May 22, 2008
SEC Litigator Ethics
Posted by Julie Hill

Since the 1930’s, SEC attorney ethics rules have allowed the SEC to disbar attorneys who practice before it for “unethical or improper professional conduct.” 17 U.S.C. § 201.102(e). Historically, the SEC has primarily used this rule to investigate transactional attorneys (those attorneys preparing SEC filings that are disclosed to the public). Not wanting litigators (those who represent clients in SEC investigations) to feel left out, the SEC is now beginning to actively investigate litigation attorneys for alleged ethical violations. Earlier this year, we saw one of these investigations result in an administrative proceeding in the Altman case (alleging witness tampering). Because SEC investigations under Rule 102(e) are confidential, it is impossible to know exactly how many investigations are underway or how many will result in discipline.

While we can all agree that litigators practicing before the SEC should act in an ethical manner, I wonder whether allowing the SEC to investigate litigation attorneys is the best way to deal with misconduct. Will litigators be less zealous advocates if they know they may be investigated by the SEC for ethics violations? Will the SEC staff use threats of investigations to encourage attorneys and their clients to be cooperative? Will the SEC staff use ethics investigations to force attorneys to withdraw from representation?

Attempting to allay some of the concerns about Rule 102(e) investigations, the SEC assigned the task of investigating attorney ethics violations to its Office of the General Counsel rather than the Division of Enforcement. However, the Division of Enforcement still refers attorney ethics cases to the Office of the General Counsel. Furthermore, there is no mechanism to prevent information collected in an ethics investigation from being used against the client (even if the client did not participate in the ethics violation). If the SEC’s investigation of litigators is going to become commonplace, the SEC may want to consider whether additional safeguards are necessary to alleviate the potential for SEC abuse.

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