Dangers for Corporate Counsel and Executives in Internal InvestigationsVictor Vital and Yoon Ettinger Corporate Counsel
09-19-2012
Since its enactment in 2002 as part of the Sarbanes-Oxley Act, 18 U.S.C. § 1519 has been used to prosecute and convict a corporation’s employees who have lied, destroyed, or falsified evidence during an investigation or matter within the jurisdiction of any department or federal agency of the United States.
Prosecutors Expanding Obstruction Liability Into the Corporate Suite
Emboldened by its broad, sweeping language and convictions secured by applying the statute in a multitude of creative scenarios (for example, in U.S. v. Yates, the defendant was convicted for throwing undersized fish overboard and obstructing an investigation under the jurisdiction of the National Marine Fisheries Service), federal prosecutors are now testing Section 1519’s application against corporate executives and in-house counsel. Section 1519 provides:
Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.
Congress’s purpose behind the statute was to correct the ambiguities and technical limitations in the then-existing statutes governing destruction of evidence. See U.S. v. Gray (2011). Prior to the enactment of Section 1519, the government was required to prove that the defendant knew or had reason to anticipate a pending judicial proceeding and that the obstruction occurred in connection therewith (18 U.S.C. § 1503). Additionally, a person could be convicted for persuading or misleading a person to destroy documents, but there was little or no recourse against a person who actually destroyed the documents (18 U.S.C. § 1512[b]). Section 1519 was intended to close these loopholes, and federal courts have applied it accordingly.
To convict under Section 1519, federal prosecutors must prove three essential elements. First, the defendant must knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object. Second, the defendant must do so with the intent to impede, obstruct, or influence the investigation or proper administration of any matter, or in contemplation of or any relation to any such matter. Third, the matter must be within the jurisdiction of any department or agency of the United States. See U.S. v. Yielding (2011).
Obstruction Liability for Routine Functions Like Internal Investigations?
The United States is not required to prove that an official government investigation or matter was pending at the time of the obstruction, but only that the acts were taken in relation to or in contemplation of an investigation. See Gray, supra. The novel aspect of the statute is that actions taken during internal investigations conducted by corporations, and their lawyers can now be used to obtain convictions for obstruction once the government is involved.
The fact that the allegedly obstructive actions were performed before a government investigation was underway is no longer a viable defense. Furthermore, proof that the defendant knew that the matter was within the jurisdiction of a federal department or agency is not required. Id. What is required, however, is specific intent to alter, destroy, conceal, or falsify evidence in order to obstruct an investigation. See Yielding, supra; U.S. v. Stevens (2011); U.S. v. Moyer (2010); U.S. v. Kun Yun Jho (2006).
For instance, in 2008, federal prosecutors used Section 1519 to charge the vice president of human resources of a public company with violating the statute by providing false statements and false reports to in-house counsel concerning backdating of stock options during an internal corporate investigation. See U.S. v. Ray (2008).
After in-house counsel submitted a report, the Securities and Exchange Commission launched a formal government investigation and discovered the misrepresentation. The executive pled guilty to conspiracy to violate Section 1519 and received three years of probation and a $10,000 fine. Because the executive pled guilty, the applicability of the statute to pre-government investigation conduct was not litigated. Later cases such as Gray and Yielding, however, raised this challenge with no success. To date, while there have been acquittals on Section 1519 charges, no federal circuit courts of appeal have held that Section 1519 cannot be applied to pre-government investigation conduct.
Perhaps the most high-profile case to date involving an executive is the prosecution of Lauren Stevens, the former vice president and associate general counsel of a pharmaceutical company, for allegedly falsifying and concealing documents in violation of Section 1519. See U.S. v. Stevens (2011). The charges arose out of a Food and Drug Administration investigation into the pharmaceutical company’s alleged off-label promotion of an antidepressant for weight loss, which had not been approved by the FDA.
Stevens was responsible for responding to the FDA’s request for all materials related to the antidepressant’s promotional programs, including copies of all slides, videos, handouts, and other materials. The government alleged Stevens obstructed the investigation by withholding slide sets used by company representatives at promotional events for off-label use and information regarding compensation provided to attendees at the events. The government also alleged that Stevens signed and sent six letters to the FDA that contained materially false statements regarding off-label promotion of the antidepressant.
When Stevens was indicted, her primary defense was that she relied in good faith on the advice of counsel, thereby negating the requisite intent to obstruct the FDA’s investigation or make false statements. During the course of the FDA investigation, Stevens had been assisted by the pharmaceutical company’s in-house counsel and outside counsel.
Although “advice of counsel” is not an affirmative defense, proof of good-faith reliance on advice of counsel will negate the specific intent that is required for a conviction. Therefore, the trial court first considered and concluded that Section 1519 requires “conscious[ness] of the wrongfulness of their actions. To hold otherwise would allow § 1519 to reach inherently innocent conduct, such as a lawyer’s instruction to his client to withhold documents the lawyer in good faith believes are privileged.” Id. Because the federal prosecutors’ advice of counsel instruction to the grand jury was clearly erroneous, the court dismissed the indictment without prejudice. Id. Stevens was re-indicted but was ultimately acquitted of all counts.
Avoiding Obstruction Prosecutions for Routine Corporate Activity
Notwithstanding the acquittal in U.S. v. Stevens, corporate executives and in-house counsel need to be aware of prosecutors applying the statute in an aggressive manner that could reach a number of routine corporate activities, including internal investigations. While there are few reported cases and even fewer federal courts of appeal cases to provide clear guidance to organizations conducting investigations that fall within the jurisdiction of a federal agency or department, the available case law shows a trend of successful prosecutions broadly applying the statute to convict individuals for obstructing investigations.
What Stevens indicates, however, is that mens rea (a “guilty mind,” or intent) is still required for conviction. Executives and employees should not be convicted of obstruction for documents destroyed pursuant to routine document-destruction policies where there is no intent to impede an investigation, internal or otherwise. In that regard, in-house counsel and compliance officers should carefully monitor and suspend routine document destruction when an internal investigation is contemplated. Additionally, corporations should implement formal policies requiring executives to consult with in-house counsel before destroying documents that the executive personally believes may be relevant to potential litigation, even where no internal or government investigation is pending.
Executives and in-house counsel may rely on advice of counsel in connection with any type of investigation. Due to the broad language of the statute and its aggressive application, corporations should not hesitate to consult with outside counsel in any number of “routine” business and internal investigations to avoid the snare of Section 1519. However, blind reliance on counsel’s advice is never an acceptable defense. A corporation should carefully vet and choose qualified outside counsel to assist in analyzing the parameters of the investigation and the appropriate response in order to minimize the risk of conviction under the broad umbrella of Section 1519.
Victor Vital is a shareholder in Greenberg Traurig 's Dallas office. Vital handles a broad range of trial, including white-collar criminal defense matters and government and corporate investigations. He has tried more than 100 cases in his civil and white-collar criminal defense practice and as a former state prosecutor in a prominent district attorney’s office. Vital is active on a number of civic and charitable boards as well as in professional organizations such as the American Law Institute. He can be reached at vitalv@gtlaw.com. Yoon Ettinger is an associate in Greenberg Traurig's Atlanta office. Ettinger advises clients in civil and criminal matters on e-discovery and subpoena compliance issues, including preservation of electronic data, cost-effective review, and production. Her practice consists of complex civil litigation as well as white-collar criminal defense. Yoon also serves on the board of directors of the Georgia Asylum and Immigration Network and volunteers with several community organizations. Ettinger is a member of the State Bar of Georgia, the National Asian Pacific American Bar Association, and the American Bar Association. She can be reached at ettingery@gtlaw.com.
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