SEC Big Says Waiver Tactics Can Backfire

An SEC commissioner today said that asking broker/dealers and investment advisory firms to waive their legal right to attorney-client privilege in order to speed up the pace of enforcement investigations is shortsighted.

An SEC commissioner today said that asking broker/dealers and investment advisory firms to waive their legal right to attorney-client privilege in order to speed up the pace of enforcement investigations is shortsighted.

Speaking at the annual “SEC Speaks” conference, sponsored by the Practising Law Institute, in Washington, Commissioner Paul Atkins told a group of 800 attorneys and reporters that using such waivers to pressure companies into cooperating in investigations against them or their employees can yield misleading information. Companies may pressure employees to cooperate in order to avoid paying hefty fines, while employees may be afraid to speak candidly for fear of having their testimony used against them.

Some industry insiders also feel that these tactics lead to scapegoating, where a company’s transgressions are pinned on one or a few individuals so that the firm can distance itself from scandal. During the mutual fund trading scandal unearthed by New York Attorney General Eliot Spitzer, former Bank of America broker Theodore Sihpol was tried and later acquitted on felony charges of grand larceny and securities fraud for his role in a market-timing and late-trading scheme that cost the firm $675 million.

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