How Much Would You Charge For A Rule 144 Opinion?

Yesterday, the Securities and Exchange Commission announced that it had filed a civil complaint against a California lawyer for “churning out baseless legal opinion letters for penny stocks through his website without researching and evaluating the individual stock offerings.” According to the SEC, the lawyer advertised a $285 rate for each letter and a “volume discount” rate of $195 per letter. Maybe this lawyer should have written fewer letters, done more work and charged more.

What really caught my attention was the statements attributed to Andrew M. Calamari, the recently named Director of the SEC’s New York Regional Office. The SEC’s press release quotes Mr. Calamari as saying that the lawyer “flouted his responsibilities as a gatekeeper in the issuance of stock, and churned out opinion letters to make a quick buck”. Mr. Calamari also intones “Attorneys who act as gatekeepers in our markets have a solemn responsibility to ensure that they provide accurate information to the marketplace.”

Here’s why I think that lawyers are not, and should not be, gatekeepers:

Conflicts of Interest. If a lawyer is a gatekeeper, then she has responsibilities beyond the client. Note how Mr. Calamari’s statement subtly shifts an attorney’s responsibility from her client to the society. This was the case in the former Soviet Union where lawyers worked for the state and not their clients. As former American Bar Association President David F. Maxwell observed:

In the Soviet Republics, the lawyers . . . have been stripped of every vestige of independent thought and action and have become for all practical purposes tools of the state.

A Contrast in Viewpoint: Lawyers in the United States and Russia, 43 A.B.A.J. 219, 222 (1957). Our legal system works best when a client has a lawyer that represents only that client and not the party or society as a whole.

Attorney-Client Confidentiality. Gatekeeper status invites violations of the confidentiality of attorney-client communications. For example, the Security and Exchange Commission’s Part 205 rules purport to immunize attorneys who disclose client confidences in certain circumstances. In California, the State Bar Act requires attorneys to “maintain inviolate the confidence[s], and at every peril . . . to preserve the secrets, of his or her client[s]. Cal. Bus. & Prof. Code § 6068(e). This obligation is independent of an attorney’s obligations with respect to the attorney-client privilege as set forth in the Evidence Code (Sections 950-962) and the California Rules of Professional Conduct. Jim Fotenos, Steve Hazen, Jim Walther, Nancy Wojtas and I spilled a lot of ink over this topic in this law review article.

Regulatory Capture. As I noted in this piece, the lawyer as gatekeeper may be more encouraged to stay in the good graces of the regulatory agency than to act as a vigorous advocate for his or her clients’ interests.

 

Topics:  Attorney-Client Privilege, Conflicts of Interest, Rule 144 Opinion, SEC, Stocks

Published In: Civil Procedure 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.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »