Publications

Legal Times
September 28, 1998 vol. XXI, no. 19

David B. Fein is a partner in the Stamford, Conn., office of Wiggin & Dana, where he heads the firm’s white collar defense and internal investigations practice group. Fein also teaches a class on investigations at the University of Connecticut Law School, where he is an adjunct professor. Previously, Fein served as associate counsel to President Bill Clinton and as a federal prosecutor in the Southern District of New York.

When confronted with a government investigation at her company, corporate counsel may set upon a course of action – or fail to take action – in good faith and with no criminal intent. Nevertheless, counsel may soon find her own conduct in responding to the investigation under scrutiny by a prosecutor suspicious of obstruction of justice or witness tampering. This article of addresses several steps counsel should take – and some she should not – in order to zealously represent her client during a government inquiry without becoming a subject of the investigation herself.

As a baseline, counsel should ensure that the corporation does not continue to run afoul of the law once she finds out about a government investigation. Here, counsel’s failure to take certain steps could create additional problems for the corporation in the future.

Moreover, many companies in regulated industries, like financial services, have affirmative legal obligations to disclose to the government certain types of misconduct, sometimes within narrowly proscribed time periods. Failure to do so in a timely fashion increases the potential exposure for the corporation. What was an investigation of a particular employee or department for past conduct, for example, can be amplified into an investigation of senior management, including counsel, for present conduct. As difficult as it is for senior management to keep a business running smoothly during a government investigation, it can be unmanageable when they are themselves the subjects of the investigation.

The recent federal prosecution of Daiwa Bank Ltd. in the Southern District of New York illustrates the grave consequences of a company’s failure to report misconduct to the government in the face of an apparent affirmative obligation. The indictment charged Daiwa with engaging in a scheme in 1995 to conceal a $1.1 billion trading loss incurred over an 11-year period. In announcing the indictment, U.S. Attorney Mary Jo White said:

Daiwa was indicted today, not only because its former office .., committed serious crimes, but because, as charged in the Indictment, Daiwa and a number of its highest senior officials themselves committed crimes as they attempted to cover-up other crimes. The message to the financial community from today’s indictment should be clear and unambiguous; law enforcement will not tolerate financial institutions who unlawfully attempt to mislead regulatory authorities and cover up criminal mis-conduct by their employees.

Public companies must also consider whether federal securities, laws and regulations require public disclosure of corporate misconduct. Certain Securities and Exchange Commission regulations, for example, require disclosure of material pending legal proceedings involving the company and its officers, directors, and nominees. The need to disclose uncharged criminal conduct should be evaluated for its effect on the company’s financial condition pursuant to item 303 of Regulation S-K.

In addition to considering affirmative duties to disclose to the government or the investing public, counsel may undertake some form of internal investigation to learn, on her own, about the conduct about the conduct under investigation. In doing so, several pitfalls await corporate counsel inexperienced in government investigations.

A corporation’s own employees are likely the best source of information for an internal investigation. And what better way to determine what happened than to assemble the relevant personnel into a room together to discuss what happened? From the government’s perspective, however, an assembly of witnesses could be viewed as an attempt to tailor testimony and to discourage individuals from recalling unhelpful facts or differing views of the facts. The attendees at such a meeting, including counsel, may then be subject to an investigation of subornation of perjury or witness tampering. Even the attorney-client privilege may not protect corporate counsel in this setting; to discover the communications, government attorneys may assert the crime-fraud exception to the corporation’s attorney-client privilege.

Rather than conduct interviews en masse, counsel should undertake individual interviews with pertinent personnel. Counsel should tell the employee that counsel represents the company, not the employee, and that while the interview is privileged, the privilege belongs to the company, not to the employee. Counsel should add that the company may choose subsequently to assert the privilege and block access to the interview from the government, or it may decide that it is best served by waiving the privilege and permitting access to the interview. Failure to clearly establish the ground rules for the interview may limit the company’s options and force it to take a future position (such as producing notes of an interview) that is not in its best interests.

Additionally, a proper internal investigation may preserve important evidence that the company will rely on at a later date. For example, maintaining the integrity of individual employees’ recollections may be significant when the government later questions them.

Early in an investigation, counsel may learn that government agents are also attempting to interview the company’s employees, and employees may ask counsel what they should do. While counsel may be tempted to tell employees not to speak with government agents at least until they have secured their own counsel, any such instruction may be viewed as an attempt to obstruct the government’s investigation. Instead, counsel should make clear that the employee’s decision whether to speak to the government is entirely the employee’s own choice. Counsel may appropriately inform the employee that he is under no obligation to speak to the agent sand that if he consents to an interview, he may insist that they have counsel present.

The handling of documentary and other evidence is another potentially hazardous issue in a company’s response to a government investigation. No later than upon receipt of a subpoena, corporate counsel should immediately suspend the company’s document destruction policy. Similarly, counsel should make appropriate efforts to ensure that responsive information in the company is retained. A prosecutor is likely to view with skepticism any claim that responsive material was destroyed inadvertently following the receipt of a subpoena.

In gathering documentary and other information either in response to or in advance of a likely government request, counsel should preserve the origin and quality of the information. Often in white collar cases, documents and computer-stored information are important not only for their content, but also for how and where they were stored and located. It is not sufficient for counsel to maintain one copy of the document that was provided by one employee, with no record of which other employees also provided counsel with copies of the same document. Moreover, counsel should not write on or otherwise alter the original material; notations, hard copy, or computer file information and other seemingly insignificant details may prove crucial.

These rules of thumbs also apply prior to a company’s receipt of a subpoena from the government. Once counsel is aware of the government’s investigation, counsel should act as if the company had already received a subpoena. Obstruction of justice charges do not require actual subpoenas to have been served or requests for interviews to have been issued.

In sum, corporate counsel involved in responding to a government investigation must consider how the government will react to counsel’s proposed conduct if the government were to learn of it. While a company may reasonably decide to undertake lawful measures even if the government would not heartily approve, it should do so knowing that it may be expanding the scope of the investigation and may frustrate satisfactory resolution of the matter.

At the end of the investigation, the company will want to be able to marshal as many reasons as possible why the government should not proceed against the company. Or, if the government does proceed, the company should be able to tell prosecutors why it should treat the company leniently. The company’s conduct in responding to the government investigation may, in the end, prove to be one of the most damaging or helpful factors in the underlying investigation.