Lawyers - as well as accountants - should be subject to reform

by Ken Rankin

Washington - While accountants have been getting their share of heat from federal securities regulators following the Enron meltdown, and accounting scandals at such companies as WorldCom, Tyco and ImClone, some members of Congress believe that the agency should also stiffen the ethical ground rules governing corporate lawyers.

Wherever accountants practice in America today, "lawyers are looking over their shoulder," Sen. John Edwards, D.-N.C., told Congress. "And if (corporate)

executives and accountants are breaking the law, you can be sure part of the problem is that the lawyers aren’t doing their jobs."

To correct that problem, Edwards and others on Capitol Hill are calling on the Securities and Exchange Commission to subject attorneys to the kind of more rigorous regulatory scrutiny that the agency is currently planning for accountants.

"In the wake of the Enron scandal, the public has focused on the role of accountants," but now "it’s time to scrutinize the role of lawyers as well," Edwards said in a letter he drafted to SEC chairman Harvey Pitt.

The letter, which was delivered to SEC as the Commission was voting to approve Pitt’s plan for more rigorous federal regulation of the accounting profession, calls on the agency to establish a "minimum standard of professional conduct" for corporate lawyers.

Under Edwards’ proposal, corporate attorneys who become aware of federal securities law violations by accountants or company executives would be required to blow the whistle on them.

"It seems to me that a lawyer with knowledge of serious material and un-remedied violations of federal securities law, should have an obligation to inform the board [of directors] of those violations," he told Pitt.

Ethical rules requiring attorneys "go up the ladder" in reporting financial wrongdoing by corporate executives are not new.

The SEC imposed just such reporting requirements on corporate lawyers throughout the 1970s and 1980s, but "gave up the fight" because "the American Bar Association opposed their efforts," Edwards told Congress.

With new regulatory standards being hammered out for accountants, the pressure is building for SEC to reverse field and begin holding attorneys to higher standards as well.

Earlier this year, 40 law professors and other legal scholars from across the country urged Pitt to resume enforcement of SEC rules outlining minimum ethical standards for the practice of securities law. That request was promptly rejected by SEC general counsel David M. Becker, who told the petitioners that, unless Congress mandates such enforcement, the Commission would leave this area to state authorities.

Edwards urged Pitt to reconsider this position, and warned that congressional legislation may be in the cards if he won’t.

"Absent further Congressional action, does the SEC plan to act to enforce a minimum standard of professional conduct for lawyers in securities practice along the lines I have suggested?" he asked Pitt bluntly. If not, "would you be willing to assist me in carefully crafting legislation to impose this duty on lawyers?"