News
Features
May 1, 2006
White-Collar Defense
A roundtable with Farella Braun + Martel; Howrey; Morrison & Foerster; PricewaterhouseCoopers; and Sidley Austin.
In this month's roundtable, our panel of experts discuss internal investigations and the pressing issues that counsel and companies face today. Not surprisingly, the waiver of privilege continues to be a major concern as the Department of Justice and government agencies focus on cooperation and, in the process, make the waiver an integral part of an investigation. As a result, the waiver has had a chilling effect on company employees who become less likely to cooperate. In addition, public companies and counsel need to consider how to handle any negative publicity that may arise during an investigation.
The panelists are William Keane of Farella Braun + Martel, Jan Handzlik of Howrey, Stephen Freccero of Morrison & Foerster, Martha Corbett of PricewaterhouseCoopers, and Kimberly Dunne of Sidley Austin. The roundtable was moderated by Custom Publishing Editor Chuleenan Svetvilas and reported for Barkley Court Reporters by Krishanna DeRita.
MODERATOR: Has the manner in which internal investigations are conducted changed in light of the requirements of Sarbanes-Oxley, the Public Company Accounting Oversight Board (PCAOB)'s inspections and investigations, the Thompson memo, and the increasing frequency of the privilege waiver seeking favorable treatment?
CORBETT: There are certainly different perspectives on this. The overall goal of responding in a prompt and thorough manner has not changed. Thus, the process for conducting investigations from the point of view of the independent forensic accountant hasn't necessarily changed a lot. There are certainly dynamics that have created change, particularly given more enhancements created by PCAOB scrutiny. For example, from the independent accountant (auditor) perspective, when you have a company that has an issue and the auditor has the possibility of being inspected by the PCAOB, or in some situations, they know that that particular account is being selected by the PCAOB for review; it creates increased scrutiny on their part and increased interest in the investigation. Given the perspective each stakeholder has in the result of the investigation, at times this creates a little more work; but in general, the process is pretty much the same in terms of what you are gathering and what you are doing.
HANDZLIK: From the point of view of outside counsel to companies, there have been a number of significant changes due to the increased importance of internal investigations, remediation, and cooperation, especially the increased emphasis on cooperation and privilege waiver. These put an increased burden on in-house counsel and the company to conduct really thorough investigations and, quite frankly, in most cases, to cooperate fully with the SEC or the Department of Justice.
General counsel as well as the company's audit committee have been placed in a very difficult position because they have almost been deputized as junior G-men to do the investigation for the government. Everyone in the process knows that it's a virtual certainty that the work product and privileged information they are handling is going to be turned over to the government. So that has an impact on how you go about doing the investigation, and in some cases, on how you document it.
FRECCERO: Almost in your first interaction with the government, there is a request for a waiver. Counsel may have no idea what's going on, and they have to go out and try to figure out what the facts are with an agreement up front that they will share the information with the government. In some cases, the government will actually direct outside counsel to go into the company and find out who did bad things and then report back to them. This "deputizing" of outside counsel is a paradigm shift. And if that's what the government really wants to do, I question whether in the long run outside counsel is going to be any more effective than government investigators themselves would be.
DUNNE: The approach toward employee witnesses has changed somewhat, although the content of what we call Upjohn warnings, the advisements that counsel for the corporation give an employee prior to an interview, really have not changed. Maybe the method in which that information is communicated has changed more. It's certainly important for corporate counsel to truly make sure that witnesses understand before the interview commences that counsel represents the corporation and not the witness; that the privilege belongs to the company, not the individual; that it is the company's decision whether to waive the privilege; and that if waived, the company may share the information, perhaps with the government.
KEANE: I'm hoping now, at worst, we are in a state of flux with regard to the question of the government requiring waiver for cooperation, especially in the internal investigation context. The McCallum memo directed each individual U.S. Attorney's office to develop specific guidelines about when they are going to ask for a waiver of privilege and what the ramifications would be. I have not seen such guidelines yet in the Northern District.
Hopefully, we will see more thought being given to when such a request is made and there won't be a presumption that there should be a waiver. It will be very interesting to see what individual U.S. Attorney's offices come up with.
FRECCERO: The McCallum memo was a directive to each U.S. Attorney's office that (1) an assistant U.S. Attorney cannot ask for a waiver of privilege without supervisory approval; and (2) each U.S. Attorney's office is supposed to have a written policy outlining the circumstances when a waiver of privilege can be requested. I don't know if the Northern District of California has actually done that yet.
HANDZLIK: The Central District has created a process under McCallum, but the feeling among most of the practitioners is that the McCallum memo doesn't really make much of a difference because, essentially, you are just vesting in more than 50 different U.S. Attorney's offices the power to decide when and how to ask for a waiver and what benefits are going to be given as a result. I'm on an ABA task force that has as its purpose the study of the impact of things like Thompson, Seaboard, McCallum, and SOX on the privilege and the relationship between attorney and client, and how the dynamic has changed as a result.
Tentatively, we are not in favor of any sort of benefits being given in exchange for waiver. At a minimum there should be some centralized place in DOJ where someone scrutinizes these requests and makes sure that they are not being made for the wrong reasons. This would entail keeping records on the number of waivers requested so that meaningful data could be collected and analyzed.
FRECCERO: Privilege waivers always vex attorneys because they can never be contained with confidence. Even in routine civil litigation, you can't control where you end up once you waive a privilege. The issue for the government is: What is it trying to accomplish? These types of policies only seem to move in one direction. Once privilege waiver becomes an accepted way for the government to investigate, it will be used more frequently, and every other regulatory agency will want one also.
DUNNE: It is important for counsel to be creative in thinking of ways to cooperate with the government short of waiving that privilege. In many instances, in an SEC investigation, for example, there may be a Wells submission that lays out the entirety of the evidence, the defense position, and really does hand an explanation of the facts to the government short of waiving privilege.
A company can cooperate by perhaps educating the government about technology or educating the government about a procedure that's at issue and how it's performed. Or the company can give the government access to technologies that they want for document review.
It is also important for company counsel to make sure that the government understands the potential risk of asking for a waiver. In many instances, the government thinks it's going to receive a great admission if they can get a witness statement, but frankly it may just be Brady for them, because company counsel is not getting the complete skinny in many instances from the employees who may ultimately tell the government the facts more accurately or completely than what they told company counsel.
FRECCERO: One of the things the Thompson memo set in motion was this belief that individual employees having their own counsel was somehow bad for the process, that it was almost by definition "obstruction." There was this potential sanction against companies if they advanced employees the cost of defense or entered into joint defense agreements. But now, if the individual calls an attorney who knows nothing about the case and says, "Look, this is what's going on, there's apparently some problem inside the company, and all these lawyers are swooping down and want to talk to me tomorrow," what is that attorney going to say? "Wait a second. You shouldn't be talking to anybody until we figure out what's going on here." So it's ironic, because the long-term effect is that they are making it more likely that people are going to immediately assume the worst and clam up.
KEANE: I recently saw a colleague in town during the ABA White-Collar Crime Conference who said she had recently done an internal investigation and they did not write anything down, no notes, no memos of interview, nothing. Is that really what the government wants? When you get to the point where we are not going to take notes of witness interviews, let alone type up formal memos, it raises some serious questions for all concerned-the government, the defense counsel, and corporate counsel.
CORBETT: So from a forensic accountant's perspective, it might be that the process we go through hasn't necessarily changed much in terms of how we go about getting data, how we analyze information, how we participate in interviews. I see that process staying the same. The changing dynamics that we have discussed may affect how much we do, and that again gets tied to whether there's increased scrutiny around the investigation of a particular issue, and whether or not the government might or might not be interested. What's always challenging is the costs and benefits associated with that. What's a thorough investigation? And what's being thorough with respect to what the issue requires without going overboard because of increased scrutiny?
HANDZLIK: I realize this is fact-specific, but would you as the independent auditor to a publicly traded company be satisfied with learning the conclusions of an internal investigation conducted by an outside law firm or by in-house lawyers, or would you want the underlying data and documents?
CORBETT: From an auditor's point of view, we are most interested in the scope of the investigation and related findings, and that needs to be communicated. Regarding whether we would want underlying documents, while I think we'd be most interested in the conclusions, and depending on the kind of issue that it was, how those conclusions came about, whether it's interview notes or whether it's analysis, or whether we need to look at the working papers, generally the answer to that is yes, we do have a requirement to make our own record.
KEANE: I just want to add there is case law finding that a disclosure of an investigation to the outside auditors is not necessarily a waiver. Right now, the cases are against companies in terms of trying to uphold the waiver when a report is given to the government. Although not certain, the news is better on sharing the report with the outside auditors.
Now that these internal investigations are becoming more routine and a number of different interests are looking to get a piece of them-whether it's a whistleblower, the government, or plaintiffs in a securities class action-the waiver issue when any investigation findings are shared is a critical one. And our experience has confirmed that the auditors often want to see whatever there is that relates to accounting issues.
MODERATOR: Have attorneys become gatekeepers for the government, as opposed to people who advise and defend their clients?
DUNNE: You have to make a distinction between responsibilities to the clients, the corporation, and the employees. From representing the corporation's perspective, it's important that counsel keep options open. It may be in the company's best interest to cooperate, and to lay the foundation for that potential cooperation is important, and ensuring documents are maintained, witnesses are interviewed, and so forth.
On the other hand, clearly, the counsel for the company may have to act contrary to the interest of the employees, whether requiring employees to participate in an interview or be disciplined, or telling them the company may relinquish the privilege and share the information you provide. Then the sense of loyalty that employees feel the company will have to them goes by the wayside. Thus, from an employee perspective, corporate counsel is the gatekeeper for the government. But tension also arises between the company and the government if the company provides counsel for the individuals or advances fees for the individuals.
KEANE: Given the recent federal indictment in Houston applying a Computer Associates theory of lying to internal investigators, I wonder how close we are to an Upjohn supplement where you would add, "If the company does turn your statement over to the government, there's some reasonable likelihood that any misrepresentation could be used in an obstruction or false-statement prosecution."
HANDZLIK: To prosecute employees for obstruction of justice under these circumstances comes pretty close to making the actions of the company's lawyers into government action. The theory of the Computer Associates case and now the Singleton case in Houston is that the interview was going to be turned over to the government. Company counsel has become the cat's-paw for the FBI.
DUNNE: My sense is that the judicial decisions that have been considering the quality of the advisements to the employees have generally come out in a way that allows the government to have access to that information. It won't [change] until there's a scenario where the government is pulling the strings from behind the scenes, which really implicates a due process issue.
HANDZLIK: I've seen situations where the internal investigation is under way, the employee or officer has a lawyer, they request an interview, and if the outside lawyer feels there's any possibility of a criminal matter, the employee resigns immediately. That's great for the employee because then they haven't been fired; it withholds the information from the company, and, by extension from the government. It preserves the employee's right against self-incrimination and it preserves the ability of the client and the lawyer to negotiate with the government in a way that might benefit that employee, and also it preserves a fundamental right to go to trial as opposed to having made admissions.
MODERATOR: How do you effectively handle negative publicity with these investigations going on, especially if it's a publicly traded company?
KEANE: We will sometimes work with the PR companies. What we are finding is that the PR questions must be considered in light of the trend of companies cooperating fully with the government, and again, if you represent the corporation, there are many reasons why you might cooperate. Look at the wave of deferred corporate prosecutions since Arthur Anderson.
As companies choose to cooperate with the government, some are also saying more in their press releases. I can think of some recent examples where press releases about a restatement have laid out in significant detail the accounting issues being investigated. So there's been some hint of a trend to get it all out there and let the market react.
FRECCERO: Most outside counsel argue for the least amount said. Putting aside issues as to what you may legally have to disclose, there are occasions in which a situation is so significant that it warrants, for lack of a better term, a "crisis management" team, which usually involves experienced PR consultants and outside counsel developing a game plan. But otherwise, my general experience is that nothing good comes from talking about a pending investigation.
The more statements a company issues, the more food is thrown at the hungry bears out there-a U.S. Attorney, the SEC, or some other agency. You just have to make a tough decision and disclose what you are legally obligated to. Otherwise, if you've got a real crisis of confidence in the markets regarding your company, you can hire PR consultants. But my own personal opinion is that the spokesperson should not be outside counsel. Instead there should be someone from the company who is in charge of making sure that there is a consistent, accurate, and succinct message.
DUNNE: The less said is generally preferable, but it also underscores the importance of both in internal investigations and dealing with the press, of having people involved both from the company as well as counsel who have different experiences so that all the issues that need to be understood and flagged, whether they are labor and employment issues, whether they are SEC issues, FCPA issues, et cetera. You have to have the necessary people involved to identify those issues and to be sensitive to the impact of public statements and company actions on those issues.
HANDZLIK: The only exception is in the case of a company that deals with public health and safety-an automotive company, a drug manufacturer, a food company-where if you don't reassure the public about the cleanliness of your food or the safety of your drugs, you stand the chance of turning a bad situation into a total disaster. So that requires a really comprehensive, proactive, quickly executed strategy to bolster the confidence of the consuming public. But in the usual case, it doesn't do much good. All you can do is get yourself into trouble, frankly.
CORBETT: The thing that concerns me most about public statements is when the investigation is almost done but not completely done, and it may be that there's one last interview to do, there's one last transaction to look at, or there's some impending deadline that is coming up, and the company wants to make a public statement about being done, and that 5 or 10 percent that's left to do sometimes just opens up a whole new can of worms. That's the thing that concerns me most--when companies want to make a statement before it's done.
Roundtable Participants
William B. Keane is chair of Farella Braun + Martel's White Collar Crime group. His complex civil and criminal litigation practice emphasizes white-collar criminal defense and intellectual property matters. He represents clients facing a broad range of criminal and civil enforcement investigations and cases, and regularly conducts internal investigations on behalf of clients. Mr. Keane formerly served as an Assistant U.S. Attorney in the U.S. Attorney Silicon Valley office, specializing in white-collar and high-technology criminal prosecutions. wkeane@fbm.com
Jan L. Handzlik, a partner in the Los Angeles office of Howrey LLP, is a former federal prosecutor and a highly respected white-collar crime lawyer. He has represented individuals and companies in investigations, prosecutions, and jury trials nationwide, and he has conducted numerous corporate internal investigations. Mr. Handzlik recently served as Chair of the ABA's national White-Collar Crime Committee and on the ABA's Criminal Justice Section Council. Her serves on ABA Presidential Task Forces concerning the Attorney-Client Privilege and Standards for the Prosecution-Defense Function. handzlikj@howrey.com
Stephen P. Freccero is a partner in the San Francisco office of Morrison & Foerester, where he is a member of the Litigation Department and the firm's Criminal Defense Practice. He is a former federal prosecutor whose practice includes the defense of businesses and individuals in criminal proceedings and the litigation of general commercial, antitrust, and intellectual property disputes. From 1996 to 1998 Mr. Freccero served as Special Attorney to Attorney General Janet Reno in the successful federal prosecution of Unabomber Theodore Kaczynski. sfreccero@mofo.com
Martha N. Corbett is a CPA and a Certified Fraud Examiner (CFE) in the Los Angeles office of PricewaterhouseCoopers. Her public accounting experience relates to the financial reporting of publicly held companies, internal control reviews and remediation, due diligence reviews, internal corporate investigations, and other business and litigation advisory services. Ms. Corbett is the Advisory Site Leader for Southern California, the West Region Dispute Analysis & Investigations Leader and is aldo a member of the US Dispute Analysis & Investigations leadership team.
martha.n.corbett@us.pwc.com
Kimberly A. Dunne is a litigation partner in the Los Angeles office of Sidley Austin LLP. Her practice focuses on white-collar crime matters, with an emphasis on health care fraud and abuse issues, and complex business litigation. She frequently represents clients in internal investigations and related enforcement matters and in the development, implementation, and audit of corporate compliance programs. Ms. Dunne was a priminal prosecutor with the U.S. Attorney's office in Los Angeles and served as Chief of the Public Corruption and Government Fraud Section. kdunne@sidley.com
The panelists are William Keane of Farella Braun + Martel, Jan Handzlik of Howrey, Stephen Freccero of Morrison & Foerster, Martha Corbett of PricewaterhouseCoopers, and Kimberly Dunne of Sidley Austin. The roundtable was moderated by Custom Publishing Editor Chuleenan Svetvilas and reported for Barkley Court Reporters by Krishanna DeRita.
MODERATOR: Has the manner in which internal investigations are conducted changed in light of the requirements of Sarbanes-Oxley, the Public Company Accounting Oversight Board (PCAOB)'s inspections and investigations, the Thompson memo, and the increasing frequency of the privilege waiver seeking favorable treatment?
CORBETT: There are certainly different perspectives on this. The overall goal of responding in a prompt and thorough manner has not changed. Thus, the process for conducting investigations from the point of view of the independent forensic accountant hasn't necessarily changed a lot. There are certainly dynamics that have created change, particularly given more enhancements created by PCAOB scrutiny. For example, from the independent accountant (auditor) perspective, when you have a company that has an issue and the auditor has the possibility of being inspected by the PCAOB, or in some situations, they know that that particular account is being selected by the PCAOB for review; it creates increased scrutiny on their part and increased interest in the investigation. Given the perspective each stakeholder has in the result of the investigation, at times this creates a little more work; but in general, the process is pretty much the same in terms of what you are gathering and what you are doing.
HANDZLIK: From the point of view of outside counsel to companies, there have been a number of significant changes due to the increased importance of internal investigations, remediation, and cooperation, especially the increased emphasis on cooperation and privilege waiver. These put an increased burden on in-house counsel and the company to conduct really thorough investigations and, quite frankly, in most cases, to cooperate fully with the SEC or the Department of Justice.
General counsel as well as the company's audit committee have been placed in a very difficult position because they have almost been deputized as junior G-men to do the investigation for the government. Everyone in the process knows that it's a virtual certainty that the work product and privileged information they are handling is going to be turned over to the government. So that has an impact on how you go about doing the investigation, and in some cases, on how you document it.
FRECCERO: Almost in your first interaction with the government, there is a request for a waiver. Counsel may have no idea what's going on, and they have to go out and try to figure out what the facts are with an agreement up front that they will share the information with the government. In some cases, the government will actually direct outside counsel to go into the company and find out who did bad things and then report back to them. This "deputizing" of outside counsel is a paradigm shift. And if that's what the government really wants to do, I question whether in the long run outside counsel is going to be any more effective than government investigators themselves would be.
DUNNE: The approach toward employee witnesses has changed somewhat, although the content of what we call Upjohn warnings, the advisements that counsel for the corporation give an employee prior to an interview, really have not changed. Maybe the method in which that information is communicated has changed more. It's certainly important for corporate counsel to truly make sure that witnesses understand before the interview commences that counsel represents the corporation and not the witness; that the privilege belongs to the company, not the individual; that it is the company's decision whether to waive the privilege; and that if waived, the company may share the information, perhaps with the government.
KEANE: I'm hoping now, at worst, we are in a state of flux with regard to the question of the government requiring waiver for cooperation, especially in the internal investigation context. The McCallum memo directed each individual U.S. Attorney's office to develop specific guidelines about when they are going to ask for a waiver of privilege and what the ramifications would be. I have not seen such guidelines yet in the Northern District.
Hopefully, we will see more thought being given to when such a request is made and there won't be a presumption that there should be a waiver. It will be very interesting to see what individual U.S. Attorney's offices come up with.
FRECCERO: The McCallum memo was a directive to each U.S. Attorney's office that (1) an assistant U.S. Attorney cannot ask for a waiver of privilege without supervisory approval; and (2) each U.S. Attorney's office is supposed to have a written policy outlining the circumstances when a waiver of privilege can be requested. I don't know if the Northern District of California has actually done that yet.
HANDZLIK: The Central District has created a process under McCallum, but the feeling among most of the practitioners is that the McCallum memo doesn't really make much of a difference because, essentially, you are just vesting in more than 50 different U.S. Attorney's offices the power to decide when and how to ask for a waiver and what benefits are going to be given as a result. I'm on an ABA task force that has as its purpose the study of the impact of things like Thompson, Seaboard, McCallum, and SOX on the privilege and the relationship between attorney and client, and how the dynamic has changed as a result.
Tentatively, we are not in favor of any sort of benefits being given in exchange for waiver. At a minimum there should be some centralized place in DOJ where someone scrutinizes these requests and makes sure that they are not being made for the wrong reasons. This would entail keeping records on the number of waivers requested so that meaningful data could be collected and analyzed.
FRECCERO: Privilege waivers always vex attorneys because they can never be contained with confidence. Even in routine civil litigation, you can't control where you end up once you waive a privilege. The issue for the government is: What is it trying to accomplish? These types of policies only seem to move in one direction. Once privilege waiver becomes an accepted way for the government to investigate, it will be used more frequently, and every other regulatory agency will want one also.
DUNNE: It is important for counsel to be creative in thinking of ways to cooperate with the government short of waiving that privilege. In many instances, in an SEC investigation, for example, there may be a Wells submission that lays out the entirety of the evidence, the defense position, and really does hand an explanation of the facts to the government short of waiving privilege.
A company can cooperate by perhaps educating the government about technology or educating the government about a procedure that's at issue and how it's performed. Or the company can give the government access to technologies that they want for document review.
It is also important for company counsel to make sure that the government understands the potential risk of asking for a waiver. In many instances, the government thinks it's going to receive a great admission if they can get a witness statement, but frankly it may just be Brady for them, because company counsel is not getting the complete skinny in many instances from the employees who may ultimately tell the government the facts more accurately or completely than what they told company counsel.
FRECCERO: One of the things the Thompson memo set in motion was this belief that individual employees having their own counsel was somehow bad for the process, that it was almost by definition "obstruction." There was this potential sanction against companies if they advanced employees the cost of defense or entered into joint defense agreements. But now, if the individual calls an attorney who knows nothing about the case and says, "Look, this is what's going on, there's apparently some problem inside the company, and all these lawyers are swooping down and want to talk to me tomorrow," what is that attorney going to say? "Wait a second. You shouldn't be talking to anybody until we figure out what's going on here." So it's ironic, because the long-term effect is that they are making it more likely that people are going to immediately assume the worst and clam up.
KEANE: I recently saw a colleague in town during the ABA White-Collar Crime Conference who said she had recently done an internal investigation and they did not write anything down, no notes, no memos of interview, nothing. Is that really what the government wants? When you get to the point where we are not going to take notes of witness interviews, let alone type up formal memos, it raises some serious questions for all concerned-the government, the defense counsel, and corporate counsel.
CORBETT: So from a forensic accountant's perspective, it might be that the process we go through hasn't necessarily changed much in terms of how we go about getting data, how we analyze information, how we participate in interviews. I see that process staying the same. The changing dynamics that we have discussed may affect how much we do, and that again gets tied to whether there's increased scrutiny around the investigation of a particular issue, and whether or not the government might or might not be interested. What's always challenging is the costs and benefits associated with that. What's a thorough investigation? And what's being thorough with respect to what the issue requires without going overboard because of increased scrutiny?
HANDZLIK: I realize this is fact-specific, but would you as the independent auditor to a publicly traded company be satisfied with learning the conclusions of an internal investigation conducted by an outside law firm or by in-house lawyers, or would you want the underlying data and documents?
CORBETT: From an auditor's point of view, we are most interested in the scope of the investigation and related findings, and that needs to be communicated. Regarding whether we would want underlying documents, while I think we'd be most interested in the conclusions, and depending on the kind of issue that it was, how those conclusions came about, whether it's interview notes or whether it's analysis, or whether we need to look at the working papers, generally the answer to that is yes, we do have a requirement to make our own record.
KEANE: I just want to add there is case law finding that a disclosure of an investigation to the outside auditors is not necessarily a waiver. Right now, the cases are against companies in terms of trying to uphold the waiver when a report is given to the government. Although not certain, the news is better on sharing the report with the outside auditors.
Now that these internal investigations are becoming more routine and a number of different interests are looking to get a piece of them-whether it's a whistleblower, the government, or plaintiffs in a securities class action-the waiver issue when any investigation findings are shared is a critical one. And our experience has confirmed that the auditors often want to see whatever there is that relates to accounting issues.
MODERATOR: Have attorneys become gatekeepers for the government, as opposed to people who advise and defend their clients?
DUNNE: You have to make a distinction between responsibilities to the clients, the corporation, and the employees. From representing the corporation's perspective, it's important that counsel keep options open. It may be in the company's best interest to cooperate, and to lay the foundation for that potential cooperation is important, and ensuring documents are maintained, witnesses are interviewed, and so forth.
On the other hand, clearly, the counsel for the company may have to act contrary to the interest of the employees, whether requiring employees to participate in an interview or be disciplined, or telling them the company may relinquish the privilege and share the information you provide. Then the sense of loyalty that employees feel the company will have to them goes by the wayside. Thus, from an employee perspective, corporate counsel is the gatekeeper for the government. But tension also arises between the company and the government if the company provides counsel for the individuals or advances fees for the individuals.
KEANE: Given the recent federal indictment in Houston applying a Computer Associates theory of lying to internal investigators, I wonder how close we are to an Upjohn supplement where you would add, "If the company does turn your statement over to the government, there's some reasonable likelihood that any misrepresentation could be used in an obstruction or false-statement prosecution."
HANDZLIK: To prosecute employees for obstruction of justice under these circumstances comes pretty close to making the actions of the company's lawyers into government action. The theory of the Computer Associates case and now the Singleton case in Houston is that the interview was going to be turned over to the government. Company counsel has become the cat's-paw for the FBI.
DUNNE: My sense is that the judicial decisions that have been considering the quality of the advisements to the employees have generally come out in a way that allows the government to have access to that information. It won't [change] until there's a scenario where the government is pulling the strings from behind the scenes, which really implicates a due process issue.
HANDZLIK: I've seen situations where the internal investigation is under way, the employee or officer has a lawyer, they request an interview, and if the outside lawyer feels there's any possibility of a criminal matter, the employee resigns immediately. That's great for the employee because then they haven't been fired; it withholds the information from the company, and, by extension from the government. It preserves the employee's right against self-incrimination and it preserves the ability of the client and the lawyer to negotiate with the government in a way that might benefit that employee, and also it preserves a fundamental right to go to trial as opposed to having made admissions.
MODERATOR: How do you effectively handle negative publicity with these investigations going on, especially if it's a publicly traded company?
KEANE: We will sometimes work with the PR companies. What we are finding is that the PR questions must be considered in light of the trend of companies cooperating fully with the government, and again, if you represent the corporation, there are many reasons why you might cooperate. Look at the wave of deferred corporate prosecutions since Arthur Anderson.
As companies choose to cooperate with the government, some are also saying more in their press releases. I can think of some recent examples where press releases about a restatement have laid out in significant detail the accounting issues being investigated. So there's been some hint of a trend to get it all out there and let the market react.
FRECCERO: Most outside counsel argue for the least amount said. Putting aside issues as to what you may legally have to disclose, there are occasions in which a situation is so significant that it warrants, for lack of a better term, a "crisis management" team, which usually involves experienced PR consultants and outside counsel developing a game plan. But otherwise, my general experience is that nothing good comes from talking about a pending investigation.
The more statements a company issues, the more food is thrown at the hungry bears out there-a U.S. Attorney, the SEC, or some other agency. You just have to make a tough decision and disclose what you are legally obligated to. Otherwise, if you've got a real crisis of confidence in the markets regarding your company, you can hire PR consultants. But my own personal opinion is that the spokesperson should not be outside counsel. Instead there should be someone from the company who is in charge of making sure that there is a consistent, accurate, and succinct message.
DUNNE: The less said is generally preferable, but it also underscores the importance of both in internal investigations and dealing with the press, of having people involved both from the company as well as counsel who have different experiences so that all the issues that need to be understood and flagged, whether they are labor and employment issues, whether they are SEC issues, FCPA issues, et cetera. You have to have the necessary people involved to identify those issues and to be sensitive to the impact of public statements and company actions on those issues.
HANDZLIK: The only exception is in the case of a company that deals with public health and safety-an automotive company, a drug manufacturer, a food company-where if you don't reassure the public about the cleanliness of your food or the safety of your drugs, you stand the chance of turning a bad situation into a total disaster. So that requires a really comprehensive, proactive, quickly executed strategy to bolster the confidence of the consuming public. But in the usual case, it doesn't do much good. All you can do is get yourself into trouble, frankly.
CORBETT: The thing that concerns me most about public statements is when the investigation is almost done but not completely done, and it may be that there's one last interview to do, there's one last transaction to look at, or there's some impending deadline that is coming up, and the company wants to make a public statement about being done, and that 5 or 10 percent that's left to do sometimes just opens up a whole new can of worms. That's the thing that concerns me most--when companies want to make a statement before it's done.
Roundtable Participants
William B. Keane is chair of Farella Braun + Martel's White Collar Crime group. His complex civil and criminal litigation practice emphasizes white-collar criminal defense and intellectual property matters. He represents clients facing a broad range of criminal and civil enforcement investigations and cases, and regularly conducts internal investigations on behalf of clients. Mr. Keane formerly served as an Assistant U.S. Attorney in the U.S. Attorney Silicon Valley office, specializing in white-collar and high-technology criminal prosecutions. wkeane@fbm.com
Jan L. Handzlik, a partner in the Los Angeles office of Howrey LLP, is a former federal prosecutor and a highly respected white-collar crime lawyer. He has represented individuals and companies in investigations, prosecutions, and jury trials nationwide, and he has conducted numerous corporate internal investigations. Mr. Handzlik recently served as Chair of the ABA's national White-Collar Crime Committee and on the ABA's Criminal Justice Section Council. Her serves on ABA Presidential Task Forces concerning the Attorney-Client Privilege and Standards for the Prosecution-Defense Function. handzlikj@howrey.com
Stephen P. Freccero is a partner in the San Francisco office of Morrison & Foerester, where he is a member of the Litigation Department and the firm's Criminal Defense Practice. He is a former federal prosecutor whose practice includes the defense of businesses and individuals in criminal proceedings and the litigation of general commercial, antitrust, and intellectual property disputes. From 1996 to 1998 Mr. Freccero served as Special Attorney to Attorney General Janet Reno in the successful federal prosecution of Unabomber Theodore Kaczynski. sfreccero@mofo.com
Martha N. Corbett is a CPA and a Certified Fraud Examiner (CFE) in the Los Angeles office of PricewaterhouseCoopers. Her public accounting experience relates to the financial reporting of publicly held companies, internal control reviews and remediation, due diligence reviews, internal corporate investigations, and other business and litigation advisory services. Ms. Corbett is the Advisory Site Leader for Southern California, the West Region Dispute Analysis & Investigations Leader and is aldo a member of the US Dispute Analysis & Investigations leadership team.
martha.n.corbett@us.pwc.com
Kimberly A. Dunne is a litigation partner in the Los Angeles office of Sidley Austin LLP. Her practice focuses on white-collar crime matters, with an emphasis on health care fraud and abuse issues, and complex business litigation. She frequently represents clients in internal investigations and related enforcement matters and in the development, implementation, and audit of corporate compliance programs. Ms. Dunne was a priminal prosecutor with the U.S. Attorney's office in Los Angeles and served as Chief of the Public Corruption and Government Fraud Section. kdunne@sidley.com