NCPA - National Center for Policy Analysis

Weren't Lawyers Culpable In Business Scandals, Too?

August 6, 2002

When it comes to passing laws to reform this or that sector of American society, lawyers are often protected. Perhaps that's because the ranks of lawmakers are largely inhabited by lawyers, who are wise enough to cover themselves.

Therefore, in the corporate responsibility legislation signed by President Bush last week, lawyers were surprised to find themselves targets of what one of them called "a sneak attack."

  • The law requires lawyers to report "evidence of a material violation of securities law or a breach of fiduciary duty," first to a company's general counsel, then to its chief executive and finally to its directors.
  • The theory is that in addition to culpable corporate executives, accountants and bankers, lawyers also had to be involved in all those shady transactions -- only if just to draw up the papers.
  • Lawyers who do not comply with the reporting requirement could be barred from practicing before the Securities and Exchange Commission -- and, under the law, they might be named in private lawsuits seeking compensation.
  • Having been caught unaware, the American Bar Association is already gearing up to change what its members see as flaws in the legislation.

In the wake of the Arthur Anderson trial, many lawyers were reportedly already jittery. Some reports said the jury in that case had based its verdict on advice given by one of the firm's internal lawyers.

The bar association argues that the securities commission should not regulate lawyers at all because state courts and state bar associations already have codes of professional conduct. "We don't need the SEC," one lawyer fumes, "to be drafting new codes of ethics."

Source: Jonathan D. Glater, "Round Up the Usual Suspects. Lawyers, Too?" New York Times, August 4, 2002.  

 

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