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Following in the wake of the Enron Corp. demise and the resulting aggressive federal investigations of corporate malfeasance, “cooperation” is the coin of the realm. What cooperation means in the context of any given investigation is what the federal agency handling the investigation says it means. Over the past few years, federal agencies have issued a series of written statements articulating the importance of cooperation and setting forth their expectations of the steps necessary to obtain “credit” for cooperation in the context of agency enforcement decisions. Some of those statements � most notably the now-superseded “Thompson memo” issued by the U.S. Department of Justice (DOJ) in January 2003 � have fueled controversy, particularly with respect to their treatment of such issues as waiver of the attorney-client privilege and work-product protections. As those controversies continue to rage, and as some of the smaller agencies seek to emulate the success of DOJ and the U.S. Securities and Exchange Commission (SEC) in making front-page news, the concept of cooperation has been the subject of evolving definitions and expectations. The CFTC recently issued an advisory memorandum The most recent such statement is an advisory memorandum issued on March 1 by the U.S. Commodity Futures Trading Commission (CFTC), available at www.cftc.gov/files/enf/enfcooperation-advisory.pdf. That statement outlines the factors the CFTC Enforcement Division will consider in evaluating whether an organization has cooperated, in connection with recommending sanctions to the commission. The CFTC advisory follows closely on the heels of DOJ’s controversial revision of its Principles of Federal Prosecution of Business Organizations, known as the McNulty memo, after its author, Deputy Attorney General Paul J. McNulty. Its criteria are similar to the cooperation factors in the McNulty memo, as well as those in similar statements by the SEC and the Federal Energy Regulatory Commission (FERC). The CFTC advisory lists various types of conduct that the Enforcement Division staff will consider when determining whether to recommend reduced sanctions, including a company’s efforts to uncover and investigate misconduct; a company’s level of cooperation with the staff after misconduct has been discovered; and a company’s efforts to prevent future misconduct. Cooperation with the CFTC does not automatically entitle a company to immunity from prosecution. The Enforcement Division will consider such “additional factors” as the company’s structure, the nature of the misconduct, the harm caused and the level of the company at which the misconduct occurred. The advisory also makes it clear that the Enforcement Division will examine whether the company, while purporting to cooperate, has engaged in conduct designed to impede the investigation. For example, the advisory notes that obstructive conduct warranting a reduction in cooperation credit can include such actions as failing to respond to subpoenas, or to produce documents or witnesses, in a timely and exhaustive manner; misrepresenting the nature or extent of the misconduct; hiding records; and limiting CFTC staff access to employees. The advisory states that cooperation credit is most likely to be given in instances when a company’s conduct is “sincere, aggressively cooperative and indicative of a willingness to accept responsibility for the wrongdoing.” Conversely, the division is “least likely to recommend reduced sanctions when a company hides or misrepresents information about the misconduct, impedes division efforts to obtain information and . . . prolong[s] [its] investigations unnecessarily.” The CFTC advisory marks a shift in one of the criteria the Enforcement Division staff will consider when determining whether to recommend sanctions. In the CFTC’s previous advisory memo issued in 2004, the division indicated that it would consider whether a target company willingly waived the attorney-client privilege and work-product protections. Those factors are absent in the new CFTC advisory. In fact, the advisory contains an entire paragraph extolling the virtues of the attorney-client privilege and work-product doctrine. The shift in the treatment of waiver is apparently a response to increasingly vocal criticism by members of Congress and the defense bar about the government’s requests for corporate waiver of the attorney-client privilege and work-product protections. It is also likely the result of increased efforts by federal agencies to harmonize their enforcement criteria, which began in July 2002 with the creation of the President’s Corporate Fraud Task Force. The task force, now headed by McNulty, was created, in part, “to provide enhanced inter-agency coordination of regulatory and criminal investigations.” Among the members of the task force are the chairman of the CFTC, the chairman of the FERC and the chairman of the SEC. However, there are significant differences among the approaches of the various task force members to important investigative issues. For example, a significant difference between the CFTC advisory and the McNulty memo is the treatment of joint defense agreements. The McNulty memo notes that prosecutors may consider, in assessing the value of a company’s cooperation, whether it “provid[ed] information to the employees about the government’s investigation pursuant to a joint defense agreement.” In November 2003, then-Deputy Attorney General James B. Comey observed that a company that entered into a joint defense agreement might be unable to obtain credit for cooperation because it would be precluded by the agreement from making a full disclosure of all relevant evidence to the government. Comey noted, however, that entering into such an agreement would not necessarily prevent the company from obtaining such credit. The CFTC advisory includes a potentially broader question: “Did the company willingly utilize all available means to . . . avoid entering into joint defense agreements with counsel for employees or other entities?” It is unclear whether the CFTC’s concerns about joint defense agreements are limited to those expressed by DOJ, or whether its advisory has drawn a bright-line rule that entering into such an agreement is inconsistent with cooperation. The SEC analogue to the CFTC advisory, known as the Seaboard Report, was issued on Oct. 23, 2001, and has had a profound impact on how organizations respond to SEC investigations. The Seaboard Report articulates many of the same factors, but there are a few important differences. First, unlike the CFTC advisory, the Seaboard Report identifies investor protection as the polestar for its enforcement analysis. The SEC took an additional opportunity to highlight the importance of this consideration in January 2006, when it issued a written statement regarding its approach to corporate fines. That statement makes clear that decisions regarding corporate fines will depend upon whether the underlying misconduct injured or benefited the company or its shareholders. Although investor protection is one of the CFTC’s missions, the CFTC advisory leaves unclear the extent to which such issues as investor gains or losses will be considered in the agency’s sanctions decisions. The Seaboard Report is also different from the CFTC advisory in its treatment of waiver of the attorney-client privilege and work-product protections. Unlike the CFTC advisory, the Seaboard Report has been interpreted as identifying waiver as a factor to be considered in enforcement decisions. However, the SEC’s position on that issue may well change. On Feb. 9, SEC Commissioner Paul S. Atkins stated that the SEC is beginning a review of its processes and procedures with respect to rewarding corporate cooperation. In particular, Atkins stated that the SEC would carefully consider formally clarifying that waiver should not be an enforcement consideration. Thus, the SEC may well make its treatment of waiver more consistent with that of DOJ and CFTC. FERC’s policy statement is similar to CFTC advisory The FERC’s Policy Statement on Enforcement is similar to the CFTC advisory, the Seaboard Report and the McNulty memo. This is not surprising in light of the fact that the FERC policy, issued on Oct. 20, 2005, specifically states that the commission reviewed the policies of other federal agencies � including the CFTC � for guidance when crafting its policies. Like the other three, the FERC policy emphasizes the important roles of compliance, self-reporting, and “exemplary cooperation” in dealings with the FERC. However, the FERC policy differs from the CFTC advisory in at least one important respect: It places greater emphasis on internal compliance. Whereas the CFTC advisory discusses internal controls briefly, the FERC policy devotes several paragraphs to the topic, noting that “[i]nternal compliance is an important proactive tool,” and that the FERC “encourage[s] companies engaged in jurisdictional activities to take steps to create a strong atmosphere of compliance in their organizations.” The FERC will examine internal compliance that both pre-dates and post-dates the misconduct at issue. Thus, those practicing before the FERC are well advised to highlight all efforts the companies they represent have undertaken to implement, police and encourage internal compliance. The alphabet soup of federal agencies that make up the President’s Corporate Fraud Task Force have learned that creating incentives for cooperation can save them time and money, and help them produce dramatic results in their enforcement activities. Each agency’s definition of cooperation � both on paper and in practice � reflects its unique history and characteristics. Practitioners handling corporate fraud cases would be well served to note those subtle differences when seeking to maximize the credit that is awarded for cooperation. Timothy J. Coleman is a partner in the New York and Washington offices of Dewey Ballantine, where he co-chairs the white-collar crime and government investigations practice group. Jennifer Whitener and Tejasvi Srimushnam, associates in the New York office, assisted in the preparation of this article.

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