Morrison & Foerster : Legal Updates & News : Legal Updates : Coordinating In-House and Outside Counsel Compliance with SEC Up-the-Ladder Reporting Requirements

With the adoption of the SEC's Sarbanes-Oxley-mandated professional responsibility rules for lawyers, CEOs and general counsels of public companies should be overseeing the implementation of compliance procedures at their companies. As these procedures are likely to involve interaction with outside counsel, we suggest that general counsels (or chief legal officers) coordinate in-house and outside counsel compliance with the 307 rules.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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			Related Practices: Corporate Public Companies & Corporate Governance

Coordinating In-House and Outside Counsel Compliance with SEC Up-the-Ladder Reporting Requirements

September 2003

On August 5, 2003, attorneys serving a public company in connection with federal securities law matters became subject to the Securities and Exchange Commission's "up-the-ladder" reporting rules ("307 rules" and "307" generally). As a result, they now have a legal obligation to report material violations of securities laws or a breach of a fiduciary duty involving their public company client or any of its constituents to specified person(s) within the public company. Because the new rules apply to both in-house and outside counsel, we recommend that each draft procedures to ensure compliance within their organizations and when both interact with one another.

When drafting 307 compliance procedures, there are important messages that should be communicated to all covered attorneys. 307 compliance procedures should include:

A brief summary of the reporting requirements of the 307 rules, including what must be reported.
How "evidence of a material violation" should be reported "vertically" within the organization. For most companies and law firms, an attorney should be advised to report concerns to his or her supervisor. For a public company, possible alternatives to reporting to one's supervisor, such as directly to a company's chief legal officer or qualified legal compliance committee should also be highlighted.
How evidence of a material violation should be reported "horizontally" between outside counsel and the company. Misdirected communications between outside and in-house counsel concerning evidence of a material violation could jeopardize appropriate and timely treatment of a report under the 307 rules.
A reminder that the 307 rules do not preclude informal discussions with one's peers prior to making a formal report.

Consistent with the above guidance, we have developed our own compliance procedures and created a 307 Compliance Committee to facilitate coordination with our clients. For your convenience, we have identified our 307 Compliance Committee members below if you would like to discuss your compliance procedures and their interaction with ours. Of course, you may also contact any of our attorneys to discuss these matters.

Morrison & Foerster 307 Compliance Committee

Douglas L. Hendricks, (415) 268-7037 or DHendricks@mofo.com
Stephen M. Colangelo, (703) 760-7702 or SColangelo@mofo.com
Darryl P. Rains, (415) 268-7397 or DRains@mofo.com
William D. Sherman, (650) 813-5602 or WSherman@mofo.com
Marshall L. Small, (415) 268-7161 or MSmall@mofo.com