SEC Renews Lawyer Violation Reporting Mandate
Published Date: 2/27/2025
Notice
Summary
The SEC is asking to keep a rule that requires lawyers working with companies to report serious rule-breaking they find. This helps keep companies honest and protects investors. No changes or new costs are planned, and the rule’s approval just needs to be renewed to keep things running smoothly.
Analyzed Economic Effects
2 provisions identified: 0 benefits, 1 costs, 1 mixed.
Attorney 'Up‑the‑Ladder' Reporting Rule Stays
The SEC is keeping the rule that lawyers who appear and practice before the Commission must report evidence of material violations within an issuer (the so‑called "up‑the‑ladder" requirement) and, in rare cases, the information may be sent to the Commission. This rule implements Section 307 of the Sarbanes‑Oxley Act and remains unchanged as the SEC requests reinstatement of OMB approval.
QLCC Paperwork Burden and Estimated Cost
Issuers that set up a Qualified Legal Compliance Committee (QLCC) must adopt written procedures for confidential receipt, retention, and consideration of reports. The SEC estimates about 11,484 issuers are subject to the rules, about 346 issuers (≈3%) have or will establish a QLCC, the paperwork averages 6 hours every 3 years (2 hours/year), total annual burden is estimated at 692 hours, and the SEC estimates an annual outside‑counsel cost of $242,200 assuming $700/hour for half the hours.
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