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11 Duq. Bus. L.J. 1 (2008-2009)

handle is hein.journals/duqbuslr11 and id is 1 raw text is: Sarbanes-Oxley Section 307 Domestically and Abroad: Will Section 307 Lead to International Change? Scott H. Mollett1 I. INTRODUCTION The enactment of the Sarbanes-Oxley Act (the Act) was a seminal event in American securities regulation. Prompted by the spectacular collapse of Enron and other corporate scandals, the Act further developed the United States' shareholder-oriented corporate governance mechanisms: a more in- dependent, accountable board, and more technical proficiency in the auditing of company financials. The new regulations contained in the Act substan- tially restructured the accounting and finance industries, in addition to in- creasing the number of penalties available against company executives. The Sarbanes-Oxley Act also initiated a subtle but significant change in the regu- lation of corporate attorneys, specifically for those attorneys working in pub- licly-controlled corporations.2 The mandatory reporting of fraud within the corporation, contained in Section 307 of the Act, at a minimum, reempha- sized the proper duties of a corporate attorney. Some commentators have indicated, though, that the changes are indicative of the drastically different role played by modern corporate lawyers and regulation of lawyers as gate- keepers, rather than advocates, of their clients. While the vast majority of items included in Sarbanes-Oxley were re- quirements for auditors and the board of directors, Section 307 addressed the ethical responsibilities of a securities lawyer. Section 307 broadly permit- 1. Scott Mollett, Associate, Simpson Thacher & Bartlett; J.D., Stanford Law School, 2008; Non- Degree Masters, Kobe University, 2004 (Fulbright Scholar to Japan); B.A., Dartmouth College, 2003. 2. The changes required by the Act are limited to lawyers working for public corporations. How- ever, these requirements were not unprecedented nor are they so limited in scope-As discussed infra, similar rules existed in many states prior to SOX and much of the new regulation has been applied to all lawyers under the American Bar Association's Model Rules. 3. 15 U.S.C. § 7245 (2002). Section 7245 is entitled, Rules of Professional Responsibility for Attorneys, and states: Not later than 180 days after the date of enactment of this Act, the Commission shall issue rules, in the public interest and for the protection of investors, setting forth minimum standards of profes- sional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers, including a rule- (1) requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent there of, to the chief legal counsel or the chief executive officer of the company (or the equivalent thereof); and (2) if the counsel or officer does not appropriately respond to the evidence (adopting, as ne- cessary, appropriate remedial measures or sanctions with respect to the violation), requiring the attorney to report the evidence to the audit committee of the board of directors of the is-

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