The Securities and Exchange Commission, in the face of protests from securities lawyers, is considering dropping a proposal that would make attorneys blow the whistle on their corporate clients, sources at the agency say.

The proposed rule was unveiled last fall amid criticism that it would turn lawyers into cops, undermining the legal tenet that what a client tells an attorney is confidential. Congress mandated the rule in the Sarbanes-Oxley Act, which it passed last summer in response to a series of business scandals. The SEC must issue a final rule by Jan. 26.

The rule would require lawyers to report a problem such as fraudulent or inaccurate accounting all the way up an organization, to the board of directors if need be, until corrected.

The legal community endorses this "up-the-ladder" approach. What many object to is the proposal's additional mandate that, if going to the top of a company doesn't fix the problem, outside lawyers must quit, notify the SEC that they no longer represent the company and indicate which documents filed with the agency -- such as an annual report -- they believe are "tainted," or no longer accurate.

In-house company lawyers would not have to quit, but they would have to tell the SEC which documents were suspect.

Critics say making lawyers notify the SEC -- known as a "noisy withdrawal" -- would chill clients' willingness to be open with lawyers for fear what they say in confidence could be turned over to regulators.

Now a majority of the five-member SEC is weighing whether to drop the noisy-withdrawal requirement, sources say. Instead, lawyers' responsibility would end once suspected wrongdoing is reported to the head of a company. Then responsibility for acting -- and for alerting regulators -- would fall to the company, particularly the board of directors.

State laws generally bar lawyers from disclosing client confidences. Doing so can lead to professional sanctions, including being disbarred. States generally allow an exception to prevent someone from suffering physical harm. And 41 states allow -- but don't require -- an exception for lawyers to go to regulators if they think a client's actions will inflict economic harm on investors or others.

The new wording being weighed by the SEC would also permit voluntary reporting to the agency, sources said.