Lawyers ask SEC to abandon publication of withdrawals in bid to save client trust

The US and international legal communities - including a consortium of seven top-ten City firms - have called on the US Securities & Exchange Commission to abandon plans to publicise lawyers' withdrawal from acting for securities clients, warning of a 'chilling effect' on lawyer-client relations if it does not.

Submissions to the SEC ahead of this week's deadline for comments on implementation of the post-Enron Sarbanes-Oxley Act indicate only cool favour for its alternative to 'noisy withdrawal'.

Under the original proposal, a law firm which 'reasonably believed' there was a material violation of securities laws would be required to withdraw from acting for the client if its concerns were not dealt with internally, and then to tell the SEC about it.

Many lawyers said this would breach client confidentiality.

The 'silent withdrawal' alternative, proposed by the SEC in January in the wake of the opposition, would oblige the client to disclose the law firm's withdrawal, and also raise the lawyer's evidentiary standard.

Many responses have indicated a preference for silent withdrawal over noisy, but ideally neither.

Groups such as the Council of Bars and Law Societies of Europe also call for silent withdrawal to indicate only the fact of withdrawal, not the reasons.

The Law Society has backed silent withdrawal.

It is thought the Society believes that the SEC will not drop the proposal, making silent withdrawal the best available option.

The seven City firms with the biggest US securities practices have joined forces to respond: Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Herbert Smith, Linklaters, Lovells and Norton Rose.

They said: 'Every state in the US and many jurisdictions outside the US already have professional regulations with respect to attorney withdrawal in cases of client misconduct.

Attorneys should continue to be governed by those rules without special rules [for] securities lawyers.

'Furthermore, any requirement that either the lawyer or issuer notify the SEC of the lawyer's withdrawal risks serious consequences for the attorney-client relationship generally.

'The notice requirement could have a chilling effect on issuers, discouraging them from consulting their lawyers and compromising the core responsibility placed on an attorney that his or her loyalty is owed solely to the client, except in cases clearly involving severe, preventable consequences to third parties.'

The Japanese, Canadian and New Zealand law societies have all come out against silent withdrawal.

Canadian Bar president Simon Potter reflected the views of many, saying: 'The alternative...

is not substantively different in its effects and continues to invade the special relationship of trust which must prevail between an attorney and his or her client.'

The American Bar Association (ABA), along with US firms such as Skadden Arps Slate Meagher & Flom and Debevoise & Plimpton, are also opposed.

ABA president Alfred Carlton said new rules on 'up the ladder' reporting - which would see lawyers pursuing the issue internally up a company's management - sufficed.

Neil Rose