‘The Empire Strikes Back’: The SEC’s ‘New’ Assault on Lawyers

February 2, 2009 New Jersey Law Journal

Reprinted with permission from the FEBRUARY 2, 2009 edition of New Jersey Law Journal. ©2009 Incisive Media US Properties, LLC. All rights reserved. Further duplication without permission is prohibited.

With Bernard Madoff and his Ponzi scheme capturing the public's attention, the United States Securities and Exchange Commission (“Commission” or “SEC”) will undoubtedly soon turn its attention to Madoff's lawyers seeking answers (seemingly ignoring its own fault in not uncovering the fraud sooner). The SEC has increased its oversight and regulation of lawyers, who appear before it and its staff, and its actions are forceful and provocative, demonstrating the “teeth” in the SEC's pronouncements that attorneys are “gatekeepers.” The commission has sought to punish both in-house and outside counsel for conduct arising from clients' business transactions, including, among other things, insider trading, stock options backdating and counsel's role in public filings, as well as in the defense of clients in SEC investigations. The SEC's staff boasts success, claiming actions against 125 lawyers in the last five years. (See Linda Chatman Thomsen Speech, SEC Division of Enforcement Director, “Remarks before the Minority Corporate Counsel 2008 Expo,” March 27, 2008.).

Government regulation of attorney conduct especially, during the defense of an SEC investigation — however, may create potential client conflicts and chill zealous defense. That approach provides the SEC an opportunity to retaliate against alleged obstreperous or “difficult” attorneys and possibly bolsters its case since counsel may not adequately defend the case for fear of the SEC's wrath. This article considers these SEC attacks on lawyers.

In Re Steven Altman

In 2008, the commission approved an administrative proceeding (“AP”) against New York attorney, Steven Altman, charging him with “improper professional conduct” in representing a witness in another SEC AP. (In Re Altman, SEC, Admin. Proc. File No. 3-12944 (January 30, 2008).)

The commission alleged that Altman's client was a potential key witness, who would offer damaging evidence against the respondent in another proceeding. The SEC staff contacted Altman's client who referred them to Altman. The SEC claimed that Altman contacted the respondent's lawyer in the AP, informing him that his client would not cooperate with the SEC if the client received a “severance package” (salary and other benefits). In one conversation, Altman allegedly stated to this lawyer that his client would probably fail to remember information if Altman's client received remuneration. Unfortunately (for Altman), the other attorney taped their phone calls.

The SEC instituted an AP against Altman, pursuant to Section 4C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission's Rules of Practice, alleging violations of his obligations under the New York Code of Professional Responsibility. Interestingly, although bar opinions forbid lawyers from taping each other, no SEC action was commenced against the other lawyer for taping Altman. See, e.g., “New York City Bar Assoc. Comm. on Professional Ethics Op.” 1995-10 (1995). If Altman is found at the AP to have violated these provisions, his ability to practice before the commission will probably be over permanently. There has been no decision made from the hearing held in May 2008. On January 14, Altman was found to have violated these provisions, and his ability to practice and appear before the Commission was suspended for nine months.

For many reading this article, Altman's (who has not been found to have violated anything) alleged conduct is something none of us would ever consider. The concern is the SEC's overall pursuit of lawyers where there is no rule or regulation to stop the SEC from regularly investigating defense counsel. The SEC seems to view defense counsel as fair game, and one wonders if the SEC staff will launch investigations of counsel for defending their clients. For example, if defense counsel advises a witness to assert their Fifth Amendment Constitutional right or objects vociferously to the staff's questioning, the SEC may start an investigation of counsel. Both situations may, theoretically, be construed by less than progressive commission members as obstructing an investigation.

As a result, Altman may soon have company if the commission's recent history with lawyers is any indication of the future. These other cases, generally, involving alleged lawyer involvement with their client's business transactions, offer insights into the SEC's model for future investigations and prosecutions.

'The Good, the Bad and the Ugly'

With apologies to Clint Eastwood and Sergio Leone, the track record with the SEC for lawyers, who allegedly were involved in their clients' business transactions, resembles a spaghetti western. These cases allege that lawyers were ensnared (and, in some cases, willing participants) in their clients' conduct.

Initially, the SEC along with the Southern District of New York United States Attorney's Office (“USAO”) in a parallel criminal indictment charged a Mayer Brown LLP partner, Joseph P. Collins, who represented the now-defunct financial services firm, Refco Group Ltd. (“Refco”), with aiding and abetting Refco's Exchange Act Section 10(b) and Rule 10b-5 violations, for assisting in the failure to disclose hundreds of millions of dollars in related-party transactions. The SEC was particularly unimpressed with Collins' lack of knowledge because the alleged evidence suggested Collins actively reviewed these transactions and was responsible for their public disclosure. There has been no resolution to either the SEC civil complaint or the criminal indictment at this time. (SEC v. Collins, S.D.N.Y., 07 CV 11343 (GEL) (December 18, 2007).)

A California attorney, Kenneth Christison, avoided trial by settling a SEC AP in February 2008, where he was accused of assisting a “pump-and-dump” scheme, resulting in investors losing millions of dollars. He was accused of providing phony legal opinions that investors relied upon when purchasing securities. (In re Christison, SEC, Admin. Proc. File No. 3-12950 (February 7, 2008).) Christison's case caused the SEC's Enforcement Director to state that “attorneys and other gatekeepers who are enablers behind the scenes” would be prosecuted. Lawyers beware: the SEC believes lawyers are “enablers,” probably a new psychological approach to securities enforcement.

Additionally, Ramoil Management Ltd.'s general counsel, Moneesh K. Bakshi, was permanently suspended after failing to file a petition to lift a SEC temporary suspension entered against him in 2007. A federal court also entered a judgment against Bakshi finding that he knowingly filed a false Form 10-KSB, and made misrepresentations in registration statements and opinions. (In Re Bakshi, SEC, Admin. Proc. File No. 3-12916 (March 3, 2008).) Bakshi never commented on the ban against him.

In April 2008, Craig J. Shaber was also suspended from appearing or practicing before the cmmission as an attorney because he along with an associate “engaged in an elaborate scheme to manufacture and sell 18 public shell companies. . .” by making false filings and installing nominee officers and directors while keeping his role in the companies a secret. (In Re Shaber, SEC, Admin. Proc. File No. 3-13003 (April 8, 2008).)

Further, in May 2008, the Eastern District of New York USAO indicted former Baker & McKenzie partner, Martin E. Weisberg, who was previously sued by the SEC in October 2007, for his alleged part in a short-selling scheme involving a private investment in public equity (“PIPE”). The SEC claimed Weisberg aided and abetted this fraudulent PIPE scheme by controlling and then concealing certain investments through various nominee accounts. The USAO has alleged Weisberg pocketed over $1 million from this scheme. (Anthony Lin, “Ex-Baker & McKenzie Partner Indicted for the Second Time,” New York Law Journal (Tuesday, 5/28/08).

In June 2008, the SEC also settled insider trading claims against a Pennsylvania lawyer, Jeffrey P. Myers, who allegedly was tipped to buy securities before merger announcements. Myers agreed to an injunction, disgorgement and civil penalties, to settle the case. (SEC v. Myers, S.D.N.Y., Civil Action No. 08-CV-5109 (June 4, 2008).)

Finally, despite the seemingly nonstop attack on lawyers, the SEC suffered a setback in its claims against a former San Francisco area general counsel, alleging that this attorney back-dated stock option grants. The attorney successfully moved to dismiss the antifraud charges, but the SEC was permitted to replead its allegations. (SEC v. Berry, N.D. Cal., Case No. C-07-4431 (RMW) (May 7, 2008).) As such, the former general counsel may only have a temporary reprieve.

According to the SEC, these cases are merely part of the SEC's longstanding efforts to reign in recalcitrant attorneys, but the allegations' apparent severity and multiple prosecutions suggest something more ominous.


The SEC's cases against lawyers demonstrate a greatly expanded prosecutorial scope, placing lawyers on the same level as their clients. This approach has superficial appeal, but ignores the important role counsel plays in our adversarial system to protect their clients' rights as well as demonstrating deficiencies and weaknesses in the commission's cases, causing the SEC to re-think its cases, thus saving both clients' and taxpayers' funds. In sum, although we hope the SEC does not try to scapegoat lawyers for Madoff, this not-so-cold war against lawyers will apparently continue.