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In-house Counsel as Targets for Government Prosecutions
In a session on the first day of this year's Association of Corporate Counsel annual meeting, the cavernous Room 503 at the Colorado Convention Center in Denver was packed with attendees eager to hear and talk about the current state of in-house lawyers' liability for corporate misconduct.
The event, titled "Corporate Counsel Under Scrutiny: Liability for Corporate Misconduct," featured panelists John Villa, J. Alberto Gonzalez-Pita, Judge Sven Holmes, and Amar Sarwal. They presented both data and observations to frame a discussion of what happens when the federal government prosecutes a company's top attorney. Between six and nine criminal or civil and administrative cases are brought against in-house lawyers every year, said panelist John Villa, a partner at Williams & Connolly who has made a name for himself as a defender of lawyers in trouble.
"I don't think the SEC is really on a witch-hunt for inside lawyers," said Villa. But the message, added panelist Gonzalez-Pita, former general counsel of HCP, Inc., is: "Your job isn't safe. You're not safe."
Regulatory and economic pressures on in-house lawyers are underlying themes across many of the annual meeting's 80-plus panels and other events, which have drawn a record-high number of nearly 2,000 attendees. Nearly everyone is operating in what ACC president Veta Richardson calls "an age of hyper-regulation," and are feeling the pressure of more intense scrutiny.
"Corporate counsel used to be exempt. . . because we were considered legal advisors," Richardson said. But these days, corporate counsel are increasingly "considered key players, and therefore prime targets" for government investigations.
Villa has studied the slight uptick in cases—and the publicity given to those cases—that has occurred since the Enron and Arthur Andersen accounting scandals of 2001. The total number of prosecutions per year amount to "basically good news," Villa said, as "the chances of it happening to you are relatively low."
However, the driving question behind prosecutions in the past decade, he said, has been: "Why didn't the inside lawyers stop it?"
Villa has seen certain trends emerge over the years: An organization's top lawyer—and not other members of the law department—is almost always the focus of a government prosecution. Oftentimes that lawyer was "wearing two hats," Villa said, doubling in another senior management level position, such as chief financial officer.
In-house attorneys have also been penalized for adopting the "good Samaritan" role when stepping in to help other senior executives: "The inside lawyers are often nailed where there is no personal benefit," Villa said. By contrast, inside lawyers who relied on the advice of outside counsel for similar matters have almost never been targeted.
The fallout for companies and GCs alike can be huge—even if government investigations and prosecutions never lead anywhere.
Since a GC has the broadest responsibility for the well-being of a company, said panelist Judge Sven Holmes, chief legal officer for KPMG, the prosecution of a top lawyer "suggests a whole series of broader infirmities" throughout a company. GCs uphold the brand and reputational value, and so cases against them are "intended to give maximum leverage to a broader settlement negotiation," he said.
More broadly, a government investigation "can be a career-ending development" for a GC, said Gonzalez-Pita. In other words, it's not something you want on your resume.
Villa also told the crowd not to assume that any given problem at hand is the problem in its entirety—it could just be the "tip of the iceberg," he said. He also recommended that GCs not allow their advocacy skills to overwhelm their role as counselor.
Robert Bostrom, former general counsel of Freddie Mac and now a partner at SNR Denton, agrees that pressure on the in-house profession "has really intensified in this environment," adding that "general counsel have the hardest job in the world."
See also: "ACC Surveys CLOs on Hiring, Headaches, and Happiness," CorpCounsel, October 2011.