Wednesday, May 14, 2014

Law Firms + SOX : New (And Surprising) Information Risks

Lawyers from Littler, the largest global employment and labor law practice, highlight important risks associated with the 2002 Sarbanes-Oxley Act (SOX): "Warning to Rainmakers in Private Law Firms and Accounting Firms: SOX Now Says, ‘Don't Shoot the Messenger'" --
  • "Yes, we understand how you may become upset if a colleague of yours, such as a servicing partner or junior associate, openly criticizes one of your publicly traded client's financial reporting or accounting practices--even if this occurs only within the walls of your firm... However, when your client is a publicly traded company governed under the 2002 Sarbanes-Oxley Act (SOX), be very careful how you and your firm respond to the criticizing colleague."
  • "Under the U.S. Supreme Court's game-changing decision in Lawson v. FMR LLC [Decided March 2, 2014], the Court held that SOX provides broad whistleblower protection to employees of contractors and subcontractors to publicly held companies."
  • "As such, your firm's employees now have SOX whistleblower protection from your firm. This means that your employees are protected legally when they complain to you internally, or complain externally to the SEC or another federal regulatory agency, about your client's allegedly fraudulent public reporting or accounting conduct."
  • "Lawson's broadening of SOX's whistleblower protection to employees of “contractors and subcontractors” of publicly traded companies presents an obvious and suddenly looming problem for private law firms and accounting firms."
  • "Sometimes, these more seasoned 'supervisors' may strongly disagree with their colleagues' criticisms or assessments of the clients' conduct. Given the traditional culture of many law firms and accounting firms, the rainmaker or client relationship “supervisor” may on occasion even lash out at their colleagues..."
  • "A successful claimant can obtain at least two remedies that can also be very problematic to your firm: (1) reinstatement with payment of lost back pay and employee benefits and (2) your firm's payment of the claimant's attorneys' fees, litigation costs and expert witness fees. The claimant also may assert that you should be held liable individually."
The article provides several suggested guidelines, including: "unless the individual's view is dead wrong, avoid communicating anything, orally or in writing, that suggests that adopting the individual's view could jeopardize your firm's relationship with the client."

(This development also poses interesting questions and additional risks beyond the scope of the matter team, considering the access unrelated law firm personnel may have to public company data within the firm.)

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