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'Up-the-Ladder' Responsibilities Clarified by Sarbanes-Oxley

By Jacqueline C. Wolff

As discussed on page 1 of this newsletter, the SEC recently issued 'Standards of Professional Conduct' for attorneys representing issuers before the SEC ' a new rule mandated by the Sarbanes-Oxley Act of 2002. See 15 U.S.C. ' 7201 et. seq. The Standards clarify an attorney's 'up-the-ladder' corporate reporting responsibilities imposed by the Act. 17 C.F.R. ' 205.

An attorney must advise his or her client's General Counsel or CEO whenever he or she receives 'credible evidence, based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation has occurred, is ongoing or is about to occur.' 17 C.F.R. ' 205.2(e). A 'material violation' is defined broadly as a material violation of a federal or state securities law, a material breach of a fiduciary duty under federal or state law or a 'similar material violation of any United States, federal or state law.' 17 C.F.R. ' 205.2(i).

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