SEC Chairman Faults Corporate Advisers Lawyers, Auditors Reminded Of Duty

WashingtonPost.com. March 5, 2005
by Carrie Johnson

EXCERPT: Securities and Exchange Commission Chairman William H. Donaldson said yesterday that he was disappointed with lawyers and other corporate advisers who failed to blow the whistle on recent financial abuses, engaged in "rhetorical somersaults" and "lost sight of their basic ethical responsibilities." Donaldson, speaking to a Washington audience of more than 1,000 securities lawyers, said lawyers and auditors are crucial gatekeepers for the integrity of the markets. Lapses over the past few years by outside advisers directly contributed to financial frauds that devastated thousands of investors, he said. "I hope you will not expend significant time, money and energy devising structures aimed at evading requirements and trying to achieve an accounting or disclosure result that . . . artfully dodges the rule's purpose," Donaldson said. The SEC has lodged 76 cases against lawyers in the past 3 1/2 years, chief litigation counsel David L. Kornblau said in a separate Practising Law Institute session yesterday. Kornblau said 18 cases have been filed already this fiscal year. "These lawyers did not seem to have in their vocabulary the word 'no,' " Kornblau said. The conduct of auditors at accounting firms of all sizes also remains on the SEC's radar screen. Agency officials said they will continue to scrutinize auditors' relationships with their clients for possible violations of independence rules. They said they expect more enforcement actions to come in cases where auditors have grown too cozy with their clients to render impartial reviews of financial reports. Separately, SEC chief accountant Donald T. Nicolaisen laid out several of his priorities for 2005. Donaldson said his office soon would release a report about corporate use of off-balance-sheet entities such as those that hid billions of dollars of Enron Corp. debt.

Labels: Enron, Standford Securities Class Action Clearing House