We note that the proposed definition is substantially broader than the definition of "practicing before the Commission" set forth in SEC Rule of Practice 102(f). This is unnecessary and inappropriate. Section 307 of Sarbanes-Oxley compels the Commission to develop standards for attorneys "appearing and practicing" before the Commission. Congress’s use of that conjunctive phrase, "appearing and practicing" before the Commission compels, or at least strongly suggests, that it intended a narrower scope than contained in the definition of "practicing" already adopted by the Commission in Rule 102(f). Unless the Commission is at least aware of the attorney’s participation in a matter, through the attorney’s entry of an appearance or communication with the Commission or its staff, the attorney generally should not be regarded as "appearing" before the Commission.

We are concerned with the proposed rule’s extension to any attorney who "participates in the drafting process" and suggest that Part 205 be applied only to attorneys who "significantly participate" in the drafting and disclosure process. The inclusion of any participating attorney conflicts with the public interest by discouraging issuers from seeking input from attorneys. For example, if disclosure counsel contacts another attorney to confirm that certain information in the filing is accurate, and if the contacted attorney provides that information, then the contacted attorney arguably is "appearing and practicing before the Commission" within the meaning of the proposed rule. This appears too broad and contrary to the scheme envisioned in Sarbanes-Oxley. Including such attorneys within the scope of the Rule will adversely affect the quality of disclosure by deterring companies from seeking the input of a broad range of specialized counsel in drafting SEC filings and, more importantly, deterring counsel—particularly non-securities counsel—from commenting. As you are aware, some attorneys already decline to review or comment on SEC filings of their clients for fear of the potential civil liability that might otherwise result. But such consultations are valuable to issuers and to investors. Accordingly, the Commission should be concerned with any rule that may have the effect of discouraging these communications. The Commission should make it clear that the rule does not extend to attorneys who merely provide information for possible inclusion in an SEC filing or comment on the adequacy of specific disclosures in an SEC filing.

The proposed rule also extends to attorneys who participate in the process of drafting contracts and other documents that the attorney has reason to believe will be filed with or incorporated into any SEC filing (e.g., an employment lawyer who represents an issuer in negotiating an employment agreement with its CEO). Again, the statute does not require the Commission to include such attorneys. We also have concerns on how such attorneys (many of whom will have little or no familiarity with the federal securities laws or the extent of the issuer’s business and disclosures) would go about assessing whether they have become aware of evidence of a material violation. Accordingly, we recommend that this component of the definition be deleted.

Under 205.2(a)(5)(i) of the proposed definition, an attorney appears and practices before the Commission if the attorney advises any party that any writing need not be filed with or submitted to the Commissioners, the Commission or its staff. This standard appears unworkable. Many attorneys (e.g., tax and regulatory attorneys) advise clients where various regulatory forms must be filed. We recommend that the Commission should limit its application to advising an issuer regarding whether to file a registration statement with the Commission, whether to file a current or periodic report, and what materials should be filed with the Commission as exhibits to registration statements, periodic report and current reports.

The inclusion of attorneys hired to conduct an investigation is also troubling. Part 205.3(b)(6) provides that an attorney retained or directed by an issuer to investigate evidence of a material violation reported under the part shall be deemed to be appearing and practicing before the Commission. We recommend that this provision be deleted. First, attorneys conducting an internal investigation, and not otherwise interacting with the Commission or even known to the Commission at that point, do not have a sufficient nexus with the Commission’s processes to warrant coverage. Second, characterizing internal investigations as practicing or appearing before the Commission will only make issuers less willing to retain, and attorneys less willing to conduct, such investigations, an unintended consequence of the proposed rules but a likely one all the same. Finally, the inclusion of investigative counsel is simply unnecessary in light of the existing obligation that is placed by Part 205.3(b)(3) on the chief legal officer to assess the timeliness and appropriateness of the issuer’s response. In light of the significant compliance benefits that flow from issuer’s retention of investigative counsel, the Commission should explicitly exclude investigative counsel, who do not otherwise interact with the Commission, from the coverage of proposed Part 205.

We urge the Commission to clarify its definition of "attorney" to make it clear that it is limited to individual attorneys, and to state in the Adopting Release that it would pursue a "collective knowledge" theory against a law firm only in egregious situations. We are concerned that the Commission might seek to apply a "collective knowledge" standard and hold law firms liable even in situations where none of their individual attorneys had become aware of "evidence of a material violation." In circumstances in which several different attorneys within a law firm each holds a different piece of a puzzle which, when pieced together, constitute the requisite evidence, the Commission might seek to hold the firm liable. This standard would be unfair and unworkable, especially in large law firms that represent far-flung corporate clients in numerous individual matters. The burden of attempting to comply would be immense if, as a precautionary measure, firms were to require every attorney working on behalf of a given client to constantly be aware of the details of every matter in which the firm represents (or represented) that client, or to task a single attorney with constantly collecting and reviewing such information, so that the firm could be in a position to decide whether the totality of information generated a reporting obligation. Although we understand that the Commission might wish to proceed against a law firm itself where the law firm may have been complicit in the issuer’s violation (see, In the Matter of Keating, Muething & Klekamp, 1979 WL 186379, SEC Release No. 34-15982 (1979)), such situations arise infrequently, and the Commission may proceed against such firms under existing theories. Law firms should not be forced to assume a compliance burden vastly disproportionate to the benefits the Commission expects to achieve.

The lawyer is part of a judicial system charged with upholding the law. One of the lawyer’s functions is to advise clients so that they avoid any violation of the law in the proper exercise of their rights. The observance of the ethical obligation of a lawyer to hold inviolate confidential information of the client not only facilitates the full development of facts essential to proper representation of the client but also encourages people to seek early legal assistance. Almost without exception, clients come to lawyers in order to determine what their rights are and what is, in the maze of laws and regulations, deemed to be legal and correct. The common law recognizes that the client’s confidences must be protected from disclosure. Based upon experience, lawyers know that almost all clients follow the advice given, and the law is upheld. A fundamental principle in the client-lawyer relationship is that the lawyer holds inviolate the client’s secrets and confidences. The client is thereby encouraged to communicate fully and frankly with the lawyer even as to embarrassing or legally damaging subject matter.