Sarbanes-Oxley Section 307: Attention Must Be Paid

In his blog on law and other subjects, Professor Bainbridge recently asked: “Did Wal-Mart lawyers violate their [Sarbanes-Oxley] 307 duties?”    It is a good question – among other reasons, because it provides an occasion to reflect on a conflict-of-interest based set of rules that were the subject of much attention when  first issued but which have since fallen into semi-obscure status.

Securities and Exchange Commission Rules of Part 205 – which are based upon Section 307 of  S-Ox – mandate that lawyers practicing before the SEC take certain actions when faced with evidence of a securities law violation.  At the time they were enacted, the rules caused many corporate law departments to issue policies for both their in-house and outside attorneys and to undertake related measures, such as training.

But are law departments still concerned enough about these standards to take even minimal steps to promote compliance with them?

An article published in 2010 in the Georgetown Journal of Legal Ethics  (Sonne, “Sarbanes-Oxley Section 307: A Progress Report on How Law Firms and Corporate Legal Departments Are Implementing SEC Attorney Conduct Rules”), indicated a lack of attention to the rules by law departments and also law firms. Inspired by this piece, when speaking at a session later that year on “Legal Ethics for Compliance Lawyers” at the PLI Advanced Compliance and Ethics Institute in New York, I asked the audience: “If you are in a law department, do you regularly send your [Sarbanes Oxley 307/205] policy to newly retained law firms?” Of twenty responses received, nineteen were No.

 I  know of nothing in the past two years to suggest that the situation is improving.  Indeed, the passage of time will likely have made it worse.

Let’s hope Professor Bainbridge’s question – combined with other focus on the role of lawyers and compliance professionals in Wal-Mart’s woes – does the trick. One can imagine how little sympathy the SEC – in the face of a violation – would have for law department or law firm members who failed to take reasonable steps to promote compliance with the rule (which sending out a copy of their policy would surely seem to be).  As was said in a very different context (Death of a Salesman), “Attention must be paid…”



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