Ethical Challenges Lawyers Face Under Sarbanes-Oxley

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Deciding to report internal misconduct can be difficult for any employee or officer of an organization. For members of the legal profession, however, the decision can easily conflict with their ethical obligations. Lawyers working as in-house counsel have long struggled with the apparent contradictions between their own professional ethical rules and the whistleblowing requirements of legislation like the Sarbanes-Oxley Act. Even within their own rules, attorneys face contradictions that can make “doing the right thing” easy compared to figuring out what the “right thing” is.

The conflict came principally from a provision of Sarbanes-Oxley that required in-house legal counsel to report SEC violations to the highest legal or executive officer within his or her organization and then, if no appropriate response was forthcoming, to an independent audit committee or the full board of directors. The problem arose because, under some circumstances, the attorney may actually be required to report such conduct to the SEC, thereby violating his or her duty of confidentiality of client information. The Model Rules of Professional Conduct now resolve the conflict thusly:

  • Rule 1.6, governing the confidentiality of sensitive client information, now allows the disclosure of such information to prevent the commission of a crime or fraud that is reasonably likely to substantially injure the financial interests of a third party.
  • Rule 1.13, addressing attorneys who represent organizational clients, allows such attorneys to report any violation of the company’s legal obligations to the highest authority within the company. If such action proves ineffectual and the lawyer believes the violation is reasonably certain to cause substantial harm to the company, he or she may “report out” to a third party, most likely a government regulator.

Of course, these types of situations become much more complex and difficult in practice than in theory.

Topics:  Ethics, Sarbanes-Oxley, Whistleblowers

Published In: Civil Procedure Updates, General Business Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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