From: Klafter, Cary [cary.klafter@intel.com] Sent: Monday, November 25, 2002 7:30 PM To: 'rule-comments@sec.gov' Subject: Comment letter re. File No. S7-39-02; Improper Influence on Condu ct of Audits November 25, 2002 Jonathan G. Katz Secretary, U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0609 rule-comments@sec.gov Re: SEC Proposed Rule relating to Improper Influence on Conduct of Audits, in accord with section 303(a) of the Sarbanes-Oxley Act, File No. S7-39-02 Dear Mr. Katz: Thank you for the opportunity to comment on proposed rules published in 1934 Act rel. No. 46685. On behalf of Intel Corporation we offer the following comments with regards to the rule proposals in that Release. As a general matter, we believe that your attempts to draft beyond the terms of the relevant statute have resulted in ambiguity and overbreadth. As you note in your Release, the bad acts covered by the statute are also covered by numerous other provisions of the federal securities laws. You should more closely refer to the terms and standards already in use to inform your preparation of this proposed rule. Types of covered conduct. Your list of possible acts of "improper influence" is confusing and introduces unnecessary ambiguity in analyzing the rules. The contents of your list are at once overbroad and too limited since they obviously do not include all relevant categories of possible bad acts. As one example, your reference to "inaccurate or misleading" legal analysis is overbroad and unwarranted in the context of the statute. Inaccurate legal advice which actually consists of actionable fraud is presumably quite rare. As with Rule 10b-5, we propose that you do not provide a list of activity that "might" constitute fraudulent influence, since some of such activity might also be fairly undertaken without guilty intent (e.g., the delivery of inaccurate legal advice). We request that if you maintain your interpretation that the word "fraudulently" only relates to "influence", you should precisely define and describe the terms "coerce", "manipulate" and "mislead". Without fraud as the relevant qualifying standard, it is not clear to us what would constitute an act of prohibited "coercion", for example. Issuers and auditors should have clear guidance from the SEC if, for example, inaccurate legal advice given without fraudulent or other guilty intent could nevertheless be a violation of law. We also request that you revise the phrase in subparagraphs (b)(1) and (c)(2) to read "if the person knew or was reckless in not knowing that such action could, if successful, result in rendering such financial statements materially misleading." We believe that the statute was not intended to prohibit activity undertaken with a mental state short of scienter; your suggestion that you might adopt a rule of that nature is very troubling. The statute in no way grants to the SEC the authority through this rule-making to undercut the well-settled standards of culpability in the 1934 Act. Paragraph (b)(2). We similarly note that your proposed paragraph (b)(2) is an incomplete list of very general items that mixes obvious bad acts (issuing financial statements that include material violations of GAAP) with completely meaningless references (not communicating "matters" to the Audit Committee). As suggested above, we believe the statute will be better-served if incomplete and ambiguous lists of this type are not used in the rule. Please contact the undersigned at (408) 765-1215 or Patrice Scatena at (408) 765-9771 if you would like any additional information in connection with the above comments. Cary Klafter Director of Corporate Affairs and Senior Counsel Intel Corporation _________________ Cary Klafter Intel Corporation 408.765.1215