Financial Fraud Law Report

Transcription

1 Financial Fraud Law Report An A.S. Pratt & Sons Publication May 2014 Editor s Note: Mary Jo White s SEC Steven A. Meyerowitz SEC Enforcement: Top 10 Developments Under Mary Jo White Thomas A. Zaccaro, Eleanor K. Mercado, and Neil J. Schumacher Halliburton Co. v. Erica P. John Fund, Inc.: Assessing Possible Modifications to Basic and The Fraud-On-The-Market Theory Jason M. Halper, Ryan J. Andreoli, and William J. Foley Six Steps to Prevent Disclosure of Internal Investigation Reports William A. Roberts, III, Mark B. Sweet, and Richard B. O Keeffe, Jr. Recent Developments in the Regulation of Bitcoin under State and Federal Securities Laws Scott H. Kimpel Reining in Overbroad Criminal Subpoenas Is Some Relief in Sight? Ben Barnett, Rebecca S. Kahan, and Nathaniel Hopkins Recent FCA Decision Has Important Implications for Contractor Disclosures to the Government Richard J. Vacura, Pablo A. Nichols, and Sara Bartel Marubeni Gets Hit Again for FCPA Violations: DOJ Says the Company Did Not Voluntarily Disclose the Conduct and Refused to Cooperate Paul T. Friedman, Stacey M. Sprenkel, and Tiffany A. Rowe U.K. Financial Conduct Authority Imposes Fine on Besso Limited Karolos Seeger, Bruce E. Yannett, Matthew H. Getz, Robin Lööf, and Robert Maddox Brazil s Anti-Corruption Clean Company Law Now In Effect André Marques Gilberto U.S. Supreme Court Extends Sarbanes-Oxley Whistleblower Protections to Employees of Mutual Fund Investment Advisers and Other Privately-Held Contractors to Public Companies Stephen T. Cohen and Alexander R. Bilus Dodd-Frank Wall Street Reform and Consumer Protection Act Update David A. Elliott, Kristen Peters Watson, E. Jordan Teague, and Seth Muse

2 Editor-in-chief Steven A. Meyerowitz President, Meyerowitz Communications Inc. Board of Editors Frank W. Abagnale Author, Lecturer, and Consultant Abagnale and Associates Stephen L. Ascher Jenner & Block LLP Thomas C. Bogle Dechert LLP David J. Cook Cook Collection Attorneys David A. Elliott Burr & Forman LLP William J. Kelleher III Corporate Counsel People s United Bank James M. Keneally Kelley Drye & Warren LLP H. David Kotz Director Berkeley Research Group, LLC Richard H. Kravitz Founding Director Center for Socially Responsible Accounting Frank C. Razzano Pepper Hamilton LLP Sareena Malik Sawhney Director Marks Paneth & Shron LLP Mara V.J. Senn Arnold & Porter LLP John R. Snyder Bingham McCutchen LLP Jennifer Taylor McDermott Will & Emery LLP Bruce E. Yannett Debevoise & Plimpton LLP The Financial Fraud Law Report is published 10 times per year by Matthew Bender & Company, Inc. Copyright 2014 Reed Elsevier Properties SA., used under license by Matthew Bender & Company, Inc. All rights reserved. No part of this journal may be reproduced in any form by microfilm, xerography, or otherwise or incorporated into any information retrieval system without the written permission of the copyright owner. For permission to photocopy or use material electronically from the Financial Fraud Law Report, please access com or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For subscription information and customer service, call Direct any editorial inquires and send any material for publication to Steven A. Meyerowitz, Editor-in-Chief, Meyerowitz Communications Inc., PO Box 7080, Miller Place, NY 11764, smeyerow@optonline.net, (phone) / (fax). Material for publication is welcomed articles, decisions, or other items of interest. This publication is designed to be accurate and authoritative, but neither the publisher nor the authors are rendering legal, accounting, or other professional services in this publication. If legal or other expert advice is desired, retain the services of an appropriate professional. The articles and columns reflect only the present considerations and views of the authors and do not necessarily reflect those of the firms or organizations with which they are affiliated, any of the former or present clients of the authors or their firms or organizations, or the editors or publisher. POSTMASTER: Send address changes to the Financial Fraud Law Report, LexisNexis Matthew Bender, 121 Chanlon Road, North Building, New Providence, NJ Direct inquiries for editorial department to catherine. dillon@lexisnexis.com. ISBN:

3 Reining in Overbroad Criminal Subpoenas Is Some Relief in Sight? Ben Barnett, Rebecca S. Kahan, and Nathaniel Hopkins Some members of the federal judiciary recently have demonstrated a willingness to require the government to limit subpoenas to information for which the government has probable cause to request and to destroy irrelevant information. In the wake of the national financial crisis, both the U.S. Department of Justice ( DOJ ) and the U.S. Securities and Exchange Commission ( SEC ) publicly committed themselves to enhanced enforcement of federal financial laws and regulations. Attorney General Eric Holder stated that the DOJ will remain aggressive in pursuing white-collar criminal cases. 1 Similarly, SEC Chairwoman Mary Jo White pledged to make the Commission a strong and effective cop that will be aggressive and creative in its use of enforcement tools. 2 Proof of these public pronouncements has taken the form of increased criminal prosecutions, criminal investigations, and SEC enforcement actions. Many of these actions, in turn, have demonstrated a new-found appetite among federal prosecutors, investigators, and regulators for obtaining significant amounts of electronically stored information ( ESI ). Historically, limitations on the potential scope and cost of collecting, reviewing, and producing such electronic information that exist in civil discov- Ben Barnett is co-leader of the complex commercial litigation practice at Dechert LLP. Rebecca S. Kahan and Nathaniel Hopkins are associates at the firm. The authors can be reached at ben.barnett@dechert.com, rebecca.kahan@ dechert.com and nathaniel.hopkins@dechert.com, respectively 428 Published by Matthew Bender & Company, Inc. in the May 2014 issue of Financial Fraud Law Report. Copyright 2014 Reed Elsevier Properties SA.

4 Reining in OverBroad Criminal Subpoenas Is Some Relief in Sight? ery offered no relief or sanctuary to companies or individuals facing criminal or regulatory investigations. Recently, however, some members of the federal judiciary steeped in civil ediscovery experience have demonstrated a willingness to require the government to (i) limit subpoenas to information for which the government has probable cause to request, and (ii) destroy irrelevant information. Fourth Amendment Limitations on Broad Subpoenas Seeking ESI In In the Matter of the Search of Information Associated with mac.com that is Stored at Premises Controlled by Apple, Inc., Magistrate Judge John M. Facciola a leading jurist in the ever-evolving ediscovery arena denied the DOJ s application for a search and seizure warrant directed to Apple Inc. as part of an investigation into receipt of kickbacks and conspiracy involving a defense contractor. 3 The government s subpoena application followed a standard format which divided the list of Particular Things to be Seized into two parts: (i) Information to be disclosed by Apple, and (ii) Information to be seized by the government. If authorized, the requested warrant would have required Apple to turn over the entire universe of information tied to a single account. Once in receipt of that information, the government would sort through the data in order to find evidence relevant to their investigation. Judge Facciola rejected the application, ruling that it was unconstitutionally overbroad. The Judge held that to comply with the Fourth Amendment, the search warrant could not make across-the-board requests for information, but had to be tailored 4 to a probable cause justification. This meant that the government would be required to describe the information to be seized with as much specificity as the government s knowledge and circumstances allow. 5 Because the language used in the government s application was general and generic, Judge Facciola concluded that the requested warrant would amount to nothing more than an unconstitutional exploratory rummaging 6 through a personal account. The Apple case is not the first time Judge Facciola found a government warrant application for ESI unconstitutionally overbroad. On November 26, 429

5 Financial Fraud Law Report 2013, Judge Facciola issued an opinion significantly narrowing the scope of a search warrant for data associated with the Facebook account of Aaron Alexis, the former Navy employee identified as the Washington D.C. Navy Yard shooter. 7 There, the court s concerns focused on the search and seizure of information related to third parties and the government s failure to identify how irrelevant information would be handled. Although the warrant application was ultimately granted, the Court required that some safeguards be put in place to prevent the government from collecting and keeping indefinitely information to which it has no right. 8 These two opinions, along with others, 9 suggest a potential trend among federal courts to take active steps to prevent abuse of the two-step search procedure permitted under Rule 41 of the Federal Rules of Criminal Procedure. The two-step procedure permits law enforcement officials to require the disclosure of an entire data storage medium and which it later reviews in order to seize information relevant to its investigation. Although Judge Facciola recognized that courts will continue to issue warrants employing the two-step procedure, he noted his view that it was appropriate to incorporate minimization procedures into the warrants to comply with the Fourth Amendment. 10 Such minimization procedures encompass both steps to reduce the amount of information collected, including pre-screening data through the search capabilities of the holder of the ESI or a third-party vendor, 11 and Secondary Orders that specifically require the government to return or destroy electronic data that has been collected but which is irrelevant to its investigation. 12 Practical Implications for Recipients of Discovery Demands On one level, the Apple case is simply Judge Facciola s most recent opinion establishing innovative procedures for addressing the challenges posed by ESI, following his 2001 opinion in McPeek v. Ashcroft 13 (helping set the standard for weighing the costs of ediscovery), the Bethea v. Comcast 14 opinion in 2003 (providing guidance on the standard for granting a motion to compel disclosure of ESI), and the 2011 opinion in U.S. v. Halliburton 15 (addressing the concept of proportionality of utility and cost in ediscovery). 430

6 Reining in OverBroad Criminal Subpoenas Is Some Relief in Sight? Because of Judge Facciola s recognized ediscovery experience, it is likely that other federal courts may find the restrictions on federal search warrants set forth in the Apple and Alexis decisions reasonable and required under the Fourth Amendment. Further, it is possible that courts will apply the principles announced in this case when reviewing overly-broad subpoenas directed to the target of an investigation or discovery demands seeking voluminous amounts of data served in civil litigation. Given the federal government s current focus on aggressive enforcement of financial laws and regulations, individuals and entities must be cognizant of their abilities to limit the scope of a seemingly overbroad request electronic information and advocate for the use of techniques, including those that have been previously endorsed by courts, to narrow subpoenas and other requests for the production of ESI. Notes 1 Devlin Barrett, Justice Department Plans New Crisis-Related Cases, WALL ST. J. (Aug. 20, 2013, 7:23 PM). 2 Mary Jo White, Chairwoman, Sec. and Exch. Comm n, Deploying the Full Enforcement Arsenal (Sept. 26, 2013). 3 In re Search of Info. Associated with that is Stored at Premises Controlled by Apple, Inc., No (D.D.C. Mar. 7, 2014). 4 Id. at *4. 5 Id. at *4. 6 Id. at *5. 7 In re Search of Info. Associated with the Facebook Account Identified by the Username Aaron.Alexis that is Stored at Premises Controlled by Facebook, Inc., No (D.D.C. Nov. 26, 2013). 8 Id. at *7. 9 See In re Search of Black iphone 4, No (D.D.C. Mar. 11, 2014); In re Search of ODYS LOOX Plus Tablet, No (D.D.C. Mar. 20, 2014); In re Search of Apple iphone, IMEI , No (D.D.C. Mar. 26, 2014). 10 In re Facebook, supra. 11 In supra. Delegating the pre-screening process of ESI is just one of the possible minimization procedures the court can impose in order to 431

7 Financial Fraud Law Report bring an overly broad subpoena request in line with the Fourth Amendment. Other possibilities include appointing a special master to hire an independent vendor to use computerized search techniques to review the data for relevance and privilege, and requiring government personnel tasked with an initial review of the ESI not to disclose to investigators any information falling outside the scope of the warrant. See In re Facebook, supra; In supra. 12 In supra. 13 McPeek v. Ashcroft, 202 F.R.D. 31 (D.D.C. 2001). 14 Bethea v. Comcast, 218 F.R.D. 328 (D.D.C. 2003). 15 U.S. ex rel. McBride v. Halliburton Co., 272 F.R.D. 235 (D.D.C. 2011). 432