BarTalk February 2003
Volume 15, Number 1

CBA opposes proposed US SEC rules

The Canadian Bar Association has voiced its strong objection to new rules being proposed by the U.S. Securities and Exchange Commission (SEC), under the Sarbanes-Oxley Act, that would jeopardize lawyer-client confidentiality. “The proposed SEC rules under consideration extend the reach of the Act and could have the effect of turning trusted legal advisors into securities police,” says President Simon Potter, of Montreal.

In the CBA’s submission filed prior to a December 17th hearing, the CBA warned that clients will be reluctant to disclose information to lawyers if they fear their lawyer will be compelled to alert authorities rather than to advise the client as to how to comply. The CBA also says lawyers will be leery of giving advice if they fear that they may have to report up the corporate ladder, withdraw from the case, and disclose to the SEC. These actions would breach the lawyers’ ethical obligation to their client.

News of the CBA position was e-mailed to all members. The action sparked an unprecedented response from across the country. “Best of luck in pursuing this matter,” wrote one member, “in my opinion, the U.S. regulators have gone way too far in their quest to cure the excesses of the Internet bubble.” One member who disagreed wrote: “I submit that the large Bay Street firms and their well-financed corporate clients…are quite capable of addressing their own concerns at the SEC without the subsidy of my CBA dues contribution.” But others – the majority – praised the CBA position. “Thank you for standing up for the right of solicitor client privilege…” was the overwhelming message.

“I am distressed at how this privilege is under attack in the USA, and by the threat that it will spread to Canada,” wrote another member. “The CBA is again doing what it does best,” read the e-mail. “Thanks so much to you and all the lawyers who contributed to this very important work.”

After filing the CBA submission with the Commission, President Simon Potter attended the SEC debate in Washington and met with Canadian reporters to defend the interests of Canada’s lawyers and their clients conducting business in the U.S. News of the CBA position featured prominently in Canada’s business media, on the national CP wire service, in the Globe and Mail’s Report on Business, and Montreal’s Le Devoir newspaper. Interviews and stories of the CBA objections were carried on CBC Newsworld, CTV Newsnet, ROB Television, RDI-TV Capital Action, and by CBC Radio News.

The CBA takes strong exception to the proposed “noisy withdrawal” rule which requires lawyers to whistle-blow on their clients and report to Securities authorities any misconduct or violation lawyers “reasonably believe” may be contained in documents submitted to the SEC. “Canadian lawyers are already subject to rules of conduct which ensure that they behave in a highly ethical manner,” said Mr. Potter.

The CBA will continue to monitor the situation closely, respond as needed, and keep the profession advised of any developments on this important issue.

This article was published in the February 2003 issue of BarTalk and is subject to the copyright by the British Columbia Branch of the Canadian Bar Association, 2005, all rights reserved.