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Whistle-blowers tapped to clean up corporate crimes

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Legal experts say there is nothing new about requiring lawyers to fulfill their ethical obligations to report suspected wrongdoing to senior managers. But what is new is the mandate that lawyers must resign and notify the SEC of their resignation if suspected corporate misdeeds are not rectified.

Although not required to disclose to the SEC precise details, any resignation by a lawyer will serve as a red flag for investigators, legal experts say.

Supporters of the new regulation say it creates a powerful deterrent against corporate wrongdoing by putting executives on notice that they may no longer rely on a lawyer's silence.

Opponents say it undermines the principle behind the attorney-client privilege.

"It could drive a wedge between lawyers and clients," says M. Peter Moser, chairman of an American Bar Association (ABA) task force on the issue. "The system won't work, you will have corporations that won't feel they can consult lawyers."

Stanley Keller, a Boston lawyer on the ABA task force, agrees: "The historical rule that state courts have adopted and recognized is that the public interest is best served if clients are able to freely consult with counsel knowing that whatever is said stays between the client and the lawyer."

"That is the more important principle to protect and preserve than to focus on the few instances when a lawyer notifying the SEC might prevent a specific fraud."

A handful of states, including Florida and New Jersey, have similar resignation and disclosure rules. There has been no avalanche of forced resignations among corporate lawyers in those states, say supporters of the SEC regulation.

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