Securities lawyers should be permitted to disclose fraudulent schemes intended to mislead investors, where disclosure to regulators is necessary to prevent a substantial risk of serious financial harm to investors, according to a policy comment written by Toronto securities lawyer Philip Anisman and released Thursday by the Capital Markets Institute at the University of Toronto.

“Regulation of Lawyers by Securities Commissions: Sarbanes-Oxley in Canada” analyzes the lawyer conduct standards proposed by the Securities and Exchange Commission under the Sarbanes-Oxley Act of 2002 to make recommendations to regulators on the optimal Canadian approach to lawyer conduct standards.

It introduces a new and important distinction between the roles performed by lawyers representing issuers in an advisory capacity and by lawyers acting for issuers in an adversarial context, recommending that only those lawyers who are acting in an advisory capacity should be permitted to disclose serious fraudulent conduct by their clients.

As well, the policy comment concludes that securities commissions could treat withdrawal by an issuer’s lawyer based on professional considerations as information that must be publicly disclosed by the issuer, where that development is material.

“Regulation of lawyers’ professional conduct should generally remain the responsibility of law societies,” said Anisman, author of the policy comment. “Securities commissions should not discipline lawyers for conduct relating only to a lawyer’s professional activities as an advisor under their market-protective ‘public interest’ jurisdiction..”

This CMI Policy Comment is the second of a three part series analyzing proposed regulatory changes in Canada in response to the Sarbanes-Oxley Act. Released papers in the series are available at www.utcmi.ca.