SEC's Stein Calls for More Scrutiny of Attorneys

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By Rob Tricchinelli  

May 19 — Lawyers who help companies file financial disclosure reports should face tougher scrutiny as “gatekeepers” and possibly be required to sign attestations, Securities and Exchange Commissioner Kara Stein said May 19.

“Are we treating lawyers differently from other gatekeepers, such as accountants?” Stein said in her morning address to the Compliance Week conference in Washington. “I think we should carefully review the role that lawyers play in our markets, with a view toward how they can better help deter misconduct and prevent fraud.”

Attorneys, she said, are often absent from the gatekeeper cases that she encounters.

“When lawyers provide bad advice or effectively assist in a fraud, sometimes their involvement is used as a shield against liability, for both themselves and for others,” Stein said.

Broader Attestation Rules?

The Sarbanes-Oxley Act added auditor attestation requirements to certain disclosures required by securities laws to guard against fraud and bolster compliance within companies. CEOs also are required to attest that their firms are in compliance with the Volcker rule.

“I personally believe that having an executive sign an attestation leads to a more rigorous internal assessment of a firm's business and regulatory capabilities,” Stein said. “Nothing focuses the mind like signing your name.”

Stein said broader attestation rules could clamp down on fraud and mistakes in financial reporting.

“We should be considering attestations in new areas,” she said “Should there be one for registered municipal advisers? Or one for lawyers on the accuracy of issuer disclosures?”

Stein did not elaborate further on specifics during a question-and-answer session after her speech, but she said she was trying to be “provocative” and solicit feedback from compliance officers to determine what new attestation rules could be helpful.

Clarity Needed

Meanwhile, Commissioner Daniel Gallagher, in a speech at an SEC training event, said May 12 that the SEC must provide “additional certainty” regarding its position on supervisory liability for legal and compliance personnel to ensure a robust compliance environment.

Gallagher said he was “especially pleased” that the commission staff issued guidance last year—in the form of “frequently asked questions”—on the supervisory liability that may arise under the 1934 Securities Exchange Act in connection with the role of chief compliance officers and other legal and compliance personnel at broker-dealers.

The speech comes amidst concerns—following recent speeches by SEC Chairman Mary Jo White—that the commission is actively targeting compliance and legal professionals.

In his remarks, Gallagher told the audience that there is language in the 1940 Investment Advisers Act that is “nearly identical” to 1934 Act Section 15(b)(6).

The SEC must ensure that its rules on liability for failure to supervise “do not act as a deterrent to in-house legal and compliance officers, discouraging them from departing from their clearly delineated roles,” the commissioner continued. “To do so, we need to provide guidance that is as clear as possible on our position on supervisory liability for legal and compliance personnel.”

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Susan Jenkins at

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