[Congressional Record Volume 148, Number 81 (Tuesday, June 18, 2002)]
[Senate]
[Pages S5652-S5653]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           THE ETHICAL RESPONSIBILITY OF LAWYERS AFTER ENRON

  Mr. EDWARDS. Madam President, I want to say a few words about the 
responsibilities of lawyers in corporate America.
  In recent weeks we have learned about high-flying corporations that 
came crashing to the ground after top executives played fast and loose 
with the law. And we have heard how ordinary employees and shareholders 
can lose their life savings when millionaire managers break the rules.
  For the most part, the public has focused on the role of the managers 
and the accountants in allowing this kind of misconduct to happen, and 
of course that is critical.
  But the truth is that executives and accountants do not work alone. 
Wherever executives or accountants are at work in America today, 
lawyers are looking over their shoulders. And if the executives and 
accountants are breaking the law, you can be sure part of the problem 
is that the lawyers aren't doing their jobs. The findings of the jury 
in the Andersen case only highlight the role of lawyers in American 
business today.
  I know from personal experience what the responsibility of a lawyer 
is. I was proud to practice law for 20 years. I was proud to fight for 
my clients, regular people who had been wronged by powerful interests. 
When I took on a client, I recognized my duty to that client: to 
represent him or her zealously, but to do so within the limits of the 
law.
  The lawyers for a corporation--the lawyers at an Enron, for example--
they have different kinds of clients from the clients I had. But they 
have the same basic responsibility: to represent their clients 
zealously, and to represent them within the limits of the law.
  My concern today is that some corporate lawyers--not all, but some--
are forgetting that responsibility.
  Let me get a little more specific. If you are a lawyer for a 
corporation, your client is the corporation. You work for the 
corporation and for the ordinary shareholders who own the corporation. 
That is who you owe your loyalty to. That is who you owe your zealous 
advocacy to.
  What we see lawyers doing today is sometimes very different. 
Corporate lawyers sometimes forget they are working for the corporation 
and the shareholders who own it.
  Instead, they decide they are working for the chief executive officer 
or the chief operating officer who hired them. They get to thinking 
that playing squash with the CEO every week is more important than 
keeping faith with the shareholders every day. So the lawyers may not 
do their duty to say to their pal, the CEO, ``No, you cannot break the 
law.''
  In my view, it is time to remind corporate lawyers of their legal and 
moral obligations--as members of the bar, as officers of the courts, as 
citizens of this country.
  The American Bar Association ought to take a leading role here, 
something they have not done thus far.
  The Securities and Exchange Commission has an essential part to play 
as well. For some time, the SEC promoted the basic responsibility of 
lawyers to take steps in order to stop corporate managers from breaking 
the law. The rule for lawyers that the SEC promoted was simple: If you 
find out managers are breaking the law, you tell them to stop. And if 
they won't stop, you go to the board of directors, the people who 
represent the shareholders, and you tell them what is going on.
  After promoting the simple principle that lawyers must ``go up the 
ladder'' when they learn about misconduct, the SEC gave up the fight. 
They gave up the fight in part because the American Bar Association 
opposed their efforts.
  In my view, it is time for the ABA and SEC to change their tune. 
Today I am sending a letter to the Chairman of the SEC, Harvey Pitt, 
asking him to renew the SEC's enforcement of corporate lawyers' ethical 
responsibility to go up the ladder.
  In answer to a petition from 40 leading legal scholars, the SEC has 
already signaled that it probably will not take up the challenge I am 
talking about. I believe that is wrong. If Mr. Pitt responds to my 
inquiry by saying that the SEC plans to do nothing, then I believe we 
will probably need to move in this body to impose the limited 
responsibility I have discussed.
  I ask unanimous consent that the full text of my letter to Mr. Pitt 
be printed in the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                                  U.S. Senate,

                                    Washington, DC, June 18, 2002.
     Hon. Harvey Pitt,
     Chairman, Securities and Exchange Commission, Washington, DC.
       Dear Chairman Pitt: I am writing to you about the 
     responsibilities of lawyers under the federal securities 
     laws.
       In the wake of the Enron scandal, the public has focused on 
     the role of accountants in maintaining the integrity of our 
     free market system. In my view, it is time to scrutinize the 
     role of lawyers as well. When corporate managers are engaged 
     in damaging illegal conduct, the lawyers who represent the 
     corporation can sometimes stop that conduct simply by 
     reporting it to the corporate board of directors. Yet lawyers 
     do not always engage in such reporting, in part because the 
     lawyers' duties are frequently unclear. While the lawyers' 
     inaction may be good for the inside managers, it can be 
     devastating to the ordinary shareholders who own the 
     corporation.
       The American Bar Association's Model Rules of Professional 
     Responsibility have not recognized mandatory and unambiguous 
     rules of professional conduct for corporate practitioners, 
     and rules at the state level are varied and often unenforced. 
     During the 1970s and 1980s, as you know, the SEC instituted 
     proceedings under Rule 2(e) (now rule 102(e)) to enforce 
     minimum ethical standards for the practice of federal 
     securities law. The SEC has since stopped bringing these 
     types of actions. On March 7, 2002, forty legal scholars 
     wrote a letter to you suggesting, among other things, that 
     the Commission require a lawyer representing a corporation in 
     securities practice to inform the corporation's board of 
     directors if the lawyer knows the corporation is violating 
     the Federal securities laws and management has been notified 
     of the violation and has not acted promptly to rectify it. In 
     a March 28, letter, your then-general counsel, David M. 
     Becker,

[[Page S5653]]

     indicated that, absent congressional action, the SEC would 
     leave this matter to state authorities.
       It seems to me that a lawyer with knowledge of managers' 
     serious, material, and unremedied violations of federal 
     securities law should have an obligation to inform the board 
     of those violations. Particularly in view of the uncertainty 
     surrounding current ABA and state rules, my view is that this 
     obligation should be imposed as a matter of federal law or 
     regulation. Recognition and enforcement of this important but 
     limited obligation could prevent substantial harms to 
     shareholders and the public.
       I would appreciate receiving your answers to the following 
     two questions at your earliest convenience:
       1. Absent further congressional action, does the SEC plan 
     to act to enforce a minimum standard of professional conduct 
     for lawyers in securities practice along the lines I have 
     suggested?
       2. If your answer to the preceding question is no, would 
     you be willing to assist me in carefully crafting legislation 
     to impose this duty on lawyers?
       I look forward to hearing from you.
           Yours Sincerely,
     John Edwards.

                          ____________________