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Over the last five years, state attorneys general have become increasingly active investigating and litigating a wide variety of high-profile issues. Most recently, they have followed the lead of New York Attorney General Eliot Spitzer and set their sights on irregularities in the stock and mutual fund industries. As a result, companies now find themselves the targets of investigations and enforcement actions brought by multiple state attorneys general, creating a new and complex layer of oversight beyond that of federal agencies such as the Securities and Exchange Commission (SEC), Department of Justice (DOJ), Federal Trade Commission (FTC) and Federal Communications Commission (FCC). Companies that ignore this growing presence and increased activism do so at their peril. For a number of years, state AGs focused primarily on local matters. As a result, they operated below the radar of most companies. In 1998, this began to change. A coalition of more than 40 AGs joined forces in an unprecedented effort to negotiate a global settlement with members of the tobacco industry that were defendants in lawsuits filed throughout the country. The multistate negotiation resulted in a landmark $206 billion global settlement among the AGs of 46 states and the four largest U.S. tobacco companies-the first of a number of highly publicized and very lucrative settlements that marked the arrival of this type of multistate litigation to the mainstream. In 1998-99, state antitrust regulators used the multistate litigation approach against Microsoft Corp. and the pharmaceutical industry. Twenty-one states sued Microsoft, and 33 state antitrust regulators joined the FTC to sue Mylan Laboratories Inc., one of the world’s largest generic pharmaceutical companies. Both cases resulted in landmark settlements: Microsoft agreed to unprecedented conduct relief after a full trial, and Mylan entered into a $108 million settlement and a 20-year injunction with all 50 AGs. But that was just the beginning. Over the last two years, with Eliot Spitzer leading the charge, the states have targeted Wall Street. They’ve become very active in securities enforcement, a domain once left almost exclusively to the SEC. It now seems that no industry is safe from the long reach of the AGs. Success breeds increased activity The rise in the number of enforcement actions and investigations can be attributed to a number of factors. On some occasions, as with the securities industry, the states intervened because they perceived that federal enforcement was not aggressive enough. The states have also stepped in when an administration change has created a void at the federal enforcement agencies. But these situations are the exception. States generally do not conduct their investigations alone. They coordinate with federal regulators at the DOJ, FTC, FCC or SEC, in some instances pushing federal counterparts that are reluctant to pursue a certain type of conduct. The very tangible successes the states have enjoyed have also fed their increased activity. State AGs have used their collective clout to demand multimillion-dollar settlements and severe conduct restrictions from corporate defendants. Last year, the AGs extracted a $1.4 billion settlement with major investment banks for allegedly deceiving investors with inaccurate or exaggerated stock research. This kind of high-profile success will only embolden state officials to increase their use of the heavy hammer of multistate investigations. In-house counsel and corporate executives must be ready for the increased activism of the AGs. No industry is immune. To weather the storm, companies must proactively deal with a multistate investigation or suit. Here’s how: Find out who is investigating. An individual AG typically launches an investigation. But he or she likely will try to convince other states to join the investigation. Single-state investigations commonly morph into multistate investigations involving as many as 10, 20 or 30 states. The goal is to build resources. The usual pattern is that a “lead” state or states will coordinate the investigation on behalf of all states while serving as a point of contact for all parties. Common lead states for antitrust, consumer protection and securities investigations are California, Florida, Maryland, New York, Ohio, Pennsylvania and Texas. On first contact by an AG, a company should ask about the involvement of other states. The next step is to try to determine early if the investigation may turn multistate. If it does, identify the lead state(s) and start a dialogue to get the details. This will improve coordination efforts and begin the exchange of information. Keep in mind that behind every subpoena or inquiry by one AG, there are 49 others who may join in or launch their own investigations. Neutralize complaining parties. AGs often open investigations after fielding customer or competitor complaints over allegedly illegal conduct. After the investigation starts, a company must make every effort to neutralize the effect of the complaining party. The only effective way to do this is to proactively advocate a party’s position to the staff of the AG leading the investigation. Engage staff early. After initial contact with the staff, it is critical to maintain an ongoing dialogue. If the focus of the investigation shifts, as often happens, a dialogue keeps the parties on top of the staff’s issues and concerns, allowing a company to address them effectively in a timely manner. It also creates a balance of information flowing to the staff, which helps minimize the impact of any complaining parties. Be candid. Too many companies try to play “hide the ball” with the staff. This is a mistake. The staff may be outgunned in resources, but it typically finds the facts even when the parties try to hide them. Besides, AGs often pool their resources and divide up the tasks. In such a setting, a party’s submissions will be scrutinized more than usual. Thus, counsel must avoid stretching the facts. When staff discovers misleading statements, it has a devastating impact on a party’s credibility. Provide focused information. In white papers or presentations, make every effort to address squarely the staff’s concerns. Don’t dump a mountain of excess information and data on the staff in the hope that the sheer abundance of information will confuse the issues. While this may seem cost-effective and strategically appealing, it only alienates the staff. Moreover, a company may put the staff in the position of looking to other sources, such as a complaining party, for information. A focused approach instead builds credibility, addresses the staff’s concerns directly and continues the dialogue. That’s the better path to expeditious resolution. Engage the front office as a last resort. Even after the staff recommends filing suit, there’s hope. The final option is to meet with senior staff in the AG’s “front office.” AGs and senior staff are generally deferential to their front-line staffs. On some occasions, however, senior staff will push for resolution of an issue rather than face the prospect of resource-intensive litigation, especially if no large constituent interest will be served by the case. In multistate actions, it’s worth the time and the effort to meet with the lead AG or AGs, even traveling to multiple state capitals to lobby directly to senior staff. Lobbying can result in quicker resolution of an investigation. Seek global peace. Any settlement for cash, product or conduct prohibitions must bring global peace from all 50 states. The goal is to ensure that an uninvolved state is precluded from bringing a later enforcement action. Thus, it is critical that a company prevail upon the participating states to caucus with nonparticipating states to ensure that all appropriate releases are secured. Engage counsel familiar with the process. Parties to multistate actions need counsel familiar with the process. For example, counsel must be prepared to navigate a maze of varying state confidentiality statutes while making sure states abide by mandatory, yet generally overlooked, prefiling statutes that give notice of impending litigation. Other procedural quirks include the National Association of Attorneys General Voluntary Premerger Disclosure Compact, which, when invoked by potentially merging parties, mandates that participating AGs agree not to serve subpoenas if the merging party provides them with certain documents. Counsel also must understand the criteria AGs generally use to decide whether to bring a case. States typically focus on conduct that affects a large number of constituents or a particular constituent group, such as the elderly (as in the recent AG pharmaceutical pricing actions). AGs are attracted to cases that allow them to provide money directly back to constituents. They also favor cases where the harm is very tangible or with a very clear effect on prices for an important consumer item. Counsel’s lack of knowledge and experience can mean the difference between quick resolution of a single-state investigation or a rapidly expanding multistate suit pursued by 20 or 30 aggressive AGs. Be ready to deal, or be ready to bet the company Just last year, AGs agreed to well above $2 billion in settlements with various defendants. That is staggering considering that just a few years ago, AGs were largely focused on local matters that led to relatively smaller settlements. Clearly, this has been a sea change. Now, general counsel and corporate executives must be ready to deal with the new activism of the state AGs. If they’re not, they may find themselves dealing with the worst-case scenario: bet-the-company litigation with 50 AGs hot on the trail of a multimillion-dollar payout for a sympathetic injured party. Rajeev K. Malik is an associate in the Washington office of the global antitrust practice group of White & Case. Before joining the firm, he was an assistant attorney general in the Ohio Attorney General’s Office and was lead assistant attorney general in the state attorneys general multistate litigation against Mylan Laboratories Inc., where he assisted in negotiating a $108 million settlement.

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