€employment.€Rather,€the€Commission€should€considerÏrequiring€that€such€board€members€not€have€been€recently€employed€by€the€issuer;€moreover,€suchÏboard€members€should€not€be€dependent€on€management€of€the€issuer,€e.g.,€because€they€orÐ -Ì%) Ðcompanies€with€which€they€are€affiliated€conduct€significant€business€with€the€issuer.€The€sameÏcomment€would€apply€to€Section€205.3(b)(4)(ii)€and€(iii).ÌÌ5.à0  àòòThe€Commission€should€clarify€the€responsibilities€of€the€chief€legal€officer€(or€theÐ  Ä Ðequivalent€thereof)€who€does€not€refer€a€report€to€a€QLCC.óóÐ °(#(# ÐÌà  àSection€205.3(b)(3)€sets€forth€the€obligations€of€a€chief€legal€officer€(or€the€equivalentÏthereof)€(CLO)€who€receives€evidence€of€a€material€violation.€That€section€details€the€obligationsÏof€the€CLO€if€the€issuer€fails€to€take€any€remedial€measure€directed€by€a€QLCC,€includingÏnotifying€the€Commission€that€a€material€violation€has€occurred,€is€occurring€or€is€about€to€occur,Ïand€disaffirming€in€writing€certain€documents€submitted€to€the€Commission.€It€is€unclear€in€thisÏsection€itself€whether€the€CLO€has€similar€obligations€if€the€CLO€has€not€referred€the€matter€to€aÏQLCC€and€the€issuer€has€failed€to€take€remedial€measures€as€advised€or€directed€by€the€CLO.€ThisÏis€a€question€of€great€importance€to€lawyers€who€represent€issuers€who€have€not€adopted€aÏQLCC,€and€I€urge€the€Commission€to€clarify€their€responsibilitiesñañ€in€this€sectionñañ.ÌÌ6.à0  àòòThe€Commission€should€define€ð ðchief€legal€officer€or€the€equivalent€thereofðð.óóÐÀ(#(# ÐÌà  àSection€205.3(b)(1)€requires€lawyers€under€certain€circumstances€to€report€to€ð ðthe€issuerððsÏchief€legal€officer€(or€the€equivalent€thereof).ðð€Paragraph€(b)(3)€requires€ð ðthe€chief€legal€officerÏ(or€the€equivalent€thereof)€to€inquire€into€the€evidence€reported.€Neither€ð ðchief€legal€officerðð€orÏð ðthe€equivalent€thereofðð€are€defined€in€the€regulations€themselves.€The€current€commentary€toÏparagraph€(b)(3)€suggests€that€chief€legal€officer€means€general€counsel€(presumably€insideÏgeneral€counsel)€and€says€expressly€that€the€ð ðequivalentðð€is€ð ðthe€chief€executive€officer,ðð€whoÏwould€probably€authorize€outside€counsel€to€conduct€the€inquiry.€The€definition€of€these€terms€isÏparticularly€important€with€regard€to€companies€that€do€not€have€inside€counsel.€Given€that€theÏcommentary€will€not€be€published€except€in€the€initial€release€accompanying€publication€of€theÏfinal€regulations,€I€strongly€urge€the€Commission€to€define€these€terms€in€the€regulationsÏthemselves,€for€the€guidance€of€lawyers€attempting€to€comply€with€their€obligations€under€theseÏrules.ÌÌà  àI€appreciate€the€opportunity€to€submit€these€comments€to€the€Commission€and€lookÏforward€to€seeing€the€final€regulations.ÌÌà  àà ` àà ¸ àà  àà h àVery€truly€yours,ÌÌÌÌà  àà ` àà ¸ àà  àà h àNancy€J.€MooreÌà  àà ` àà ¸ àà  àà h àProfessor€of€Lawâ â