MultiState Guide to Attorney Disclosure Rules

May 07, 2003

Introduction

The SEC’s Final Rules regarding Implementation of Standards of Professional Conduct for Attorneys purport to allow attorneys who appear and practice before the Commission to disclose client confidences to the Commission in three situations:

(i) To prevent the issuer from committing a material violation that is likely to cause substantial injury to the financial interest or property of the issuer or investors;

(ii) To prevent the issuer, in a Commission investigation or administrative proceeding from committing perjury, proscribed in 18 U.S.C. 1621; suborning perjury, proscribed in 18 U.S.C. 1622; or committing any act proscribed in 18 U.S.C. 1001 that is likely to perpetrate a fraud upon the Commission; or

(iii) To rectify the consequences of a material violation by the issuer that caused, or may cause, substantial injury to the financial interest or property of the issuer or investors in the furtherance of which the attorney’s services were used.

The SEC also purports to preempt state ethics regarding preservation of client confidences to the extent they are inconsistent with permissible disclosure to the Commission.  It is not clear how states will view this purported preemption.  Every state currently has some form of professional responsibility standards that govern the attorneys licensed to practice in that state. 

These standards generally apply to the conduct of attorneys licensed to practice in the state even when the conduct occurs in another state.  Every state also purports to cover the conduct of attorneys licensed in other states when the conduct in question occurs in their state.  It is thus possible for an attorney’s conduct to be regulated by multiple states.

Ever since 1983 when the ABA Model Rules of Professional Conduct replaced the ABA Model Code of Professional Responsibility, there have been significant differences between some states regarding the obligations and/or permissibility of an attorney disclosing client confidences when it is reasonably necessary to prevent a crime or fraud, or rectify the consequences of a past crime or fraud.

When faced with a decision whether or not to permissibly disclose client confidences to the Commission pursuant to Rule 205.3(d)(2), the attorney would be well advised to consider the ethical obligations imposed by the state or states that would be potentially implicated as well as the untested preemption protection of SEC Rule 205.6(c).  In some instances the state ethics rules and the SEC’s permissive disclosure rule may not conflict.  In instances where the state rule prohibits the disclosure of client confidences, disclosure to the Commission may result in possible disciplinary proceedings by the state.

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