Last week, the Securities and Exchange Commission announced charges against an attorney who was allegedly involved in the filing of false registration statements. The SEC's order instituting proceedings alleges that the attorney provided opinion letters in support of registration statements filed by multiple shell companies:
In late 2011 and 2012, Dalmy, an attorney, provided opinion letters for eighteen of the twenty issuers at Briner’s request. Each letter stated that Dalmy “investigated” and “examined” the issuer, including reviewing relevant documents. But Dalmy did no investigations. Instead, Dalmy simply supplied electronically signed opinion letters to Briner, who then filed them along with the issuers’ registration statements.
This sounds very bad indeed, but it also appears to be a bit of an overstatement. Below is an excerpt from one of these opinions:
In connection with this opinion, I have made such investigations and examined such records, including: (i) the Registration Statement; (ii) the Company's Articles of Incorporation, as amended; (iii) the Company's Bylaws; (iv) certain records of the Company's corporate proceedings, including such corporate minutes as I deemed necessary to the performance of my services and to give this opinion; and (v) such other instruments, documents and records as I have deemed relevant and necessary to examine for the purpose of this opinion.
The opinion doesn't say that the lawyer investigated and examined the issuer (as the SEC's order alleges) - it says that she examined "such records . . . as I have deemed relevant and necessary to examine for the purposes of this opinion." The SEC's charging order also omits the following language from the attorney's opinion:
In expressing this opinion I have relied, as to any questions of fact upon which my opinion is predicated, upon representations and certificates of the officers of the Company.
This is significant because the crux of the SEC's order appears to be that the issuers did not actually receive any consideration for the issuance of shares. In issuing "fully paid" opinions, lawyers typically rely upon certificates. See, e.g., Legal Opinions in Business Transactions, Corporations Committee of the State Bar of California Business Law Section (May 2005, rev. Oct. 2007) ("To confirm 'full payment' an opinion giver generally obtains an officers' certificate to the effect that the Company has received the consideration called for by the directors in approving the issuance of the shares."). The SEC's order, however, does not allege that the attorney failed to obtain an officer's certificates in support of her opinions. If she did obtain certificates, is the SEC claiming that attorneys have an obligation to investigate factual matters contained in certificates upon which the attorney expressly states that she relied?
"Vor dem Gesetz steht ein Türhüter"
However, I was far more distressed to see the following statement in the SEC's announcement because it completely misapprehends the responsibilities of lawyers in private practice:
Attorneys and auditors have a serious obligation as gatekeepers to protect the integrity of our markets, and the individuals we’ve charged in this case failed the investing public in their roles,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.
Attorneys are most emphatically not gatekeepers - they are advisors to, and advocates for, their clients. See A Washington Fable For Our Time.