What Not To Say When Regulators


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A criminal lawyer's view of how to respond to a regulatory inspection.

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What Not To Say When Regulators

  1. 1. What to Do when The Police Arrive<br />Kirk W. McAllister<br />March 24, 2010<br />
  2. 2. “Hey, everybody, Quigley is practicing his perp walk.”<br />
  3. 3. Corporate officials or other corporate employees are personally liable for their own criminal acts and for acts of the corporation in which the officials or employees had a direct role.<br />Individual Liability<br />
  4. 4. The company can be criminally liable for the acts of their agents.<br />An admission by a manager that the conduct at issue was corporate policy presumptively establishes the company’s liability.<br />Corporate Liability<br />
  5. 5. Corporate officials not directly involved in corporate crimes but having responsibility and control over the activities who fail to prevent or end them may be criminally liable.<br />Vicarious Liability<br />
  6. 6. Corporation or manager<br />With actual knowledge of a serious concealed danger which is subject to regulatory authority<br />Who knowingly fails to inform OSHA within 15 days of actual knowledge<br />Is guilty of a felony<br />California Penal Code §387<br />Criminal Liability for Concealing Dangerous Business Practices<br />
  7. 7. A corporation may be held criminally liable for the illegal acts of its directors, officers, employees and agents if:<br /> (1) The corporate agent’s actions were within the scope of his/her duties and,<br /> (2) Were intended, at least in part, to benefit the corporation<br />Federal Liability<br />
  8. 8. Any employer or employee<br />With direction, management, control or custody of any place of employment or of any other employee<br />Who willfully violates any occupational safety or health standard, order, or special order<br />Which causes death or permanent or prolonged impairment of the body of any employee<br />Is guilty of a felony<br />California Labor Code §6425<br />Willful Violation of a Standard or Order<br />
  9. 9. Any employer who <br /> (1) Willfully violates any OSHA standard, rule or order<br /> (2) Which causes death to any employee<br />is guilty of a crime.<br />29 United States Code §666(e)<br />Federal Criminal OSHA Violation<br />
  10. 10. Cooperate!<br />Cooperate!<br />Cooperate!<br />The Mantra:<br />
  11. 11. “I bet they’re glad we’re willing to cooperate.”<br />
  12. 12. The 5th Amendment guarantees:<br /> (1) That no person shall be compelled to be a witness against himself<br /> (2) The due process fairness principle that the government not interfere with the defense<br />“In short, fairness in criminal proceedings requires that the defendant be firmly in the driver’s seat, and that the prosecution not be a backseat driver.”<br />Stein I<br />Constitutional Law 101<br />
  13. 13. The 6th Amendment guarantees:<br /> (1) The right to an attorney<br /> (2) The right to an attorney of one’s choice<br />Constitutional Law 101<br />
  14. 14. Principles to guide federal prosecutors in deciding to file criminal charges against corporations<br />(1) Is the corporation willing to waive attorney-client privilege and work product protection?<br /> (2) Is the corporation advancing attorneys fees to employees and agents?<br />The Thompson MemorandumJanuary 20, 2003<br />
  15. 15. Held: Violation of the 5th and 6thAmendments<br />“…[T]he government held the proverbial gun<br />to its head…. The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend.”<br />Stein I<br />
  16. 16. Held: Violation of the 5th Amendment<br />“The Thompson Memorandum is part of this change. In cases involving vulnerable companies, the pressure exerted by it and by the prosecutors who apply it inevitably sets in motion precisely what occurred here - the exertion of enormous power by the employer upon its employees to sacrifice their constitutional rights.”<br />Stein II<br />
  17. 17. (1) Corporations need not disclose and prosecutors may not request disclosure of privileged communications<br />(2) Prosecutors are prohibited from asking corporations not to advance legal fees or provide counsel to employees<br />The Filip MemorandumAugust 28, 2008<br />
  18. 18. (1) To the police<br /> (2) To the media<br /> (3) Email<br />Statements<br />
  19. 19. (1) “I didn’t sign it so it’s not a statement”<br />(2) “They didn’t read me my rights, so they cannot use it against me”<br />(3) “I’ll make a statement – I don’t have anything to hide.”<br />(4) “If I refuse to make a statement they’ll think I’m guilty.”<br />The Four Myths<br />
  20. 20. Martha Stewart<br />
  21. 21. Stewart’s False Statements on February 4, 2002<br />On or about February 4, 2002, MARTHA STEWART, accompanied by her lawyers, was interviewed in New York, New York by SEC, the FBI and the U.S. Attorney’s Office. In furtherance of the conspiracy, and with the intent and purpose to conceal and cover up that BACANOVIC had caused STEWART to be provided information regarding the sale and attempted sale of the Waksal Shares and that STEWART had sold her ImClone stock while in possession of that information, STEWART made the following false statement facts, in substance and in part, and concealed and covered up the following material facts, among others:<br />United States v. Martha Stewart, Indictment, paragraph 27, page 12<br />United States of America v. Martha StewartIndictment Filed June 4, 2003Page 12<br />
  22. 22. The June 7 Statement<br />On or about June 6, 2002, MARTHA STEWART was advised that the Wall Street Journal intended to publish an article stating that STEWART sold ImClone shares on December 27, 2001, a fact that had not yet been publicly reported. With the intent and knowledge that false and misleading information would be publicly disseminated, STEWART caused her attorney in New York, New York to provide to the Wall Street Journal the following false and misleading information regarding the reason for STEWART’s December 27, 2001 sale of ImClone stock (the “June 7 statement”):<br />United States v. Martha Stewart, Indictment, paragraph 61, page 12<br />United States of America v. Martha StewartIndictment Filed June 4, 2003Page 12<br />
  23. 23.
  24. 24.
  25. 25. Court Transcript<br />
  26. 26. Court Transcript (continued)<br />
  27. 27. Court Transcript (continued)<br />
  28. 28. Court Transcript (continued)<br />
  29. 29. (1) Offsite data retrieval<br />(2) Media response authority<br />Precautionary Action<br />
  30. 30. When the police/regulators arrive, call Kirk McAllister<br />Until your attorney arrives, tell them that “My lawyer says to cooperate in every way” – except don’t make any statements<br />Tell the police/regulators that all dealings have to be with the lawyer – filter everything through the lawyer<br />Do not give consent to any search or seizing of documents, and do not sign any search waiver<br />McAllister’s Eleven Commandments<br />
  31. 31. A search warrant authorizes the police to search – it does NOT force you or your employees to help them find things or provide passwords. DON’T!<br />If the police/regulators have any documents – for example, a search warrant – get a copy<br />Do NOT relinquish any documents to the police without a search warrant (make a copy of all documents taken)<br />Demand a receipt for all documents seized<br />McAllister’s Eleven Commandments (continued)<br />
  32. 32. Do NOT allow the police/regulators to use your photocopy machines<br />If your plant requires safety equipment, make no exceptions – for safety reasons police/regulators not wearing proper safety apparel should not be allowed admittance<br />Maintain strict email silence: NO discussion of the critical incident in email – neither factual recitations, opinion, speculation, or commentary of any kind – will be allowed by any employees or anyone working on behalf of the company<br />McAllister’s Eleven Commandments (continued)<br />