ABA Asks SEC to Modify Its Position on Attorney-Client Waiver

In a recent letter to SEC Chairman Christopher Cox, the American Bar Association strongly urged the Commission to stop the practice of requiring companies to waive their attorney-client protections as a condition of receiving credit for cooperating with SEC investigations. In the ABA’s view, the policies set forth in the SEC’s Seaboard Report contain language that could erode the protection afforded by the attorney-client privilege. The ABA believes that the Seaboard Report, along with similar Justice Department policies, is contributing to what it called a ``culture of waiver’’ that could lead to ``profoundly negative consequences.’’

The Commission’s Seaboard Report, formally known as the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, was issued on October 23, 2001 as Releases 34-44969.

While noting that many of the criteria for cooperation outlined in the Seaboard Report are reasonable, the ABA has serious concerns regarding the overly broad factors outlined in criteria no. 11 to the extent that they encourage companies to waive their attorney-client privilege as a sign of full cooperation.

In practice, said the ABA, the Seaboard Report has led to the routine compelled waiver of attorney-client privilege. Although the report does not expressly state that waiver is required in every situation, the policy has led SEC staff to pressure companies to waive their privileges on a regular basis as a condition for receiving cooperation credit during investigations. From a practical standpoint, reasoned the ABA, companies have no choice but to waive the privilege when encouraged or requested to do so because the risk of being labeled uncooperative will have a great effect not just on the Commission’s enforcement action decisions, but also on the company’s image and stock price.

Further, the ABA posits that the Commission’s waiver policy undermines, rather than
enhances, compliance. By making the privilege uncertain in the corporate context, continued the ABA, the SEC’s policy discourages companies both from consulting with their lawyers, thereby impeding their ability to effectively counsel compliance, and conducting internal investigations designed to quickly detect and remedy misconduct. The ABA believes that federal officials can obtain the information they most frequently seek from a cooperating company without resorting to requests for waiver of the privilege.


The ABA Task Force on Attorney-Client Privilege has recommended specific revisions
to the Seaboard Report that would preserve the attorney-client privilege during SEC investigations while ensuring the Commission’s continued ability to obtain the important factual information that it needs for effective enforcement. The task force suggested that the revised Seaboard Report prevent SEC staff from seeking privilege waiver during investigations, while preserving their ability to request important factual information from companies as a sign of cooperation without implicating broader privilege waiver concerns.

The suggested revisions would also clarify that a waiver of privilege should not be considered when assessing whether the company provided effective cooperation. The revised position would also recognize that cooperation credit can be given for providing factual information. Finally, the revised statement would clarify that, while Commission staff may consider a company’s reasonable efforts to secure its employees’ cooperation as a factor in determining whether the company has fully cooperated during an investigation, the company should not be asked or expected to punish any employee who chooses to assert his or her legal rights.