Internal Investigation 20110315 1


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Conducting Internal Investigations

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Internal Investigation 20110315 1

  1. 1. Conducting InternalInvestigations Presented by: March 2011 Michael Volkov Partner, Mayer Brown LLPMayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States;Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with whichMayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
  2. 2. The Increasing Use of Internal Investigations  Systematic and significant cases – Sarbanes-Oxley enforcement – Foreign Corrupt Practices Act – SEC Option Backdating and Insider Trading  Effective technique for handling “routine” issues where potential liability exists – Discrimination complaints – Theft and embezzlement – Other employee misconduct 2
  3. 3. Corporate Criminal Liability A corporation can be held criminally liable for wrongful actions of any employee IF 1. The act occurs within the scope of employment, AND 2. The act was done for the benefit of the corporation (at least in part) 3
  4. 4. When?What To Do? 4
  5. 5. 1. The Internal Investigation 2. An Independent CommitteeOverview 3. The Documents, Data and Email 4. The Interviews 5. Privilege 6. Waiver of Privilege 7. Disclosures 5
  6. 6. 1. The Internal InvestigationThe Internal 2. An Independent CommitteeInvestigation 3. The Documents, Data and Email 4. The Interviews 5. Privilege 6. Waiver of Privilege 7. Disclosures 6
  7. 7. The Internal Investigation The Internal Investigation: A Strategic Option  Effective way for management to gather facts needed for important decisions.  Provides credibility to fact-finding process.  Need for independence will depend on the situation.  Design of investigation depends on purpose and importance of inquiry. 7
  8. 8. The Internal Investigation Triggers of Internal Investigation  Hot-Line Call, anonymous letter, e-mail  Information from employee (often during disciplinary proceeding or exit interview)  Discovery of inaccurate financial statements or irregularity  News stories of government probes of other companies (e.g., options backdating)  Whistleblower lawsuit 8
  9. 9. The Internal Investigation Conducting an Internal Investigation Before conducting any factual investigation, consider:  Who should oversee the investigation?  Who should conduct the investigation?  What should employees be told before and after they are interviewed?  What should be written down and how? (Will it be discoverable?) 9
  10. 10. The Internal Investigation Conducting an Internal Investigation  An internal investigation should never become the strategy nor the goal itself.  A company should never authorize the “blind” investigation without answering: – What is the purpose? – Who is the potential audience? – What does the company know about the facts? Worst-case? Best case? – What does the company expect to learn? – What are remedial options, if needed? 10
  11. 11. The Internal Investigation Dynamic Supervision and Direction of Investigation  Continuing re-evaluation of investigation and strategies.  As information is learned through informal reporting process, outcomes, alternatives and remediation options should be reviewed. 11
  12. 12. 1. The Internal InvestigationAn 2. An Independent CommitteeIndependentCommittee 3. The Documents, Data and Email 4. The Interviews 5. Privilege 6. Waiver of Privilege 7. Disclosures 12
  13. 13. An Independent CommitteeDo You Need an Independent Investigation?  Allegations raise significant potential liability and reflect serious misconduct;  High level management and/or board members may be liable or have exposure;  Independent investigation is needed to respond to prosecutors, regulators and/or shareholders;  Whistleblower complaint raises serious issue(s) which require strategic response;  Media and/or public attention may have a serious negative impact on the company. 13
  14. 14. An Independent CommitteeDo You Need an Independent Committee?  Should the Board, a Board Committee, an Independent Board Committee, or Senior Management oversee and direct the investigation?  Are the allegations of misconduct serious?  Are board members or senior managers allegedly involved?  Will the company need to conduct a credible inquiry to respond to prosecutors, regulators and/or the public? 14
  15. 15. An Independent CommitteeThe Independent Committee  Independent Board Members or an Independent Committee responsible for supervising investigation and reporting back to Board  Special Outside Counsel hired to conduct investigation  Depending on certain circumstances (“objectivity” is preserved), existing counsel can be retained to conduct inquiry 15
  16. 16. An Independent CommitteeThe Independent Committee: Investigations Issues  Existing counsel should be considered to conduct investigation because of knowledge of company?  How to handle relationship between outside counsel, existing counsel and in-house counsel? 16
  17. 17. An Independent CommitteeIn-In-House Investigations: The More Common Model  Most internal investigations do not require independent committee, or even Board supervision.  In-House counsel and existing outside counsel can handle a number of investigations.  General Counsel can supervise and direct many internal investigations. 17
  18. 18. An Independent CommitteeScope of Inquiry  Keeping it “real” by keeping it narrow.  Authorization and scope should be defined in writing by Board.  For in-house investigation, scope of investigation needs to be defined.  Scope can always be expanded.  Model for inquiry can be changed. 18
  19. 19. 1. The Internal InvestigationTheDocuments, 2. An Independent CommitteeData andEmail 3. The Documents, Data and Email 4. The Interviews 5. Privilege 6. Waiver of Privilege 7. Disclosures 19
  20. 20. The Documents, Data and EmailInitial Steps  It’s the documents stupid – act quickly to “hold” documents, gather and review.  Conduct initial interviews if needed to confirm location and existence of documents needed.  Technology experts and possibly regular counsel can assist.  Define employee cooperation: preserve and provide documents (home or office); and available for interviews. 20
  21. 21. The Documents, Data and EmailImportant Steps Designating Someone Who “Owns” This Issue Within Your Team  Savvy about litigation and IT perils and speak the language of both groups.  Detailed knowledge about the company’s IT environment – knowing where data is stored, by whom, and how.  An appreciation for the capability, timing, and cost associated with matter-specific e-discovery. 21
  22. 22. The Documents, Data and EmailPreservation: Documents, Data and Email What Can Go Wrong? Plenty -- if you are not prepared!  Employees do not comply with the preservation directive.  Company does not send preservation notice to third parties who possess responsive materials over which the company has control or legal right.  Company does not comply with e-discovery protocols developed to preserve relevant information. Failure to preserve pertinent materials may lead to spoliation claims and even obstruction charges. 22
  23. 23. The Documents, Data and EmailDocument Review  Critical to review as quickly as possible  Prior to witness interviews  Develop picture of what happened and why  Identify important actors in the events under investigation  Document control and indexing is critical so that you have all, available information when interviewing witnesses 23
  24. 24. The Documents, Data and EmailPitfalls for Document Collection and Review  Data privacy laws and regulations outside the United States may prevent or hinder collection, dissemination and review of relevant documents.  Documents which are brought within the United States may then become subject to subpoena by United States authorities.  Document collection and review may have to take place in foreign locations in order to avoid running afoul of these restrictions. 24
  25. 25. 1. The Internal InvestigationThe 2. An Independent CommitteeInterviews 3. The Documents, Data and Email 4. The Interviews 5. Privilege 6. Waiver of Privilege 7. Disclosures 25
  26. 26. The InterviewsConducting Witness Interviews  In general, start with lower-level employees and work way up to more important witnesses.  Be careful of witness’ sharing information about investigation.  Simultaneous interviews can be used but are overrated.  Element of surprise interviews rarely work in corporate context. 26
  27. 27. The InterviewsConducting Witness Interviews  Tread cautiously: Think of overall plan and potential issues before interview.  Review key documents first (when possible).  Have someone "witness" the interview.  Request person to maintain confidentiality.  Dont forget Upjohn warnings.
  28. 28. The InterviewsUpjohn Decision U.S. Supreme Court held that communications made by employees to company counsel at the direction of superiors to secure legal advice from counsel were protected by the attorney- client privilege. The Court set forth guidelines, as opposed to a bright-line test, for determining when the privilege applies in this situation. Upjohn Decision (449 U.S. 383 (1981)) 28
  29. 29. The InterviewsUpjohn Decision: Warnings  Purpose of interview is to assist counsel in providing legal advice to company.  Counsel represents company, not individual employees.  Discussions between employee and counsel are privileged communications and privilege belongs to the company, not the employee.  Company has the right to keep the communications confidential and privileged, but it also has the right to waive the privilege and disclose to third parties.  Employee should not discuss the interview with anyone, including fellow employees. 29
  30. 30. The InterviewsConducting an Interview: Part I  Heavy-handed techniques never work.  Witnesses are worried about criminal liability, losing their jobs and their lives as they know it.  No witness ever tells you everything.  Personal rapport is critical.  You are doing a job, you are going to be respectful, but you need answers to questions. 30
  31. 31. The InterviewsConducting an Interview: Part II  Let the witness tell you his/her story as to a part or all of the story.  It is critical to get their story on the record.  Use documents where appropriate to fill out the story – let the witness talk.  Do not confront witness with contradictions but use facts you know, and documents to question in order to show witness you know he is not telling whole story. 31
  32. 32. The InterviewsConducting an Interview: Part III  Memorialize the entire interview.  Have someone with you to take notes and memorialize.  Be prepared to answer question from employee asking if they need an attorney. 32
  33. 33. 1. The Internal Investigation 2. An Independent CommitteePrivilege 3. The Documents, Data and Email 4. The Interviews 5. Privilege 6. Waiver of Privilege 7. Disclosures 33
  34. 34. Privilege Protecting the Privilege  It is critical to protect privilege during investigation.  Decision to waive privilege for disclosure to government or regulators can only be made as part of overall strategy.  Along the way, operational decisions cannot undermine ultimate need to preserve and protect the privilege. 34
  35. 35. Privilege Privilege: Considerations Privilege varies by jurisdiction:  What law governs? Federal law and/or law in a particular state?  In certain states, only an attorney’s communications with the “control group” are privileged.  Control group is limited to senior management and employees that advise senior management on final decisions. 35
  36. 36. Privilege Privilege: Communications with Former Employees  Communications that were privileged during employment likely retain that privileged status even after employee leaves company.  Courts are divided as to whether communications with a former employee that occurred post- employment are privileged. 36
  37. 37. Privilege Work Product Doctrine  Materials prepared “in anticipation of litigation” enjoy a qualified protection against disclosure. Fed. Rules Civil Procedure 26(b)(3).  Work product, to the extent it is mental impressions, conclusions, opinions and theories, usually is protected.  Other work product, however, must be disclosed if a party has a substantial need and cannot obtain the information without substantial hardship. 37
  38. 38. Privilege International Law: Privilege  Caution: Privilege laws in foreign countries may be quite different from those in the United States.  It is not always clear which country’s privilege laws will be applied (choice of law issue).  Employee communications with in-house lawyers will not be treated as privileged in certain countries. 38
  39. 39. 1. The Internal InvestigationWaiver of 2. An Independent CommitteePrivilege 3. The Documents, Data and Email 4. The Interviews 5. Privilege 6. Waiver of Privilege 7. Disclosures 39
  40. 40. Waiver of Privilege Waiver: General Rule  The general rule is that once the client waives the attorney- client privilege, it is waived as to all third parties.  Unlike the attorney-client privilege, the protection of the work product doctrine is not automatically waived by disclosure to any third persons.  Courts will find waiver of work product doctrine only if: – the disclosure is made to an adversary, or – the disclosure substantially increases the opportunity for potential adversaries to obtain the information. 40
  41. 41. Waiver of Privilege Waiver: Scenarios Assuming your communications are privileged, will you waive the privilege if you share information with: Representatives of a parent or wholly-owned subsidiary? Auditors? Insurance carriers? Media consultants? 41
  42. 42. Waiver of Privilege Common Interest Doctrine The Common Interest Doctrine  Communications made in the cause of a common legal interest  Designed to further a common legal interest  Made with a reasonable expectation of confidentiality  No waiver 42
  43. 43. Waiver of Privilege Joint Defense Agreements The Joint Defense Privilege  Communications made in the cause of a common legal interest  Designed to further a common legal interest  A pending or anticipated litigation  Made with a reasonable expectation of confidentiality  No waiver 43
  44. 44. Disclosures 44
  45. 45. DisclosuresDisclosure: To Parents and Wholly-owned Subs Wholly-  Most courts recognize that both attorney-client privilege and work-product protection extend to parents and wholly-owned subsidiaries since they are assumed to have a “community of interest”.  As the percentage of ownership/control decreases, it becomes less likely that courts will extend the privilege.  If the entity is not majority-owned/controlled, there may need to be a specific shared common legal (not just business) interest -- and communication must be in furtherance of that common interest. 45
  46. 46. DisclosuresDisclosure: To Insurance Carrier Communications with an insurance carrier may not result in waiver depending upon the circumstances. Does company have a common interest with the insurance carrier?  Is the carrier on board with the defense and agreeing to provide coverage?  Or is the insurer taking an adverse position (denying coverage) or adopting a “wait and see” position? If so, the company probably does not have a common interest with the carrier and courts would find that disclosure to carrier waives the privilege. 46
  47. 47. DisclosuresDisclosure: To Auditors Will disclosure of attorney-client communications to the company’s auditors waive the privilege? YES Will disclosure of work product to auditors waive the protection? DEPENDS Turns on whether the outside auditor is an adversary or is likely to reveal the company’s information to an adversary. Courts are divided. 47
  48. 48. DisclosuresDisclosure: To Media Consultants In re Grand Jury Subpoenas, 265 F.Supp.2d 321, 331 (S.D.N.Y. 2003) Holding: “(1) confidential communications (2) between lawyers and public relations consultants (3) hired by the lawyers to assist them in dealing with the media in cases such as this (4) that are made for the purpose of giving or receiving advice (5) directed at handling the clients legal problems are protected by the attorney-client privilege.”  Consultant must be hired by lawyer.  Privilege not lost if client speaks directly to consultant if “the communications were directed at giving or obtaining legal advice.” 48
  49. 49. DisclosuresReporting Results  Periodic oral reports can be made to Independent Committee, Board, or senior management.  No written reports should be created since results may change.  Ultimately, a written report may be prepared reporting on the findings of the investigation but such a document may be discoverable by the government and private parties. 49
  50. 50. DisclosuresConsultations with Government and Regulators  When investigation is needed to respond to government, regular consultation is critical.  Get government “buy-in” to conduct, credibility and findings of investigation.  Prevent questions from government as to how and why certain steps were taken. 50