CU law professor leads campaign for new SEC rule to deter corporate fraud

By Linda Myers

There will be less successful corporate fraud if Roger Cramton, a Cornell law professor who co-wrote a book on law and ethics, gets his way.

Cramton and his co-authors were joined by corporate law faculty from across the United States who voiced their support of a rule recently proposed by the U.S. Securities and Exchange Commission this past December. If it becomes law Jan. 26, the rule will make lawyers involved in executing corporate transactions more accountable for addressing client fraud.

Cramton

The rule would require corporate lawyers faced with evidence of a material violation of law to report that evidence up the corporate ladder. If there was no adequate response from corporate officers and the board or relevant board committee, ultimately the lawyers would withdraw from representing their client, notify the SEC of the withdrawal and disaffirm any materially false or misleading documents that they might have helped prepare.

Cramton, the Stevens Professor of Law Emeritus at Cornell Law School and co-author of The Law and Ethics of Lawyering, combined with his co-authors, Susan Koniak of Boston University and George Cohen of the University of Virginia, to respond to the SEC's draft rules. Their 48-page analysis of the new reporting requirements has been endorsed in principle by 52 law faculty members from around the country, including Cornell law faculty members Jonathan Macey, an authority on corporate law and regulation, and Charles Wolfram, who served as chief of the American Legal Institute's Restatement of the Law Governing Lawyers, 1986-2000.

"That's a huge response from the legal academy, and it cuts across all political and academic ideologies," Cramton said of the support the recommendations received as they were circulated for review to colleagues at many law schools.

When the U.S. Congress, following the collapse of energy giant Enron, passed the Sarbanes-Oxley Act to impose greater accountability structures on corporate financial statements, it included a provision requiring the SEC to propose new professional conduct standards for corporate attorneys. Law faculty, anticipating resistance from some lawyers to the SEC's proposed rules, spoke up by endorsing Cramton's analysis.