Comments of the Corporation, Finance and Securities
Law Section: Part Four
- The Reporting Requirement of Part 205.3
- Content of the Report
Proposed Part 205.3(b)(1) provides that, under certain circumstances,
the attorney "shall report any evidence of a material
violation to the issuer’s chief legal officer and its chief executive
officer…." (Emphasis added.) Proposed Part 205.4 provides
that, under certain circumstances, the attorney "shall report
the evidence of a material violation to…[t]he audit
committee of the issuer’s board of directors…." (Emphasis
added.) The distinction, if any, between "any evidence"
in Part 205.3(b)(a) and "the evidence" in Part 205.4
is unclear. We believe that the Commission should adopt a different
standard. As noted in the proposing release, ABA Model Rule 1.4
requires an attorney to "keep a client reasonably
informed about the status of a matter" as "reasonably
necessary to permit the client to make informed decisions regarding
the representation." (Footnotes omitted.) Proposing Release
at 28. Accordingly, we propose the Commission modify the proposed
rule to require that the reporting attorney report information
possessed by the reporting attorney that is reasonably necessary
for the issuer to make informed decisions in response to the report.
This proposal advances the public interest, by requiring that
the reporting attorney report only salient information to the
issuer.
- Timing of the Report
The proposed rule does not specify how quickly an attorney must
report. We recommend that the Commission require the attorney
to make the report within a reasonable time in light of all the
relevant factors (including other time commitments, the burden
of assessing the information and preparing the report, the strength
of the evidence, the materiality of the indicated violations,
and the threat of ongoing or imminent violations).
|
