From: Lipman, Frederick [Lipman@BlankRome.com]
Sent: Tuesday, January 21, 2003 12:51 PM
To: rule-comments@sec.gov
Subject: File No. S7-02-03

I have one substantive and two technical comments on your proposed rule 
entitled "Standard Relating To Listed Company Audit Committees".  I am also 
the lead author of the portfolio entitled "Audit Committees" published by 
the Bureau of National Affairs, Inc.
 
Your attention is called to the opinion of Judge Saris dated November 18, 
2002 in the following case:  in re Lernout & Hauspie Securities Litigation, 
2002 WL 31662595 (D.Mass.)  The holding of that case is that a member of a 
public company audit committee that signed a filing with the SEC (a Form S-3 
Registration Statement and a Form 10-K Report) which contained a false and 
misleading financial statement has liability as a control person under 
Section 20(a) of the Securities Exchange Act of 1934, even in the absence 
of evidence that the audit committee member knew or should have known of 
the misstatement.  The case appears to have extended control person 
liability to audit committee members who sign SEC filings even in the 
absence of any culpable participation in the financial fraud.
 
If the holding of this case becomes law, the desire of independent directors 
to serve on public company audit committees will be severely dampened and the 
entire statutory scheme established under Section 301 of the Sarbanes-Oxley 
Act of 2002 will be undermined.  The SEC should take immediate steps to change 
the holding of this case and, if necessary, establish a safe harbor under 
Section 20(a) of the Securities Exchange Act of 1934 and Section 15 of the 
Securities Act of 1933 for independent directors who have no culpable 
participation in the financial fraud. 
 
My two technical comments on the proposed rule are as follows:  (1)  the 
reference in sub-section (e)(1)(C) of proposed Regulation 240.10A-3 to 
directors of the issuer is ambiguous since all audit committee members are 
directors. (2)  the reference in Item 7(d)(3)(iv)(B) of Schedule 14A to 
non-listed issuers should permit such issuers to change the definition of 
audit committee member independence if the national securities exchange or 
national securities association materially changes their definition of 
independence.  The currently proposed changes by the New York Stock Exchange 
in the definition of independence, for example, should permit a non-listed 
issuer to reconsider whether they will continue to use the New York Stock 
Exchange revised definition or switch to the NASDAQ definition of independence.
 
 
Very truly yours,
Frederick D. Lipman    
 
 
 
Frederick D. Lipman 
Blank Rome LLP
One Logan Square
Philadelphia, PA 19103
Phone: (215)569-5518
Fax: (215)832-5518
E-Mail: Lipman@BlankRome.com