The Risks of Overzealous Advocacy in SEC Proceedings

June 9, 2011Articles Securities Law Blog

The movies often wrongfully portray lawyers as smooth talking mouth pieces who will do or say anything for their clients, regardless if that conduct crosses the line of decency and ethics. Unfortunately, the recent comments of the Securities and Exchange Commission’s Director of Enforcement Robert Khuzami reflect that fiction may, in fact, be reality when it comes to the conduct of certain lawyers before the agency. Although Director Khuzami acknowledged that lawyers should be zealous and aggressive advocates for their clients and that such advocacy can lead to success before the SEC, he noted that there are certain types of conduct that the SEC considers questionable at best and, in turn, may lead to undesired results. Among other things, Khuzami stated that this conduct causes delay, increases expense and thwarts the investigative process, resulting in injustice.

One problem the SEC has noted is multiple representations of witnesses with adverse interests. A related but different issue, Khuzami observed, is multiple witnesses represented by the same lawyer who all adopt the same implausible explanation of events. Khuzami stated that the SEC frequently sees one lawyer representing multiple witnesses, even thought those witnesses may have adverse interests. For example, the SEC has observed one lawyer representing the supervisor and the person supervised in a "failure to supervise" case. With respect to lawyers engaged in this practice, Khuzami noted that the SEC's new Cooperation Program raises the stakes because it provides for reduced or no sanctions in exchange for truthful and substantial assistance. As such, the SEC is taking a much closer look at multiple representation. In certain instances, the SEC has asked a witness to confirm that counsel has informed the witness of the potential conflict of interest, and that the witness has willingly chosen to go through with the engagement. Khuzami stated that, when conflicts come to pass after this multiple representation, the SEC is less likely to extend any courtesies to the witness or subsequent counsel.

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