An attorney's _and_quot;noisy withdrawal_and_quot; and The Stanford 2644
lekatis last edited by
Let’s start from the very interesting sections of the Sarbanes Oxley Act that cover the behavior of attorneys.
A. Section 307 of the Sarbanes Oxley Act instructs the Securities and Exchange Commission to adopt a new federal rule requiring all attorneys appearing and practicing before the SEC to report evidence of material violations of the securities laws and other misconduct ‘up-the-ladder’ to the company’s senior management, and if necessary, to its board of directors.
Section 307 also authorizes the SEC to adopt minimum standards of professional conduct for attorneys appearing and practicing before the agency.
B. On November 21, 2002, the SEC released its initial proposed ‘up-the-ladder’ reporting rule as required by Section 307.
The original proposed rule also contained ‘noisy withdrawal’ provisions stating that if the corporate client fails to take appropriate remedial steps after being informed by the attorney of illegal activity, the attorney would be required to withdraw from representation, notify the SEC of the withdrawal, and disaffirm any tainted documents.
The original proposed rule also would permit attorneys to reveal confidential client information to the SEC under certain circumstances.
C. On January 29, 2003, the SEC released its final up-the-ladder reporting rule. As noted in the SEC’s January 23 press release, the final rule narrowed the scope of coverage by excluding many foreign attorneys and other types of attorneys who are not directly involved in SEC matters.
In addition, the SEC also extended for 60 days the comment period on the ‘noisy withdrawal’ portion of the initial proposed rule and issued an alternative proposal that would still require the attorney to withdraw if the company fails to take appropriate remedial action, but would instruct the company–not the attorney–to notify the SEC of the withdrawal.
This is what has happened after the Sarbanes Oxley Act.
Let’s see now how a ‘noisy withdrawal’ became a massive red flag.
A couple of weeks ago the U.S. Securities and Exchange Commission charged Texas billionaire Allen Stanford, two associates and three of his companies with massive, ongoing fraud.
According to the SEC, Robert Allen Stanford and three of his companies orchestrated a fraudulent, multi-billion dollar investment scheme.
Stanford’s companies include Antiguan-based Stanford International Bank SIB, Houston-based broker-dealer and investment adviser Stanford Group Company SGC, and investment adviser Stanford Capital Management.
‘Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors’ said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.
SIB has sold approximately USD8 billion of so-called ‘certificates of deposit’ to investors by promising improbable and unsubstantiated high interest rates.
These rates were supposedly earned through SIB’s unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years.
According to the SEC’s complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in ‘liquid’ financial instruments the portfolio; monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators.
The SEC’s complaint charges violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act, and registration provisions of the Investment Company Act.
THE NOISY WITHDRAWAL
‘I disaffirm all prior oral and written representations made by me and my associates to the SEC staff regarding Stanford Financial Group and its affiliates.’
This is what Mr. Sjoblom , the attorney that represented the Antigua affiliate of Stanford’s investment advisory firm, disclosed to the SEC.
The attorney withdrew his representation, and told federal investigators he essentially took back everything he had told to them in recent weeks.
Prior to entering private practice, Mr. Sjoblom spent nearly 20 years at the Securities and Exchange Commission in Washington, D.C. From 1987 to 1999, Mr. Sjoblom served as an Assistant Chief Litigation Counsel in the SEC’s Division of Enforcement.
Only 3days after that, the SEC filed suit against Stanford and others, alleging an USD8 billion fraud.
WHAT? NOISY WITHDRAWAL?
This is a term created by the Sarbanes-Oxley Act… and it woks.
The Sarbanes-Oxley Act made the attorney’s decision much easier.
The Act contains a provision that explicitly states that any attorney before the Securities and Exchange Commission ‘may’ reveal confidential client information to investigators if that attorney believes that doing so will prevent a violation of the law or help rectify losses investors have already suffered.
Without the Sarbanes-Oxley Act it would be a tough decision. Before SOX, attorneys faced some really confusing state laws and bar regulations.