Roles and Responsibilities of Corporate Lawyers in the Securities Market in Anglo-American Law (with implications for Singapore)
Whenever a listed company seeks to enter into a significant business transaction, independent professional advisers such as corporate lawyers, sponsors or financial advisers are auditors are retained by its board of directors and the company is required to publicly disclose the transaction to the securities market. The conduct of corporate lawyers arising from the deficiencies in the disclosure documents has come under intense scrutiny in the last decade in the wake of financial scandals and global financial crisis. In theory, corporate lawyers not only provide independent advice to, but are also in the position to monitor and control the disclosure decisions of, their clients, and thereby deterring their clients from making false or misleading statements or withholding material disclosures. The question arises as to whether they should be regarded as gatekeepers in respect of these disclosures and should be liable for the wrongs of their corporate clients. In the UK, while there have been proposals to increase the role and regulation of sponsors, there is little recognition that corporate lawyers play a gatekeeping role and their responsibilities in securities fraud have not been the subject of intense public debate or scrutiny. In contrast, in US, following Enron and Worldcom debacles, section 307 of the Sarbanes Oxley Act of 2002 was enacted and pursuant to the legislation, Securities and Exchange Commission has prescribed certain minimum standards of professional conduct for attorneys who practise before it, including an obligation to report up the ladder within the client company. The American Bar Association addressed these matters in its Model Rules and Formal Opinions. This paper examines the role of corporate lawyers as gatekeepers in respect of the ongoing disclosures made by their listed corporate clients. The paper makes the following observations. First, corporate lawyers conduct verification and due diligence exercises for their issuers’ disclosure documents which are designed to ensure that their clients, their directors and the sponsor or financial adviser discharge their duties of care. However, there is no independent duty of care imposed on the corporate lawyers by legislation or regulators. Second, there is a very limited obligation at common law to report fraud or wrongdoing up the ladder within a client company. Third, short of outright assistance of fraud, due to a combination of substantive tort rules and securities regulation, the risk of corporate lawyers being held liable to third parties in respect of advice rendered to their corporate clients and which caused externalities is extremely low. Fourth, lawyers are seldom required to account under professional responsibility rules even when they fall short of their duty of care or diligence. These current arrangements have continued to be the case notwithstanding the fact that the advice of corporate lawyers in UK has been found wanting in various governmental investigations since the 1990s. A comparison is made to the positions in US, which has a sophisticated capital market and relatively similar legal institution as the UK. This paper explains the differences. Extrapolating the analysis, the framework also reviews the role of lawyers in the current gatekeeping framework in the securities markets in Singapore, particularly in the wake of a number of recent disclosure failures by issuers listed on the Singapore Exchange post-financial crisis. This paper then considers the implication of the analysis and argues that while it is perhaps not essential for a well functioning capital markets system to impose gate keeping responsibilities on corporate lawyers, they can be effective gatekeepers, alongside with sponsors or financial advisers. This paper suggests a more optimal arrangement to put in place incentives for the corporate lawyers to investigate thoroughly when their clients issue disclosure documents.
Gatekeepers, listed companies, securities fraud
Asian Studies | Securities Law
Law, Society and Governance
Society of Legal Scholars Conference 2012, Bristol, 11-14 September
City or Country
WAN, Wai Yee.
Roles and Responsibilities of Corporate Lawyers in the Securities Market in Anglo-American Law (with implications for Singapore). (2012). Society of Legal Scholars Conference 2012, Bristol, 11-14 September. Research Collection School Of Law.
Available at: http://ink.library.smu.edu.sg/sol_research/1135
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