US Securities Commission update

Law Society flags concerns over alternative to noisy withdrawal

In a submission to the US Securities & Exchange Commission on April 3, the Law Society has expressed concern over the impact of proposed new securities rules on the lawyer-client relationship and on lawyer independence.

The Commission had originally proposed a "noisy withdrawal" rule. Under that rule, a securities lawyer representing an issuer before the Commission who has identified and reported to that client a material violation by the client of securities laws would subsequently need to take certain steps. Ultimately, the rule could require the lawyer to withdraw from representing the client, to notify the Commission of the withdrawal and to disaffirm submissions on behalf of the client.

The proposed noisy withdrawal rule elicited widespread concern in the legal profession. The Law Society of BC joined in a submission by the Federation of Law Societies late last year to oppose the proposed "noisy withdrawal" rule since such a rule would force a lawyer in Canada to breach duties of loyalty and confidentiality owed to a client - duties that are fundamental to the lawyer-client relationship.

The Commission has since proposed an alternative rule under which a lawyer might still be required to terminate a retainer, but need not report his or her withdrawal (that obligation would fall on the client). Nor would the lawyer need to disaffirm submissions made on the client's behalf.

In its recent letter of submission, the Law Society observed that the alternative rule is preferable to "noisy withdrawal" in that it does not force the lawyer to disclose privileged or confidential information about a client. Nevertheless, such a rule risks a negative impact on the relationship between lawyers and their clients.

As noted in the Law Society submission, "a requirement on an issuer to notify its regulatory authority that a lawyer has withdrawn for professional reasons may still make the issuer reluctant to confide in its lawyer or present its lawyer with the full facts of a particular matter because of the fear of the possible reporting requirements should the lawyer feel compelled to withdraw. To avoid such public disclosure, issuers may be inclined to simply not seek advice from counsel on difficult matters."

In a broader sense, the Law Society opposes any move by the Commission to regulate the lawyers who appear before it as this would substantially compromise lawyer independence.

Canadian and other foreign lawyers who are not admitted in the United States and who do not advise clients on US law are not covered by the proposed rule. However, Canadian and other foreign lawyers who provide legal advice regarding US law would be covered by the rule to the extent that they appear or practise before the Commission, unless they provide such advice in consultation with US counsel.

For more information, see Proposed Rule on Implementation of Standards of Professional Conduct for Attorneys (Final Rule 33-8185 and Proposed Rule 33-8186) at