In one of the final pieces of regulatory business inspired by debacles involving Enron Corp. and other corporations, the Securities and Exchange Commission wants to require lawyers to, in effect, blow the whistle on financial misconduct if a company refuses to reverse it after repeated, in-house warnings.
Critics are using such terms as “Orwellian” to describe the proposal, which the SEC could vote on as early as this summer. The plan is drawing fierce resistance from the legal bar, which views it as an assault on attorney-client privilege – the long-standing practice of keeping communications between attorneys and their clients confidential – and an unnecessary federal incursion into a domain largely controlled at the state level.
The SEC proposal also might prompt questions inside corporate boardrooms about the privacy of lawyer-client conversations, which always have been considered secret.
Under the proposal, corporate lawyers who discovered continuing financial misconduct would be obliged to quit and report their resignations to the SEC. They would not have to disclose what they found, but the act of resigning could serve as a warning to federal investigators.