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Now that privileged material is routinely passed on to the government, corporations are increasingly faced with an unattractive set of choices. If they opt not to cooperate, they risk civil penalties and criminal prosecution. If they choose to cooperate, they risk being pounded by the likes of William Lerach. Defense lawyers have been experimenting with ways to please the government while keeping out the class action bar. When handing over information, for example, they often ask regulators and prosecutors to sign a confidentiality agreement asserting that the government not consider anything it receives as constituting a waiver of privilege. But courts don’t always bless these deals. Some judges have concluded that once a company provides documents to the government (or any other entity), it loses the right to prevent others from accessing the same materials-no matter what’s in the fine print of an agreement. Pharmaceutical distributor McKesson Corporation, which cooperated with a government investigation into its accounting, and avoided indictment, has fought to keep its internal investigation out of the hands of plaintiffs lawyers suing it for securities fraud. In 2003 a federal district court judge in San Francisco ruled that the company could not selectively provide protected materials to one of its adversaries-in this case, the government-and not to other adversaries. The case is now on appeal to the U.S. Court of Appeals for the Ninth Circuit. McKesson also recently filed a motion in the criminal case of a former executive attempting to close the trial to the public when the internal investigation by Skadden, Arps, Slate, Meagher & Flom would be discussed. Plaintiffs lawyers suing McKesson filed an opposing motion. Last month the federal judge in the case ruled in favor of the plaintiffs. A legislative remedy to protect the transfer of privileged information to government investigators was proposed during the last session of Congress. The Securities Fraud Deterrence and Investor Restitution Act would have allowed a company to provide protected materials to the Securities and Exchange Commission without waiving the privilege to others. SEC enforcement chief Stephen Cutler testified before the House committee to show his support, but the bill ultimately died. “Despite strong policy reasons favoring a corporation’s ability to selectively waive these privileges, the public pressures on corporations regarding alleged fraudulent conduct have caused legislatures and courts to be leery of being perceived as �soft’ on corporate misconduct,” Latham & Watkins’s David Brodsky said via e-mail. (Brodsky is not involved in the McKesson case.) “This is an unfortunate development but nonetheless is the state of the law today.” Plaintiffs lawyers have a different view, of course. They tend to like the burgeoning practice of internal investigations-when they get to see the findings. It’s only fair, they argue, that when they compete with other groups, including the government, for a company’s financial assets, they should have access to the same information. Such access, they argue, promotes fairness to the public and to the foundation of the justice system. “Ultimately, the law is supposed to be a search for the truth, not a game,” says Daniel Berger, a plaintiffs attorney at Bernstein Litowitz Berger & Grossmann. “To play hide-the-ball with the injured shareholders is ridiculous. That’s not a search for the truth.” The lack of protection for materials turned over to the government has had real consequences for practitioners. Instead of filing detailed written reports during or at the conclusion of their internal investigations, many now prefer giving oral presentations to the board and to law enforcement. The reasoning: the less information written down, the less ammunition available to plaintiffs lawyers. Says Keith Krakaur of Skadden, Arps, who worked on the McKesson investigation: “[How lawyers report the findings of their investigations] definitely now gets actively considered in one of these cases.” Return to “Double Agent”

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