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A small company can defraud an individual, profit by a few thousand dollars and along with its owner, suffer an indictment that puts it out of business. A huge corporation can mislead the public, defraud taxpayers and shareholders of millions and receive amnesty from prosecution. There have been scores of recent convictions of corporate executives at numerous corporations but few indictments of corporations. Corporate executives have paid a high price for this government generosity to corporations. They should recognize the ethical consequences and closely monitor corporate investigations. Reliance on the general counsel is no longer adequate to protect their liberty interests. Corporations are given free passes from prosecution if they cooperate with the government. Acting on orders of the U.S. Department of Justice, pursuant to the directives of the Thompson Memorandum, corporations have been deputized to “identify the culprits within the organization, including senior executives, to make witnesses available, to disclose the complete results of an internal investigation, and to waive the attorney client and work product protections.” The effect of the Thompson Memorandum is that corporations must conduct internal investigations with a goal of convicting someone. Rather than finding out the truth, the focus is on vulnerable executives. Expecting to be protected by their employer, executives are caught off guard by the corporation’s shift from a strong defense to a destructive offense with no boundaries. Historically, this conflict between executive and corporation barely existed. Representing a corporation in a business-crimes case generated little notice. When corporate malfeasance was afoot, corporations first hired “independent” outside counsel to conduct internal investigations to determine the “real” cause of the malfeasance. In the investigative process, outside lawyers conducted interviews within the range of ethical practices. The corporation provided targeted executives with the best legal representation. The decorum between outside counsel and the corporate executive was akin to a job interview, not an FBI interrogation. Corporate liability depended on the success or failure of the executive’s testimony, not a good or even sleazy working relationship with the government. The corporation and the executive, not the corporation and the government, executed joint defense agreements and shared evidence and information. Even though management disciplined or even terminated executives or employees, the company maintained written investigative reports under the veil of the attorney-client privilege and rarely disclosed them to outsiders. The reports were never made available to federal prosecutors to use as a blueprint to indict corporate executives. This relationship encouraged executives to fight the case, if defendable, or to protect the corporation in any plea deals. Although the government primarily focused on the corporate executives who engineered the illegal activity, corporations always were “on call” to pay the fees, fines and penalties. A corporation defended the case against its executive to the end. There was a good working relationship and exchange of information based on mutual loyalties. Rarely did an executive snitch on the company, and the government rarely asked corporations to cooperate to ensure the conviction of an executive. COOPERATIVE EFFORT Forget the past. Now the government pits corporations against their executives. Nowhere is this more pronounced than in the area of legal fees. Although the corporate bylaws may provide for legal fees, the government warns companies that payment of fees will constitute an act of corporate aggression and will be viewed with disfavor. In other words, pay the fees, and the company could be charged. To cooperate with the government, but not run afoul of the bylaws, corporations are agreeing to pay fees under limited circumstances. They pick the lawyers, mostly cooperative lawyers or those willing to abide by the corporate agenda, and they set the fees in amounts generally limited and restrictive. Picking the lawyers provides the most opportunity for conflict. Many times a general counsel handpicks the executive’s attorney with the understanding that his new client will cooperate and, if necessary, plead guilty. The unwritten suggestion of future business secures that understanding. Setting the fees also is becoming an act of corporate immorality. Ethics take a back seat to corporate survival. The company and the government classify as untrustworthy established white-collar attorneys charging high-dollar fees. Compromise is not their game. Instead, corporations look for the more trustworthy lawyer, generally “up and coming” criminal-defense lawyers looking to enhance, at any cost, their resumes, or corporations look to converted civil lawyers who are trying to meet, at any cost, their firms’ annual billable-hour requirements. The corporation pays the reduced fees, only so long as the corporation deems the attorney’s conduct in accordance with DOJ directives. Long-term prospects are bleak for the uncooperative lawyer who fails in his or her representative mission. He or she must then look to the unemployed client for remuneration. Corporate bylaws in many jurisdictions empower companies to advance fees until such time that “they,” or the stacked deck of the directors or their hand-picked outside legal counsel, determine that a targeted officer acted contrary to the best interests of the corporation. Many bylaws require executives to sign undertakings agreeing to return the fees if the corporation determines they acted contrary to the best interests of the company. To protect their interests against an eventual and predicted bad-faith finding, corporations may retain the funds, so that recovery is a mere accounting entry rather than a lawsuit to recover disbursed fees. This contingency relationship involving escrowed fees (in other words, private counsel gets paid only if a general counsel says so) is questionably unethical under the Texas Disciplinary Rules of Professional Conduct, 1.04 (e), which prohibits a lawyer from entering into a contingent-fee agreement in a criminal case. One could argue that individuals commit the crimes, and companies should not suffer because of the crimes of a few. That was the argument by the defenders of Arthur Andersen. There is a sense of compassion for the many employees and stockholders who would be affected by criminal charges. On the other hand, individuals do not commit crimes unless they believe they are acting in accordance with unwritten corporate guidelines and a cutthroat culture. Sure, executives who commit white-collar crimes receive financial benefits and rewards, but to achieve these results, many corporations pave a clear path for their crooked conduct. They are so determined to achieve positive earnings that they sacrifice their leaders for the sake of profitability. Finding a solution will be difficult. Although not all companies, private lawyers and government lawyers conspire in this fashion, the acts of some tarnish the entire system and set inappropriate trends for the future. Who complains about this activity to a state bar association? Certainly not the involved lawyers. The client is too shattered and depleted to make a viable case. What about the Department of Justice? History shows that also is unlikely. Years ago, the DOJ went wild talking with represented individuals under the auspices of proper law-enforcement activity. Finding the federal courts an unsuccessful avenue for relief, lawyers sought to have prosecutors disciplined by the appropriate state bar associations. After the states and DOJ became embroiled in litigation, Congress forced itself into the long-running debate and through the McDade Amendment curtailed the self-imposed grant of immunity from ethical violations. The American Bar Association even joined the fray. Rectifying this problem will require a cooperative effort, but more importantly, a corporate effort is necessary. Executives must take more of a role in defining the responsibilities of general counsel. General counsel must not be victimized by aggressive prosecutorial demands. Private lawyers must demand an independent relationship. Current executives must realize the potential for their own exposure and actively lobby corporate and private lawyers to stop the all too common hostage scenario. Joel M. Androphy is a partner in Berg & Androphy in Houston. He has a nationwide practice defending individuals and corporations in white-collar criminal cases and suing corporations on behalf of whistleblowers in qui tam (false claims) suits. He is the author of “White Collar Crime,” 2d edition, a four-volume civil and criminal practice treatise by the West Group, and is in the process of completing a treatise on the False Claims Act. Androphy is a frequent commentator for MSNBC, CNBC, ABC and Bloomberg.

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