The Duty to Report Up the Chain

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  • Difference – TYPE OF ORGANIZATION:-any lawyer for public or private organization (even tho impetus for this rule: public company violations; rule extends to private cos. Take Force: applies in any situation in which an organization has multiple owners or members [such as minority owners in a closely held business] other than the organization’s managers) Examples: far cry from Enron: ethics counsel for law firm; atty representing a city who failed to report mayor’s misconduct; zoning board’s atty who failed to report up re: continuing violating of state law-v. public company filing reports w/ SECDifference – TYPE OF REPRESENTATION-any representation-v. lawyer appearing & practicing before the SEC -Of course, includes communicating with SEC, representing issuer in an SEC admin. Proceeding or investiation -perhaps, may surprise you, that also including providing advice re: the securities laws re: document to be submitted to SEC.
  • -1.13 – “a lawyer cannot ignore the obvious” – but inquiry takes into account the lawyer’s expertise, the volume of info that the lawyer is consideringSEC – to be “reasonably likely,” a material violation must be more than a “mere possibility” but need not be “more likely than not” – akin to a negligence standard
  • 1.13 – NOT ‘decisions concerning policy and operations, including ones entailing serious risk” – not “in lawyer’s province”-1.13 – violation of legal obligation TO the org. (br of fid’y duty) OR violation that reasonably might be imputed to org.E.g., from Mich. Ethics opinion RI-345: CEO of corporation engaged in litigation told lawyer he was going to detroy documents rather than turn them over in discovery. Lawyer had duty to first try to dissuade officer. If unsuccessful, to report to bd of directors.-SEC – securities/fiduciary duty/“similar” material violation of any federal or state law -ALSO, 1.13 – must relate to rep. SEC, not nec’y–SO, unsafe working conditions, if related to rep., 1.13 but not SEC--likely to result in substantial injury v. “material violation” -- material = lower standard?
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  • The Duty to Report Up the Chain

    1. 1. The Duty to Report Up the Chain Wendy Gerwick Couture Associate Professor University of Idaho College of Law
    2. 2. SEC RuleRule 1.13 17 C.F.R. § 205.1 et seq. The Duty to Report Up the Chain
    3. 3. SEC Rule Rule 1.13 17 C.F.R. § 205.1 et seq. The Duty to Report Up the Chain• Approved by ABA House of • Sarbanes-Oxley Act § 307 enacted on Delegates in August 2003. July 30, 2002.• Effective in Idaho on July 1, 2004. • SEC rules effective on August 5, 2003.
    4. 4. SEC Rule Rule 1.13 17 C.F.R. § 205.1 et seq. The Duty to Report Up the ChainReport of the ABA Task Force on Senator John Edwards’ commentsCorporate Responsibility at 14-15 during the floor debate re: Section 307(March 31, 2003): of SOX:“The competition to acquire and keep “This amendment is about making sureclient business, or the desire to advance those lawyers, in addition to thewithin the corporate executive accountants and executives in thestructure, may induce lawyers to seek company, dont violate the law and, into please the corporate officials with fact, more importantly, ensure that thewhom they deal rather than to focus on law is being followed.”the long-term interest of their client,the corporation.” 148 Cong. Rec. S6552 (July 10, 2002)
    5. 5. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    6. 6. SEC Rule Rule 1.13 17 C.F.R. § 205.1 et seq. The Duty to Report Up the ChainWhat should an attorney do if both rules are triggered and arenot identical?
    7. 7. SEC Rule Rule 1.13 17 C.F.R. § 205.1 et seq. The Duty to Report Up the ChainWhat should an attorney do if both rules are triggered and arenot identical?• If one rule is more stringent than the other, the attorney must comply with the more stringent rule.17 C.F.R. § 205.1 (“These standards supplement applicable standards of anyjurisdiction where an attorney is admitted or practices and are not intended tolimit the ability of any jurisdiction to impose additional obligations on anattorney not inconsistent with the application of this part.”).
    8. 8. SEC Rule Rule 1.13 17 C.F.R. § 205.1 et seq. The Duty to Report Up the ChainWhat should an attorney do if both rules are triggered and arenot identical?• If one rule is more stringent than the other, the attorney must comply with the more stringent rule.• If the state rule prohibits something that the SEC rule requires, the attorney must comply with the SEC rule.17 C.F.R. § 205.1 (“Where the standards of a state or other United Statesjurisdiction where an attorney is admitted or practices conflict with this part,this part shall govern.”).
    9. 9. SEC Rule Rule 1.13 17 C.F.R. § 205.1 et seq. The Duty to Report Up the ChainWhat should an attorney do if both rules are triggered and are notidentical?• If one rule is more stringent than the other, the attorney must comply with the more stringent rule.• If the state rule prohibits something that the SEC rule requires, the attorney must comply with the SEC rule.• If the state rule prohibits something that the SEC rule permits, the attorney may probably do what the SEC rule permits, as long as in good faith.North Carolina State Bar 2005 Formal Ethics Opinion 9 (“*A+ North Carolina attorneymay, without violating the NC RPC, disclose confidential information as permitted byRule 205 although such disclosure would not otherwise be permitted by NC Rule.”).
    10. 10. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    11. 11. Initial Reporting Duty Rule 1.13 SEC Rule 17 C.F.R. §205.1 et seq.
    12. 12. Initial Reporting Duty Rule 1.13IF lawyer for organization knows that: officer, employee, or other person associated with the organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a violation of law that reasonably might be imputed to the organization that is likely to result in substantial injury to the organization SEC Rule 17 C.F.R. § 205.1 et seq.
    13. 13. Initial Reporting Duty THEN shall proceed as is Rule 1.13 reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a violation of law that reasonably might be imputed to the organization that is likely to result in substantial injury to the organization SEC Rule 17 C.F.R. § 205.1 et seq.
    14. 14. Initial Reporting Duty THEN shall proceed as is Rule 1.13 reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a UNLESS lawyer reasonably believes violation of law that reasonably might be imputed to the that isn’t necessary in the best organization interest of the organization to do so, that is likely to result in substantial injury to the organization lawyer shall refer the matter to higher authority in the organization SEC Rule 17 C.F.R. § 205.1 et seq.
    15. 15. Initial Reporting Duty THEN shall proceed as is Rule 1.13 reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a UNLESS lawyer reasonably believes violation of law that reasonably might be imputed to the that isn’t necessary in the best organization interest of the organization to do so, that is likely to result in substantial injury to the organization lawyer shall refer the matter to higher authority in the organization SEC Rule 17 C.F.R. § 205.1 et seq.IF an attorney,appearing and practicing before the SEC,becomes aware of evidence of: a material violation by the issuer or by any officer, director, employee, or agent of the issuer
    16. 16. Initial Reporting Duty THEN shall proceed as is Rule 1.13 reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a UNLESS lawyer reasonably believes violation of law that reasonably might be imputed to the that isn’t necessary in the best organization interest of the organization to do so, that is likely to result in substantial injury to the organization lawyer shall refer the matter to higher authority in the organization SEC Rule 17 C.F.R. § 205.1 et seq.IF an attorney, THEN shall report suchappearing and practicing before the SEC, evidence to:becomes aware of evidence of: - the issuer’s chief legal a material violation officer, OR by the issuer or by any officer, director, employee, or - the issuer’s chief legal agent of the issuer officer and the CEO, OR - the issuer’s “qualified legal compliance committee,” if formed
    17. 17. Initial Reporting Duty THEN shall proceed as is Rule 1.13 reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a UNLESS lawyer reasonably believes violation of law that reasonably might be imputed to the that isn’t necessary in the best organization interest of the organization to do so, that is likely to result in substantial injury to the organization lawyer shall refer the matter to includes providing advice higher authority in the organization SEC Rule on securities laws re: any 17 C.F.R. § document to be 205.1 et seq. submitted to SECIF an attorney, THEN shall report suchappearing and practicing before the SEC, evidence to:becomes aware of evidence of: - the issuer’s chief legal a material violation officer, OR by the issuer OR by any officer, director, employee, or - the issuer’s chief legal agent of the issuer officer and the CEO, OR means a public company - the issuer’s “qualified legal compliance committee,” if formed
    18. 18. Initial Reporting Duty of denotes actual knowledge THEN shall proceed as is Rule 1.13 the fact in question, which may be inferred from circumstances reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a UNLESS lawyer reasonably believes violation of law that reasonably might be imputed to the that isn’t necessary in the best organization interest of the organization to do that is likely to result in substantial injury to the organization so, lawyer shall refer the matter to higher authority in the organization SEC Rule 17 C.F.R. § 205.1 et seq.IF an attorney, THEN shall report suchappearing and practicing before the SEC, evidence to:becomes aware of evidence of: - the issuer’s chief legal a material violation officer, OR by the issuer OR by any officer, director, employee, or - the issuer’s chief legal agent of the issuer officer and the CEO, means credible evidence, based upon which it OR would be unreasonable, under the circumstances, - the issuer’s “qualified for a prudent & competent attorney not to legal compliance conclude that it is reasonably likely that a violation committee,” if formed has occurred, is ongoing, or is about to occur
    19. 19. Initial Reporting Duty THEN shall proceed as is Rule 1.13 reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a UNLESS lawyer reasonably believes violation of law that reasonably might be imputed to the that isn’t necessary in the best organization interest of the organization to do so, that is likely to result in substantial injury to the organization lawyer shall refer the matter to higher authority in the organization SEC Rule 17 C.F.R. § 205.1 et seq.IF an attorney, THEN shall report suchappearing and practicing before the SEC, evidence to:becomes aware of evidence of: - the issuer’s chief legal a material violation officer, OR by the issuer OR by any officer, director, employee, or - the issuer’s chief legal agent of the issuer officer and the CEO, OR means a material violation of a federal or state securities law, a material breach of fiduciary duty - the issuer’s “qualified arising under federal or state law, or a similar legal compliance material violation of any federal or state law committee,” if formed
    20. 20. Initial Reporting Duty THEN shall proceed as is Rule 1.13 reasonably necessary inIF lawyer for organization knows that: the best interest of the officer, employee, or other person associated with the organization organization is engaged in action, intends to act, or refuses to act in a matter related to representation that is a violation of legal obligation to the organization OR a UNLESS lawyer reasonably believes violation of law that reasonably might be imputed to the that isn’t necessary in the best organization allows lawyer more flexibility interest of the organization to do so, under some circumstances, that is likely to result in substantial injury to the organization lawyer shall refer the matter to such as a constituent’s innocent higher authority in the organization SEC Rule misunderstanding of the law, which the lawyer can correct by 17 C.F.R. § advising constituent 205.1 et seq.IF an attorney, THEN shall report suchappearing and practicing before the SEC, evidence to:becomes aware of evidence of: - the issuer’s chief legal a material violation officer, OR by the issuer OR by any officer, director, employee, or - the issuer’s chief legal agent of the issuer officer and the CEO, OR - the issuer’s “qualified legal compliance committee,” if formed
    21. 21. Initial Reporting Duty SEC Rule 17 C.F.R.Rule 1.13 § 205.1 et seq.
    22. 22. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    23. 23. Duty to Continue Reporting Up the Chain Rule 1.13 SEC Rule 17 C.F.R. §205.1 et seq.
    24. 24. Duty to Continue Reporting Up the Chain Rule 1.13Unless the lawyer reasonably believes that it is not necessaryin the best interest of the organization to do so, the lawyershall refer the matter to higher authority in the organization,including, if warranted by the circumstances, to the highestauthority that can act on behalf of the organization asdetermined by applicable law. SEC Rule 17 C.F.R. § 205.1 et seq.
    25. 25. Duty to Continue Reporting Up the Chain Rule 1.13Unless the lawyer reasonably believes that it is not necessaryin the best interest of the organization to do so, the lawyer “ordinarily will be the board ofshall refer the matter to higher authority in the organization, directors or similar governing body”including, if warranted by the circumstances, to the highestauthority that can act on behalf of the organization asdetermined by applicable law. SEC Rule 17 C.F.R. § 205.1 et seq.
    26. 26. Duty to Continue Reporting Up the Chain Rule 1.13Unless the lawyer reasonably believes that it is not necessaryin the best interest of the organization to do so, the lawyer “ordinarily will be the board ofshall refer the matter to higher authority in the organization, directors or similar governing body”including, if warranted by the circumstances, to the highestauthority that can act on behalf of the organization asdetermined by applicable law. SEC Rule 17 C.F.R. § 205.1 et seq.- If attorney made report to QLCC, no duty to report up the chain.
    27. 27. Duty to Continue Reporting Up the Chain Rule 1.13Unless the lawyer reasonably believes that it is not necessaryin the best interest of the organization to do so, the lawyer “ordinarily will be the board ofshall refer the matter to higher authority in the organization, directors or similar governing body”including, if warranted by the circumstances, to the highestauthority that can act on behalf of the organization asdetermined by applicable law. SEC Rule 17 C.F.R. § 205.1 et seq.- If attorney made report to QLCC, no duty to report up the chain.- Otherwise, unless an attorney who has made a report reasonably believes that the chief legal officer or the CEO of the issuer has provided an appropriate response within a reasonable time, the attorney shall report the evidence of a material violation to:
    28. 28. Duty to Continue Reporting Up the Chain Rule 1.13Unless the lawyer reasonably believes that it is not necessaryin the best interest of the organization to do so, the lawyer “ordinarily will be the board ofshall refer the matter to higher authority in the organization, directors or similar governing body”including, if warranted by the circumstances, to the highestauthority that can act on behalf of the organization asdetermined by applicable law. SEC Rule 17 C.F.R. § 205.1 et seq.- If attorney made report to QLCC, no duty to • audit committee of board of report up the chain. directors; OR- Otherwise, unless an attorney who has made a • another committee consisting report reasonably believes that the chief legal solely of independent directors; officer or the CEO of the issuer has provided an OR appropriate response within a reasonable time, • board of directors (if no the attorney shall report the evidence of a committee consisting solely of material violation to: independent directors)
    29. 29. Duty to Continue Reporting Up the Chain Rule 1.13Unless the lawyer reasonably believes that it is not necessaryin the best interest of the organization to do so, the lawyer “ordinarily will be the board ofshall refer the matter to higher authority in the organization, directors or similar governing body”including, if warranted by the circumstances, to the highestauthority that can act on behalf of the organization asdetermined by applicable law. SEC Rule 17 C.F.R. § 205.1 et seq.- If attorney made report to QLCC, no duty to • audit committee of board of report up the chain. directors; OR- Otherwise, unless an attorney who has made a • another committee consisting report reasonably believes that the chief legal solely of independent directors; officer or the CEO of the issuer has provided an OR appropriate response within a reasonable time, • board of directors (if no the attorney shall report the evidence of a committee consisting solely of means that the attorney reasonably believes: material violation to: independent directors) • no material violation occurred, is ongoing, or is about to occur; OR • the issuer has adopted appropriate remedial measures; OR • the issuer has retained counsel to review the reported evidence AND (i) substantially implemented counsel’s remedial recommendations, or (ii) been advised that counsel may assert colorable defense
    30. 30. Duty to Continue Reporting Up the Chain SEC Rule 17 C.F.R. Rule 1.13 § 205.1 et seq.
    31. 31. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    32. 32. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. §1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) (2)(i) (2)(iii)
    33. 33. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. §1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d)  to prevent (2)(i) (2)(iii) substantial injury to the organization  after lawyer reported constituent’s action or intention to act;  highest authority that can act on behalf of organization failed to address in timely & appropriate manner;  action or inaction is a clear violation of law
    34. 34. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(1) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent (2)(i) (2)(iii) client from substantial injury committing a to the crime organization  after lawyer reported constituent’s action or intention to act;  highest authority that can act on behalf of organization failed to address in timely & appropriate manner;  action or inaction is a clear violation of law
    35. 35. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(1) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury committing a rectify to the crime organization  substantial injury to the  after lawyer financial reported interests or constituent’s property of action or another intention to act;  that is  highest authority reasonably that can act on certain to result behalf of or has resulted organization from the clients failed to address commission of a in timely & crime appropriate manner;  in furtherance of which the client  action or has used the inaction is a lawyers services clear violation of law
    36. 36. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to  to prevent (2)(i) (2)(iii) client from prevent, mitigat substantial injury committing a e or rectify  to prevent issuer to the crime from committing organization  substantial a material violation injury to the  after lawyer financial reported interests or  that is likely to constituent’s property of cause action or another substantial intention to act; injury to the  that is financial interest  highest authority reasonably or property of that can act on certain to result the issuer or behalf of or has resulted investors organization from the clients failed to address commission of a  may reveal to in timely & crime SEC only appropriate manner;  in furtherance of which the client  action or has used the inaction is a lawyers services clear violation of law
    37. 37. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or substantial substantial injury another intention to act; injury to the to the financial financial interest interest or  that is  highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization  in furtherance of from the clients failed to address commission of a  may reveal to which the in timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    38. 38. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or substantial substantial injury another intention to act; injury to the to the financial financial interest interest or  that is  highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization fails  in furtherance of from the clients to address in commission of a  may reveal to which the timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    39. 39. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or substantial substantial injury another intention to act; injury to the to the financial financial interest interest or  that is  highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization fails  in furtherance of from the clients to address in commission of a  may reveal to which the timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    40. 40. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or Future or Past substantial Future substantial injury another intention to act; ongoing injury to the toviolation the financial Future crime Past crime violation financial interest interest or  that is  violation highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization fails  in furtherance of from the clients to address in commission of a  may reveal to which the timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    41. 41. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or substantial substantial injury another intention to act; injury to the to the financial financial interest interest or  that is  highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization fails  in furtherance of from the clients to address in commission of a  may reveal to which the timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    42. 42. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or substantial substantial injury another intention to act; injury to the to the financial financial interest interest or  that is  highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization fails  in furtherance of from the clients to address in commission of a  may reveal to which the timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    43. 43. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or Future or Past substantial Future substantial injury another intention to act; ongoing injury to the toviolation the financial Future crime Past crime violation financial interest interest or  that is  violation highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization fails  in furtherance of from the clients to address in commission of a  may reveal to which the timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    44. 44. Option to Report Out Lawyer may reveal information to extent lawyer reasonably believes necessary: Rule Rule Rule 17 C.F.R. § 17 C.F.R. § 1.6(b)(2) 1.6(b)(3) 1.13(c) 205.3(d) 205.3(d) to prevent  to prevent,  to prevent (2)(i) (2)(iii) client from mitigate or substantial injury  to prevent issuer  to rectify the committing a rectify to the from committing consequences of a crime organization a material material violation  substantial violation by the issuer injury to the  after lawyer financial reported  that is likely to  that has caused, or interests or constituent’s cause may cause, property of action or substantial substantial injury another intention to act; injury to the to the financial financial interest interest or  that is  highest authority or property of property of the reasonably that can act on the issuer or issuer or investors certain to result behalf of or has resulted investors organization fails  in furtherance of from the clients to address in commission of a  may reveal to which the timely & attorney’s services crime SEC only appropriate were used manner;  in furtherance of  may reveal to SEC which the client  action or only has used the inaction is a lawyers services clear violation of law
    45. 45. Option to Report Out Rule 1.13(c)
    46. 46. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    47. 47. Withdrawal Idaho Rules SEC Rule 17 C.F.R. §IF effect is that lawyer isassisting client in 205.1 et seq.conduct that the lawyerknows is criminal orfraudulent Lawyer MUST withdraw 1.2(d); 1.16 (a)(1).
    48. 48. Withdrawal Idaho Rules SEC Rule IF client persists in course of action 17 C.F.R. §IF effect is that lawyer isassisting client in involving lawyer’s services that lawyer 205.1 et seq.conduct that the lawyer “reasonably believes is criminal orknows is criminal or fraudulent”fraudulent OR client has “used the lawyer’s services to perpetrate a crime or fraud” OR client “insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement” Lawyer MAY withdraw Lawyer MUST withdraw 1.16 (b). 1.2(d); 1.16 (a)(1).
    49. 49. Withdrawal Idaho Rules SEC Rule IF client persists in course of action 17 C.F.R. §IF effect is that lawyer isassisting client in involving lawyer’s services that lawyers 205.1 et seq.conduct that the lawyer “reasonably believes is criminal orknows is criminal or fraudulent”fraudulent OR client has “used the lawyer’s services to perpetrate a crime or fraud” OR client “insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement” Lawyer MAY withdraw Lawyer MUST withdraw 1.16 (b). 1.2(d); 1.16 (a)(1). If a lawyer withdraws under circumstances that trigger the initial reporting duty or the option to report out, the lawyer shall proceed as the lawyer reasonably believes necessary “to assure that the organization’s highest authority is informed” of the lawyer’s withdrawal.
    50. 50. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    51. 51. Idaho Rules Notification of Discharge SEC Rule 17 C.F.R. §IF “lawyer reasonably believes 205.1 et seq.that he or she has beendischarged because of thelawyer’s actions takenpursuant to paragraphs (b)and (c)”The lawyer shall proceed asthe lawyer reasonablybelieves necessary “to assurethat the organization’s highestauthority is informed” of thelawyer’s discharge. 1.13(e).
    52. 52. Idaho Rules Notification of Discharge SEC Rule 17 C.F.R. §IF “lawyer reasonably believes 205.1 et seq.that he or she has been IF an attorney who has reported evidence of adischarged because of the material violation under this part reasonablylawyer’s actions taken believes that he or she has been discharged forpursuant to paragraphs (b) doing soand (c)”The lawyer shall proceed asthe lawyer reasonably The lawyer may notify the issuer’s board ofbelieves necessary “to assure directors or any committee thereof. 17 C.F.R. §that the organization’s highest 205.3(b)(10).authority is informed” of thelawyer’s discharge. 1.13(e).
    53. 53. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    54. 54. Idaho Rules Anti-Retaliation Protections SEC RulesIdaho Protection of Public EmployeesAct. I.C. § 6-2101 et seq. (“An employer maynot take adverse action against an employeebecause the employee . . . communicates ingood faith the existence of . . . a violation orsuspected violation of a law, rule orregulation . . . Such communication shall bemade at a time and in a manner which givesthe employer reasonable opportunity tocorrect the waste or violation.”).
    55. 55. Idaho Rules Anti-Retaliation Protections SEC RulesIdaho Protection of Public EmployeesAct. I.C. § 6-2101 et seq. (“An employer maynot take adverse action against an employeebecause the employee . . . communicates ingood faith the existence of . . . a violation orsuspected violation of a law, rule orregulation . . . Such communication shall bemade at a time and in a manner which givesthe employer reasonable opportunity tocorrect the waste or violation.”).Common law claim for retaliatorydischarge in violation of public policy.See Bollinger v. Fall River Rural Elec. Coop.,152 Idaho 632, 641 (2012) (“This public policyexception is triggered only where anemployee is terminated for engaging in someprotected activity, which includes (1) refusingto commit an unlawful act, (2) performing animportant public obligation, or (3) exercisingcertain legal rights and privileges.”).
    56. 56. Idaho Rules Anti-Retaliation Protections SEC RulesIdaho Protection of Public Employees Sarbanes-Oxley § 806. 18 U.S.C. § 1514A.Act. I.C. § 6-2101 et seq. (“An employer may • No reporting issuer or agent thereof maynot take adverse action against an employee “discriminate against an employee in the terms andbecause the employee . . . communicates in conditions of employment because of any lawful actgood faith the existence of . . . a violation or done by the employee to provide information”suspected violation of a law, rule or • Regarding any conduct the employee reasonablyregulation . . . Such communication shall be believes constitutes a violation of §§ 1341, 1343,made at a time and in a manner which gives 1344, or 1348; any rule or regulation of the SEC; orthe employer reasonable opportunity to any provision of federal law re: fraud againstcorrect the waste or violation.”). shareholders • To a federal regulatory or law enforcement agency, to Congress, or to a person with supervisoryCommon law claim for retaliatory authority over the employee.discharge in violation of public policy.See Bollinger v. Fall River Rural Elec. Coop.,152 Idaho 632, 641 (2012) (“This public policyexception is triggered only where anemployee is terminated for engaging in someprotected activity, which includes (1) refusingto commit an unlawful act, (2) performing animportant public obligation, or (3) exercisingcertain legal rights and privileges.”).
    57. 57. Idaho Rules Anti-Retaliation Protections SEC RulesIdaho Protection of Public Employees Sarbanes-Oxley § 806. 18 U.S.C. § 1514A.Act. I.C. § 6-2101 et seq. (“An employer may • No reporting issuer or agent thereof maynot take adverse action against an employee “discriminate against an employee in the terms andbecause the employee . . . communicates in conditions of employment because of any lawful actgood faith the existence of . . . a violation or done by the employee to provide information”suspected violation of a law, rule or • Regarding any conduct the employee reasonablyregulation . . . Such communication shall be believes constitutes a violation of §§ 1341, 1343,made at a time and in a manner which gives 1344, or 1348; any rule or regulation of the SEC; orthe employer reasonable opportunity to any provision of federal law re: fraud againstcorrect the waste or violation.”). shareholders • To a federal regulatory or law enforcement agency, to Congress, or to a person with supervisoryCommon law claim for retaliatory authority over the employee.discharge in violation of public policy.See Bollinger v. Fall River Rural Elec.Coop., 152 Idaho 632, 641 (2012) (“This Dodd-Frank § 922; 17 C.F.R. § 240 et seq.public policy exception is triggered only • Mimics SOX § 806 anti-retaliation provision.where an employee is terminated for ANDengaging in some protected activity, which • No employer may discriminate against aincludes (1) refusing to commit an unlawful whistleblower in the terms and conditions ofact, (2) performing an important public employment because of any act in providingobligation, or (3) exercising certain legal information to the SEC regarding a possiblerights and privileges.”). securities act violation
    58. 58. SEC RuleRule 1.13 17 C.F.R. § The Duty to 205.1 et seq. Report Up the Chain Initial Reporting Duty Duty to Continue Reporting Up the Chain Option to Report Out Withdrawal Notification of Discharge Anti-Retaliation Protections
    59. 59. The Duty to Report Up the Chain Thank you! Wendy Gerwick Couture Associate Professor University of Idaho College of Law wgcouture@uidaho.edu

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