In this Commentary, author Marvin Pickholz notes that for almost 60 years after the federal securities laws were enacted, the SEC stayed its hand against lawyers, and compliance officers, except in the most egregious circumstances where the lawyer's role clearly shifted from "advocate" to "accomplice." The SEC's restraint changed around 2000, when it decided that its enforcement of the federal securities laws required it to be "enforcers of the securities laws" and general guardians for non-client third parties, compliance officers and counsel. Today, after a line of recent SEC cases, lawyers and compliance officers are more vulnerable to becoming defendants if they are perceived not to have acted as the governments gatekeeper or even in situations where their advice was lawful but aggressive.
Mr. Pickholz writes: Despite the SEC’s profession of a restrained hand to be lifted only against the active, knowing miscreant, recent cases suggest a more chilling and disturbing environment for in-house counsel and compliance officers.
Recent cases, disturbing ones, include In re Google, See, Securities Act Rel. No. 8523 (Jan 13, 2005), In re Milling, Securities Act Rel. No. 8189 (Feb 3, 2003), In re Monson, Initial Decision Rel. No. 331 (June 15, 2007) (staff initiated appeal pending before the Commission), In re Weiss, Securities Act Rel. No. 8412 (April 22, 2004), (favorable ALJ decision appealed to and reversed by the Securities Act Rel. No. 8641 (December 2, 2005)) aff’d Weiss v. SEC, 468 F.3d 849 (D.C. Cir. 2006).
In Google the SEC alleged a violation by its former general counsel arising from the esoterica of an exemption from Section 5 registration requirements provided by Rule 701 related to employee options issued when Google was privately-held. In Milling a securities lawyer providing legal counsel on the registration requirements advised the corporate entity that in view of its failure to meet the accredited investor standard under Rule 506 of Regulation D, a rescission offering had to be made to purchasers. The SEC asserted that Milling violated section 5(a) and 5(c) because he did not advise the client that the rescission offer had to be registered. [citations omitted]