SEC Commissioner Kara M. Stein recently suggested in prepared remarks that the SEC may take a closer look at the roles lawyers play in deterring corporate fraud. Noting that she was speaking only for herself, Commissioner Stein described the importance of good compliance for helping to avoid harm to investors and companies, and added that she “see[s] this harm up close and personal every week as [she] wade[s] through a stack of enforcement cases.” Commissioner Stein explained that the SEC often relies on partnerships with “gatekeepers” both within and outside of financial firms -- such as executives or directors, counsel, and accountants -- to promote and ensure compliance, and that a recurring theme is a failure by such gatekeepers to prevent or disrupt financial misconduct.
Commissioner Stein noted in particular that lawyers are often absent from the cases she sees, despite their usual role as “trusted advisers.” She argued that while in most cases lawyers do a good job, sometimes when they provide bad advice or effectively serve to assist fraud, their involvement is used as a shield against liability, both for themselves and for others. “Are we treating lawyers differently from other gatekeepers, such as accountants? I think we should carefully review the role that lawyers play in our markets, with a view towards how they can better help deter misconduct and prevent fraud,” she said.