REPORTING DUTIES OF CORPORATE ATTORNEYS: SEC RULES AND EXPLANATIONS BY
(JAMES HAMILTON & TED TRAUTMANN (RIVERWOODS, IL: CCH INC., 2003). 76 PGS, $39.
ORDER, (800) 248-3248

Copyright © 2003 by State Bar of Wisconsin; Erik R. Guenther

The Sarbanes-Oxley Act may be the most significant piece of legislation affecting corporate governance and financial disclosure requirements since the U.S. securities laws of the early 1930s. This book assists attorneys in understanding their reporting obligations when appearing before the Securities and Exchange Commission, as mandated by Sarbanes-Oxley Act section 307. The authors provide an easy-to-read reference guide that offers an explanation of these rules, with references to legislative comments, and they also provide a complete text of the final reporting rules. The book serves as an excellent quick reference guide to the recent reporting responsibilities when representing clients and appearing before the SEC.

An interesting section of the book is a description of the history of section 307 and the controversy surrounding its development. The rules, which took effect on Aug. 5, 2003, require attorneys to report "up the ladder" of the corporation if they find evidence of a material securities violation by the company or any of its directors, officers, or employees. The rules were designed to improve the accuracy and reliability of corporate disclosure to increase confidence in the securities markets. The rules cover attorneys who provide legal services to a company and have notice that documents that they are preparing will be filed or submitted to the SEC. The authors provide details as to the responsibilities of foreign attorneys, subordinate and supervisory attorneys, and corporate counsel, including a company's chief legal officer.

The book also discusses difficult situations in representation, such as when the individual to whom the attorney provides evidence regarding a possible material violation fails to take appropriate action or any action at all. The obligations of an attorney who works for a nonpublic subsidiary of a publicly- traded company also are discussed. Relevant terms such as the "reasonably likely" standard and "material violation" are defined and described effectively. However, the interplay between attorney-client privilege, an attorney's obligation for candor before the SEC, and the responsibility to the corporate entity as the client is interwoven throughout the text but is not as directly addressed as it warrants. For example, additional discussion of the major objections to the Act based on attorney-client privilege would have been worthwhile in providing an overall sense of the conflict in drafting section 307.

The book also reviews the rule permitting companies to establish a qualified legal compliance committee (QLCC) as an alternative procedure for reporting evidence of a material violation. Other issues that are discussed include the "policing authority" of the SEC, under what circumstances a covered attorney is authorized to reveal confidences directly to the SEC, "safe harbor" provisions, the lack of a private right of action under Sarbanes-Oxley, and sanctions for violations of the Act. Other informative topics focus on proposed rules that were ultimately rejected.

This book is a good primer on the reporting responsibilities of corporate attorneys. It provides clear guidance to assist attorneys and corporate counsel in understanding the basis and extent of their reporting obligations while serving their clients in securities law. While it is a useful reference for attorneys to begin their inquiry into these issues, attorneys who frequently handle securities law issues may find a more in-depth analysis necessary.

If you are interested in business law services, please contact Hostak, Henzl & Bichler, S.C. attorneys, Robert R. Henzl, James W. Hill, Stephen J. Smith, David A. Wolfe, or Cheryl A. Hagen, at 262.632.7541.