FOR IMMEDIATE RELEASE
Washington, D.C., January 23, 2003 The Securities and Exchange Commission today adopted final rules to implement Section 307 of the Sarbanes-Oxley Act by setting "standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers." In addition, the Commission approved an extension of the comment period on the "noisy withdrawal" provisions of the original proposed rule and publication for comment of an alternative proposal.
On Nov. 6, 2002, the Commission voted to propose the standards of professional conduct in a new Part 205 of 17 CFR. That proposal defined who is appearing and practicing before the Commission in the representation of an issuer. Attorneys were required to report evidence of a material violation "up-the-ladder" within an issuer. In addition, under certain circumstances, these provisions permitted or required attorneys to effect a so-called "noisy withdrawal" -- that is, to withdraw from representing an issuer and notify the Commission that they have withdrawn for professional reasons.
The rules adopted by the Commission today will
In addition, the final rules modify the definition of the term "evidence of a material violation," which defines the trigger for an attorney's obligation to report up-the-ladder within an issuer. The revised definition confirms that the Commission intends an objective, rather than a subjective, triggering standard, involving credible evidence, based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation has occurred, is ongoing or is about to occur.
The Commission voted to extend for 60 days the comment period on the "noisy withdrawal" and related provisions originally included in proposed Part 205. Given the significance and complexity of the issues involved, including the implications of a reporting out requirement on the relationship between issuers and their counsel, the Commission decided to continue to seek comment and give thoughtful consideration to these issues.
The Commission also voted to propose an alternative to "noisy withdrawal" that would require attorney withdrawal, but would require an issuer, rather than an attorney, to publicly disclose the attorney's withdrawal or written notice that the attorney did not receive an appropriate response to a report of a material violation. Specifically, an issuer that has received notice of an attorney's withdrawal would be required to report the notice and the circumstances related thereto on form 8-K, 20-F or 40-F, as applicable, within two days of receiving the attorney's notice. Accordingly, the proposal includes proposed amendments to forms 8-K, 20-F, and 40-F to require issuers to report an attorney's written notice under the proposed rule. The proposing release also will seek comment on whether there are circumstances in which an issuer should be permitted not to disclose an attorney's written notice.
The proposed rules also would permit an attorney, if an issuer has not complied with the disclosure requirement, to inform the Commission that the attorney has withdrawn from representing the issuer or provided the issuer with notice that the attorney has not received an appropriate response to a report of a material violation.
The final rules will become effective 180 days after publication in the Federal Register to provide issuers, attorneys, and law firms sufficient time to put in place procedures to comply with their requirements, and to allow the Commission the opportunity to consider the adoption of the proposed noisy withdrawal provision or the alternative disclosure procedure proposed today.
The full text of detailed releases concerning each of these items will be posted to the SEC Web site as soon as possible.