Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 2 -- Definitions

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1. Appearing and practicing before the Commission:
   
   
   1. Means:
      
      
      1. Transacting any business with the Commission, including communications in any form;
         
         
      2. Representing an issuer in a Commission administrative proceeding or in connection with any Commission investigation, inquiry, information request, or subpoena;
         
         
      3. Providing advice in respect of the United States securities laws or the Commission's rules or regulations thereunder regarding any document that the attorney has notice will be filed with or submitted to, or incorporated into any document that will be filed with or submitted to, the Commission, including the provision of such advice in the context of preparing, or participating in the preparation of, any such document; or
         
         
      4. Advising an issuer as to whether information or a statement, opinion, or other writing is required under the United States securities laws or the Commission's rules or regulations thereunder to be filed with or submitted to, or incorporated into any document that will be filed with or submitted to, the Commission; but
         
         
   2. Does not include an attorney who:
      
      
      1. Conducts the activities in paragraphs (a)(1)(i) through (a)(1)(iv) of this section other than in the context of providing legal services to an issuer with whom the attorney has an attorney-client relationship; or
         
         
      2. Is a non-appearing foreign attorney.
         
         
2. Appropriate response means a response to an attorney regarding reported evidence of a material violation as a result of which the attorney reasonably believes:
   
   
   1. That no material violation, as defined in paragraph (i) of this section, has occurred, is ongoing, or is about to occur;
      
      
   2. That the issuer has, as necessary, adopted appropriate remedial measures, including appropriate steps or sanctions to stop any material violations that are ongoing, to prevent any material violation that has yet to occur, and to remedy or otherwise appropriately address any material violation that has already occurred and to minimize the likelihood of its recurrence; or
      
      
   3. That the issuer, with the consent of the issuer's board of directors, a committee thereof to whom a report could be made pursuant to Rule 3(b)(3), or a qualified legal compliance committee, has retained or directed an attorney to review the reported evidence of a material violation and either:
      
      
      1. Has substantially implemented any remedial recommendations made by such attorney after a reasonable investigation and evaluation of the reported evidence; or
         
         
      2. Has been advised that such attorney may, consistent with his or her professional obligations, assert a colorable defense on behalf of the issuer (or the issuer's officer, director, employee, or agent, as the case may be) in any investigation or judicial or administrative proceeding relating to the reported evidence of a material violation.
         
         
3. Attorney means any person who is admitted, licensed, or otherwise qualified to practice law in any jurisdiction, domestic or foreign, or who holds himself or herself out as admitted, licensed, or otherwise qualified to practice law.
   
   
4. Breach of fiduciary duty refers to any breach of fiduciary or similar duty to the issuer recognized under an applicable Federal or State statute or at common law, including but not limited to misfeasance, nonfeasance, abdication of duty, abuse of trust, and approval of unlawful transactions.
   
   
5. Evidence of a material violation means credible evidence, based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation has occurred, is ongoing, or is about to occur.
   
   
6. Foreign government issuer means a foreign issuer as defined in Rule 405 under the Securities Act of 1933 eligible to register securities on Schedule B of the Securities Act of 1933.
   
   
7. In the representation of an issuer means providing legal services as an attorney for an issuer, regardless of whether the attorney is employed or retained by the issuer.
   
   
8. Issuer means an issuer (as defined in section 3 of the Securities Exchange Act of 1934, the securities of which are registered under section 12 of that Act, or that is required to file reports under section 15(d) of that Act, or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933, and that it has not withdrawn, but does not include a foreign government issuer. For purposes of paragraphs (a) and (g) of this section, the term "issuer" includes any person controlled by an issuer, where an attorney provides legal services to such person on behalf of, or at the behest, or for the benefit of the issuer, regardless of whether the attorney is employed or retained by the issuer.
   
   
9. Material violation means a material violation of an applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law, or a similar material violation of any United States federal or state law.
   
   
10. Non-appearing foreign attorney means an attorney:
    
    
    1. Who is admitted to practice law in a jurisdiction outside the United States;
       
       
    2. Who does not hold himself or herself out as practicing, and does not give legal advice regarding, United States federal or state securities or other laws (except as provided in paragraph (j)(3)(ii) of this section); and
       
       
    3. Who:
       
       
       1. Conducts activities that would constitute appearing and practicing before the Commission only incidentally to, and in the ordinary course of, the practice of law in a jurisdiction outside the United States; or
          
          
       2. Is appearing and practicing before the Commission only in consultation with counsel, other than a non-appearing foreign attorney, admitted or licensed to practice in a state or other United States jurisdiction.
          
          
11. Qualified legal compliance committee means a committee of an issuer (which also may be an audit or other committee of the issuer) that:
    
    
    1. Consists of at least one member of the issuer's audit committee (or, if the issuer has no audit committee, one member from an equivalent committee of independent directors) and two or more members of the issuer's board of directors who are not employed, directly or indirectly, by the issuer and who are not, in the case of a registered investment company, "interested persons" as defined in section 2(a)(19) of the Investment Company Act of 1940;
       
       
    2. Has adopted written procedures for the confidential receipt, retention, and consideration of any report of evidence of a material violation under Rule 3;
       
       
    3. Has been duly established by the issuer's board of directors, with the authority and responsibility:
       
       
       1. To inform the issuer's chief legal officer and chief executive officer (or the equivalents thereof) of any report of evidence of a material violation (except in the circumstances described in Rule 3(b)(4));
          
          
       2. To determine whether an investigation is necessary regarding any report of evidence of a material violation by the issuer, its officers, directors, employees or agents and, if it determines an investigation is necessary or appropriate, to:
          
          
          1. Notify the audit committee or the full board of directors;
             
             
          2. Initiate an investigation, which may be conducted either by the chief legal officer (or the equivalent thereof) or by outside attorneys; and
             
             
          3. Retain such additional expert personnel as the committee deems necessary; and
             
             
       3. At the conclusion of any such investigation, to:
          
          
          1. Recommend, by majority vote, that the issuer implement an appropriate response to evidence of a material violation; and
             
             
          2. Inform the chief legal officer and the chief executive officer (or the equivalents thereof) and the board of directors of the results of any such investigation under this section and the appropriate remedial measures to be adopted; and
             
             
    4. Has the authority and responsibility, acting by majority vote, to take all other appropriate action, including the authority to notify the Commission in the event that the issuer fails in any material respect to implement an appropriate response that the qualified legal compliance committee has recommended the issuer to take.
       
       
12. Reasonable or reasonably denotes, with respect to the actions of an attorney, conduct that would not be unreasonable for a prudent and competent attorney.
    
    
13. Reasonably believes means that an attorney believes the matter in question and that the circumstances are such that the belief is not unreasonable.
    
    
14. Report means to make known to directly, either in person, by telephone, by e-mail, electronically, or in writing.
    
    

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