Answering the Door When The Government Knocks: Effectively Responding To Government Investigations

Transcription

1 Answering the Door When The Government Knocks: Effectively Responding To Government Investigations 26 FEBRUARY 2015 PRESENTATION Any presentation by a Jones Day lawyer or employee should not be considered or construed as legal advice on any individual matter or circumstance. The contents of this document are intended for general information purposes only and may not be quoted or referred to in any other presentation, publication or proceeding without the prior written consent of Jones Day, which may be given or withheld at Jones Day's discretion. The distribution of this presentation or its content is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of Jones Day.

2 First Contact With Government Counsel Or Investigator 2

3 Numerous Potential Investigating Government Agencies 3

4 From Company s Perspective, Government Investigations Often Begin Like A Nearby Thunder Clap Unexpected And Alarming Search Warrant. Grand Jury Subpoena. Civil Subpoena. Civil Investigative Demand (CID). Agency Informal Request for Information (e.g., SEC; rarely DOJ). Employee Interviews By Agents. 4

5 Origin of Investigation May Not Be Readily Apparent Whistleblower, Hotline Complaint, Qui Tam, Competitor Complaint Referral from another agency, data mining, compliance audit Investigation of competitors, industry sweeps, company filings Government Investigation 5

6 A Government Investigation May Just Be The Tip Of The Iceberg Subpoena, CID Government Investigation Examination By Other Regulators Reputational Damage Loss of partners, clients, suppliers Private Civil Litigation/Class Actions Scrutiny from auditors, lenders, investors 6

7 Presentation Overview 7

8 Presentation Overview 1. Step to take even before there is any investigation. 2. Document preservation. 3. Document/data collection and production. 4. Communicating with the Government. 5. Internal Investigations. 6. Privilege and the flow of information. 7. Notifications and disclosures. 8. Employee witness interviews. 9. Experts. 10. Reports of Investigation. 11. Defenses, self-disclosure, root cause analysis and remediation. 8

9 What To Do Before The First Contact With Government Counsel Or Investigator 9

10 Corporate Compliance/Government Investigations Written Policy Set the tone: Company will cooperate with authorized government investigations. Employees may not alter or conceal documents relating to a government investigation. Employees may not intentionally mislead government investigators. Establish protocol in event of government investigation: Immediately notify general counsel, compliance officer or appropriate supervisor. Obtain name of investigator, agency affiliation, and reason for contact. Whether employee has authority to consent to any search or document collection. 10

11 Corporate Compliance/Government Investigations Written Policy (cont.) Distinguish between types of contact search warrant vs. subpoena vs. informal request for a discussion/interview. Advise employees of their rights. May decide to speak, or not to speak, to government agents. May have counsel present. May condition speaking on doing so at convenient place and time. Policies may have to vary based on regulatory environment e.g., participation in a regulated industry may require consent to inspections. 11

12 Document Preservation 12

13 Preserving Information Responsive And Effective Preservation Is Critical. Demonstrating that lost information was irrelevant is challenging (and costly). Avoiding expanding the government s initial investigation into a broader investigation covering why information was lost. Targets of broader investigation can be counsel and executives involved in responding to government investigation. 13

14 Data & Document Preservation Timely preservation notices and appropriate follow-up. Identify who has potentially relevant information (custodians). Identify where potentially relevant information is stored (consider non-traditional sources such as text and voic on tablets and smart phones). Coordinate with IT personnel. Suspend or modify automatic data deletion/archiving programs. Capturing/imaging folders and/or hard drives. Electronic data storage capacity issues. May need to contact third parties, such as vendors or contractors, to advise them to preserve documents. Be mindful of laws affecting collection, processing and transfer (e.g., privacy legislation in many countries). 14

15 Document Collection And Production 15

16 Data/Document Collection, Review and Production Track/document collection and review activity. Able to defend reasonableness if questioned. Ensure effective approach to data/document review. Confidentiality protections. Training and oversight of review team. Quality control methodology. 16

17 Data/Document Collection, Review and Production (cont.) Review production, not just to ensure it complies with subpoena, but to know what is being produced don t find out when the government tells you. Know the applicable data protection laws and special privacy concerns. Where is the data? Where is the person to whom the data relates? Some data protection regimes are very demanding (e.g., European Data Protection Directive). Be critical of your preservation and production decisions: Are they defensible in court, or were they made based on convenience, frustration or corner-cutting? 17

18 Special Case Of Search Warrants 18

19 Responding To Search Warrants Limited ability to collect, review and produce documents; instead, documents are seized onsite. Contact counsel or compliance officer immediately; need for point person to control process. Review search warrant; given lack of notice, nothing wrong with refusing on the fly consent to search broader than warrant. Monitor agents during search and document, document, document (including making sure inventory is complete). Protect privileged documents (Government may have to seal documents and establish a taint team to review them). 19

20 Opening Lines of Communication With The Government 20

21 Early Relationship With Government Investigators Can have a significant impact on the long-term relationship. Assume that there will be a long-term relationship, as opposed, e.g., to just one subpoena and then done. Often hard to get back on the right foot when relationship is rocky at the start. Government agents normally willing to consider issues of burden, over-breadth and timing. More willing to consider informed concerns our initial assessment is we would have to gather documents from over 60 custodians in 4 States very different than trust me, you are asking for nearly every document in the company. Can learn a lot about investigation agents often compelled to counter facts with facts to justify breadth or timing. 21

22 Early Relationship With Government Investigators (cont.) Credibility is key! Choose representative wisely. Avoid overstatement and pre-judging. Early engagement often the best way to reduce compliance burden. Cooperation with investigation can be independent of the crucial decision whether to work toward a deal or to defend. Pushback may be advisable but should be communicated appropriately (principled basis, legitimate practical concerns). Delicate balance: Cooperation and good citizenship v. rolling over. 22

23 Early Relationship With Government Investigators (cont.) Perceived slow document production often gets things off on wrong foot. Company is often trying to catch its breath in this time period. Often those conducting internal investigation are still trying to get ahead of the curve. May be worth adhering to some seemingly artificial deadlines to avoid starting off poorly or with misperception. Be prepared for additional government requests and impact on internal investigation. More documents/data, employee interviews. Right to require reasonable cooperation being highly responsive upfront does not mean agent gets whatever he/she wants whenever he/she wants it. 23

24 Early Relationship With Government Investigators (cont.) When done appropriately, pressing government for information is acceptable, and indeed advisable. Witness, Subject or Target. Avoid making a mountain out of a molehill, or (worse) treating a mountain like a molehill (underestimating the seriousness of an investigation). Often requires counsel to share information with government as well need to give to get. 24

25 Internal Investigations 25

26 Internal Investigation Almost always need to do it. Get ahead of, or on par with, the government on the facts. Most disadvantaged company is the one that does not learn of the nature and extent of a problem until the government later (perhaps much later) tells it. Better to know than not to know. Decisions made during Day 1 or Week 1 or Month 1 can affect the entire course of an investigation. Complicated by hard-to-quantify possibility of subsequent disclosures to government and associated privilege waivers. 26

27 Benefits Of An Effective Internal Investigation Revealing the relevant facts so that management, the board or in-house counsel can make a fully informed decision as to how best to proceed. Stop any bleeding i.e., prevent further violations if any past violations occurred. Memorializing good-faith response of the company and management to facts as they become known. Insulating management, the board and/or in-house counsel against allegations of complicity. Promoting a culture of compliance and transparency throughout the organization. In some instances, internal investigations may be mandatory. 27

28 Early Assessment Identify the full risk not just the immediate, apparent risk, but the larger, potential risk. May require some initial review of documents and/or informal witness interviews. Define scope of investigation in light of the full risk. Think in terms of proving facts, not proving a negative; the latter can lead to meandering investigations. Create a budget not only controls costs, but brings discipline to process. Determine who should investigate. 28

29 Considerations on Who Should Conduct the Investigation Driven by risk Who is receiving, relying upon and judging the effectiveness of the investigation (management, board, auditors, regulators)? How important is the independence of investigator? How specialized is the subject matter? Are there challenges to protecting privileged information? Are senior executives potentially implicated? 29

30 Who Should Conduct the Investigation? Advantages of in-house counsel: Cost. Quick access to information. More comfort for employees. Advantages of outside counsel: Independence/objectivity. Resources. Expertise/experience. Less difficulty preserving privilege (in-house counsel often have dual business and legal roles). Better able to cross-manage/coordinate with government investigation. 30

31 Who Should Conduct the Investigation? The Company s regular outside counsel will be more familiar with the business. Also comfort level between the Company and regular outside counsel. But special (i.e., non-regular) outside counsel may be viewed as more independent, more expert. E.g., special litigation counsel; independent special committee investigations. See In re Oracle Sec. Litig., 829 F. Supp (N.D. Cal. 1993) (rejecting settlement approved by special settlement committee because committee lacked independent counsel). 31

32 Privileges, Protections And Controlling The Flow Of Information 32

33 Controlling the Flow of Information Funnel discussions and coordination through counsel allows for protecting the development of facts and strategy. Often can only separate fact from fiction by collecting both. Speculation can lead to breakthroughs, but can also too easily be taken as fact. Strategy, at times, is a trial-and-error process; avoid the errors living beyond the trial period. Internal discussions about investigation that do not involve counsel may be discoverable, and can trigger allegations of obstruction, tampering or waiver of privilege. Experienced counsel is skilled at organizing investigation, gathering facts, and translating into strategy. 33

34 Privileges Applied To Internal Investigations Attorney-client privilege: Protects confidential communications by a client to an attorney made in order to obtain legal advice. Disclosure of privileged information results in waiver of privilege. Work product protection: Protects materials prepared in anticipation of litigation or for trial. See F.R.C.P. 26(b)(3); Fla. R. Civ. P (b)(4). Qualified and will give way, as to fact work product, where a party demonstrates a need or substantial need for the materials and that it cannot, without undue hardship, obtain the substantial equivalent of the materials. Common interest/joint defense privilege: Generally allows persons who have common interests to coordinate their positions without destroying the privileged status of their communications with their lawyers. Restatement (Third) of the Law Governing Lawyers 76 cmt. b. Recognized widely, but scope/breadth varies across jurisdictions. 34

35 Privilege & Work Product Importance of setting clear rules up front. Limit universe of persons authorized to receive investigative information. Understand privilege rules of relevant foreign jurisdictions (e.g., are in-house counsel communications privileged?). Mark and trace privileged communications and work product. Protect privilege while cooperating with government agents, outside auditors or others. Disclosing facts versus opinions or evaluations. 35

36 Tricky Issues: Joint Representation Advantages Coordinated legal strategy leads to more efficient use of resources and time. Cooperation by company s directors, officers, or employees. Less expense in indemnity situations. Disadvantages Potentially divergent interests. Effect on confidential information. Government concerns with joint representation. Potential disqualification issues. Pool counsel as compromise? 36

37 Tricky Issues: Joint Representation Considerations: Would a disinterested lawyer conclude that multiple representation is in the interest of both the corporation and an individual client? Are changed circumstances likely that would render continuation of multiple representation impermissible? Is informed consent of all clients possible after full disclosure of the advantages/risks of multiple representation? Even if that is so, would a reasonable lawyer believe he or she can provide competent and diligent representation to all clients? Should representation be structured to minimize potential adverse consequences if an actual conflict arises (e.g., employing cocounsel or shadow counsel)? 37

38 Tricky Issues: Employee Counsel Providing independent counsel to employees: May be required by by-laws, union agreement, applicable law. Has employee been connected to illegal activity? Former employees: Balance benefits to investigation against lesser confidentiality protection. Interviewing departing employees before departure. Ethical issues: Model Rule 4.2: In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless with other lawyer s consent or authorized by law or court order. Model Rule 4.3: In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.. 38

39 Internal Investigations by Compliance Professionals Fact that compliance professional is an attorney is not determinative. Work product of an internal investigation likely not privileged when done at request of someone not operating as legal counsel. See, e.g., U.S. v. ISS Marine Servs., 905 F. Supp.2d 121 (D.D.C. 2012). May not be privileged if routinely documented matter or function. May be protected if information is gathered by compliance for counsel to provide legal advice (or for litigation). But raw facts may not be protected. 39

40 Notifications and Disclosures 40

41 To Disclose or Not to Disclose: that Is the Question 41

42 Parties Potentially Interested in Investigations of Corporations Other Federal Enforcement Agencies Lead Investigative Agency Private Civil Litigants Plaintiffs Attorneys Other State Enforcement Agencies Competitors Management Board COMPANY Customers and Suppliers Lenders Employees Shareholders Auditors Insurers 42

43 Possible Disclosure Decisions Internal: Senior management Board or board committees (e.g., audit) Employees External: Other government agencies Auditors Lenders, partners/joint venture participants, suppliers, contractors Public (SEC filing if the company has registered securities) Insurance carriers Media 43

44 Possible Disclosure Decisions No set formula depends on many factors: Materiality Language of policies or agreements Who appears to be potentially involved in challenged conduct No one-size-fits all approach disclosure can vary depending on constituency. Reporting outside the attorney-client relationship may result in waiver. Related issue: Are conduct restrictions required e.g., limiting trading in the company s stock. 44

45 Sharing Privileged Communications With Non-Lawyers: Boards and Management Disclosure of privileged information related to internal investigation to board members or officers whose conduct was within the scope of the investigation may result in waiver of privilege. Ryan v. Gifford, 2007 WL (Del. Ch. Nov. 30, 2007): Presentation of Special Committee s investigative report to full board of directors waived privileged when director-defendants were present. SEC v. Roberts, 254 F.R.D. 371 (N.D. Cal. 2008): Disclosure of certain investigative findings by counsel to Special Committee to board of directors, which was subject of investigation, constituted waiver. 45

46 Sharing Privileged Communications with Non-Lawyers: Auditors Attorney-Client Privilege: Most courts find disclosing results of internal investigation to auditors waives attorney-client privilege. Work Product Protection: Courts are split on whether disclosing results of internal investigation to auditors waives work product protection. Some find disclosure does not amount to wavier because company and auditor are not in an adversarial relationship. See SEC v. Roberts, 254 F.R.D. 371 (N.D. Cal. 2008). Others find that disclosure does constitute waiver due to the public watchdog function of auditors or because information is disclosed for use in auditing, not legal work. See Medinol v. Boston Sci. Corp., 214 F.R.D. 113 (S.D.N.Y. 2002). 46

47 Employee Witness Interviews 47

48 Interviewing Employee Witnesses Generally following at least some document investigation, but need to be flexible. Strategically sequence interviews, subject to timing demands. Time and place: Setting to induce candor. Setting to preserve confidentiality. 48

49 Interviewing Employee Witnesses (cont.) Team interviews one examiner and one note taker (who is also witness to interview). Maintain professionalism, but cannot shy away from tough or critical questioning. Conclude with reminders: Confidentiality. Preservation. Company policy. Contact information for follow-up. 49

50 Upjohn warnings For Employee Interviews Upjohn v. U.S., 449 U.S. 383 (1981) Lawyer conducting interview to assist in providing legal advice to the company. Lawyer represents the company, not the employee. Interview protected by privilege, but it is the company s privilege. Only the company can decide to waiver the privilege and disclose interview to others (including the government). 50

51 More on Employee Interviews Upjohn warnings need to be clear, but need not be intimidating. Upjohn warnings at beginning. Be clear that witness must provide truthful and complete answers; lawyers (and company) are relying on witness s statements. Be prepared to answer questions. Do not create potential conflicts by being witness s friend : Trust me, you don t need your own lawyer. I ll keep this just between us. 51

52 Witness Interviews: Interview Memoranda Usually need to document interviews. Include why memo is privileged and what Upjohn warning and other instructions were given. Distill to relevant facts; not a transcript of proceedings. Benefits of the team interview: Collaborate and agree on one memo. Do not wait; do promptly. 52

53 Whistleblower Considerations 53

54 Is there a whistleblower in the company? Can be excellent source of information, can help company understand what the government thinks has taken or is taking place. Opportunity for company to demonstrate that it takes allegations of wrongdoing seriously. Consider need for formal procedures to prevent retaliation. Listen more, speak less whistleblower less likely to abide by confidentiality restrictions. 54

55 Experts 55

56 Are Experts Needed For Investigation Accountants/independent auditors. Data analyses. Computer forensics. Industry/regulatory expert. Investigators (as to events that occurred in other countries). 56

57 Are Experts Needed For Investigation May use own employees as experts: Is employee potential fact witness? Can employee otherwise be independent? Could employee be required to testify? Moving quickly potential conflicts if industry/competitors under investigation. Budgeting critical because experts work can be out of view of in-house counsel, and more limited roles make budgeting more feasible. 57

58 Reports of Investigation 58

59 Reports Of Investigation Various Options: Full narrative report with supporting materials. Chronology with supporting materials. Summary presentation (e.g., PPT / outline). Oral, if appropriate under circumstances (rare for final report). Be careful with interim reports company may need to take actions while investigation ongoing, but be clear on limitations and confidentiality. Remember who client / audience is, but bear in mind that, ultimately, there could be multiple audiences, intended or not (government, auditors, others). 59

60 Resolution, Self-Disclosure And Remediation 60

61 The one club in which no one wants to be a member: Club Fed Now what? 61

62 Steering toward an acceptable outcome: The Art of the Possible Department of Justice Declination (often not formally, or even informally, told). Deferred prosecution: Beware the conditions attached here and in plea deals. Remember the period of exposure to new problems reawakening the old. Acceptable resolution which avoids worst fine, restitution, collateral consequences (disbarment, exclusion), monitoring. Referral to another government agency. Regulators No action on regulatory front. No enforcement action. Monetary settlement terms. Non-monetary settlement terms. 62

63 Ramifications of Deferred Prosecution, Non- Prosecution Agreements and Corporate Integrity Agreements Government involvement in corporate matters e.g., federal monitor. Compliance and reporting requirements can be onerous. Violation of terms can equal prosecution, revoke amnesty harsher terms. 63

64 Challenge or Cooperate Prepare to defend even if company believes it did nothing wrong or wants to strike a deal. Can overlook facts to support defenses in investigation if conclude too early that company did nothing wrong or wants a deal. If you do not develop exculpatory evidence, who will? Not a high priority of government investigators. Know the collateral consequences of all options: Need to weigh defenses against both liability and collateral consequences (excluded from doing business with the government, private civil litigation, investor confidence, etc.). 64

65 Privilege Waiver and Cooperation: DOJ Filip Memo (August 2008) Cooperation is based on disclosure of facts, not waiver of privilege. Limits prosecutors from asking corporations to disclose non-factual privileged communications or work product. Limits prosecutors from considering advancement of attorney s fees for employees. Limits prosecutors from considering whether company entered joint defense agreements. Limits prosecutors from considering corporate discipline or termination of employees. 65

66 Privilege Waiver and Cooperation: SEC Division Enforcement Manual (2008) Tracks Filip Memo Directs SEC staff attorneys not to request waivers of privilege. Provides that a company s decision to assert legitimate privilege will not negatively affect credit for cooperation. 66

67 Privilege Waiver and Cooperation: Caution on Other Agencies In past DOJ and SEC more commonly sought privilege waivers in connection with a company s cooperation. Some agencies still follow this approach. ABA has called for a single multi-agency solution. Conversely, understand that if a company wants to cooperate but is overly focused on privilege issues, odds increase that cooperation will not go well. Remember what is primary. 67

68 Privilege Waiver and Cooperation: Caution on Selective Waiver Theory is that a corporation can produce documents to government under confidentiality agreement, but still assert privilege and protection in other legal actions. Few courts have upheld the principle. More courts reject selective waiver arguments, holding that once privilege is waived, it is waived completely, regardless of a confidentiality agreement or pressure on company to disclose. But see Fed. R. Evid. 502(d) (court orders). 68

69 Privilege Waiver and Cooperation: Caution on Private Litigation Impact Admissions to government can be damning to civil suits. Potential private civil liability can add up to a bet your company collection of litigation. Cooperation with the government often at odds with protecting oneself on the civil front. Waiver of privilege. Blood in the water. 69

70 Root Cause & Remediation Root cause should always be part of investigation: Almost always something to learn. Rogue actors. Lack of clear policies or directions. Internal control deficiencies. Remediation: Never too early to consider. Separate remediation workstream(s) may be warranted while investigation ongoing. Be thoughtful when implementing (watch for impact on investigation, particularly with respect to personnel action). 70