Divide and Conquer: SEC Discipline of Litigation Attorneys

Abstract:     
The Securities and Exchange Commission (“SEC”) can investigate and discipline attorneys for “unethical or improper professional conduct.” Although the SEC’s disciplinary authority extends to all attorneys, for more than 70 years it only investigated transactional attorneys. Recently, however, the SEC announced that it is now investigating litigation attorneys for professional misconduct.

This Article examines the problems that arise because the SEC staff that is investigating and prosecuting a client is also allowed to investigate the professional conduct of the litigator representing that client. The Article explains that the SEC’s rules governing litigator conduct are unclear and therefore susceptible to agency abuse. The SEC can use ethics investigations (or even threats of investigations) to remove attorneys from cases or to intimidate attorneys into less zealous advocacy. During ethics investigations, the SEC can further erode the attorney-client relationship by pressing litigators for confidential information ordinarily protected by the attorney-client privilege. By dividing the client from the attorney, the SEC can gain the upper hand in its investigation of the client. Because of these problems, the SEC should not investigate litigators for professional misconduct. Instead, litigators’ ethical lapses should be investigated by state attorney disciplinary agencies, or, if the allegations are very serious, by criminal authorities. The SEC can then impose reciprocal discipline.

Number of Pages in PDF File: 55

Keywords: Securities and Exchange Commission, SEC, ethics, Rule 102(e), due process, attorney-client privilege

Accepted Paper Series