Thank you for sharing!

Your article was successfully shared with the contacts you provided.
These days, any newspaper reader who isn’t overwhelmed with coverage of corporate wrongdoing — and the executives who helped it happen — is spending way too much time on the funny pages. But what really goes on in a high-profile, white-collar criminal investigation? What are the tricks of the trade employed by government prosecutors, and what are the defense mechanisms law firms use to protect the corporations and executives they represent? The Fulton County Daily Report convened a panel of lawyers with experience on both sides of the scenario. They discussed what really happens when the leaders of a company find themselves in the hot seat over a government contract gone sour — with millions of dollars at stake, a potential whistleblower and a supplier clamoring to preserve a joint-defense agreement. Moderator Craig A. Gillen, a prosecutor turned defense lawyer, crafted a law-school-exam-worthy hypothetical about the mythical ProTech Corp. ProTech’s luck runs out when the military realizes the company has been using lower-quality steel to fulfill government contracts for the production of armor plating for tanks. Panelists Barry J. Armstrong, a partner with McKenna Long & Aldridge; Stephen S. Cowen, a partner with King & Spalding; Daniel P. Griffin, a partner with Miller & Martin; and Dorothy Yates Kirkley, a founding partner of Kirkley & Hawker, examined ProTech’s situation by taking on the roles of the company’s outside counsel (Armstrong and Cowen), the government’s lawyer (Griffin) and individual counsel to a corporate executive and an internal auditor (Kirkley). Panelists were chosen independently by the editors of the Daily Report, and the discussion has been edited for length and clarity. – Janet L. Conley, Assistant Managing Editor Gillen: Steve, let’s say you’re outside counsel to ProTech, and you get a call informing you that the FBI is searching ProTech’s headquarters and plant. What are your initial actions and concerns? Cowen: I’ll give some very plain, simple advice to management: Company employees may not interfere with the search in any way. Also, a manager should attempt to inform the employees that they are free to go. They are not required to submit to government interviews, but that decision is up to them. Also, try to keep track — without interfering with the search — of what documents are being seized. Gillen: Are you going to go to the plant or the offices? Cowen: If we can, sure. It’s much better for a lawyer to get out there and deal with the lead agent, to try to ensure that the agents are getting what they are entitled to under the warrant. Usually that involves getting access to computerized information and getting some assistance from the company’s IT people. You want to start out being cooperative, but at the same time you also want to stop these government interviews with employees who aren’t informed of their rights. You should not interfere with the government’s request to interview. Gillen: Barry, you’re also outside counsel for ProTech. Additional thoughts? Armstrong: Somebody should keep track of which employees are speaking with the government. Then the company should interview those employees soon after to find out what they discussed. Gillen: Danny, in your role as government lawyer, why have you decided to use a search warrant rather than simply issuing a grand jury subpoena to the company? Griffin: First, recognize that in a publicly traded, large corporation like this, it is hard to do a search warrant unless you have some very specific things in locations that you are going to search. But the government might use a warrant because if we simply hand a grand jury subpoena to this corporation, individuals may choose to lose documents. A search may catch them cold and find the documents. The added benefit of the search [is that] you have maybe 10, 20, 30 agents on the premises, all prepared to conduct interviews. Most people, when confronted with a raid, will voluntarily be interviewed. If you do a grand jury subpoena and there is trouble, Mr. Cowen, as the company’s lawyer, might help them get lawyers, and you won’t be able to talk to them as freely. Gillen: Do you have concerns if you hear that corporate counsel has advised employees not to talk with the FBI? Griffin: I don’t, necessarily. But there is a criminal statute, Title 18, Section 1512, talking about obstruction. If, for example, outside counsel came in and gave the direction, “If you don’t talk to the FBI, they may not bother you,” well, in U.S. v. Shotts [145 F.3d 1289 (11th Cir. 1998)], a lawyer under investigation who told his secretary that exact language was convicted of obstruction. Gillen: Steve, briefly explain how you, as ProTech’s outside counsel, would organize your internal investigation. What land mines are you concerned about during the course of that investigation? Cowen: Just like with the Hippocratic oath for doctors, our mission is to do no harm. So I want to be sure that people don’t start destroying documents, if there is some e-mail purging mechanism already in place that this be suspended, that all bills that are about to go out to the government be held up because now senior management knows there is a reason to have concern about the accuracy of those bills and the shipments of steel. I’d also want to be sure that senior management has obtained advice from SEC disclosure counsel immediately about what they need to do concerning this raid, because it seems to impact a huge part of their business and they are a publicly held company. After that, I would want a directive from senior management to the employees asking them to cooperate in an internal investigation and explaining that it will be conducted by my law firm, that they are expected to cooperate, that the attorney-client privilege attaches to interviews but it’s the company’s privilege not the employees’. I would be very plain about who is being represented by the outside lawyers. I also would want to make an early determination regarding how serious this problem is because it really affects a whole set of decisions that the lawyers and senior management and the board of directors will need to make, including decisions about whether to advance fees for employees’ individual counsel and how to handle disclosures to the government. I also would want to determine from the prosecutor what documents have been seized and start an arrangement where I get copies of those documents back. Kirkley: We need to point out that officers and executives of these companies have an individual right to counsel. The issue of whether the company pays for it is dicier, but obviously that’s a core constitutional right that somebody needs to exercise on behalf of that individual as soon as feasible. Gillen: Dorothy, the day after the search you get a call from Mr. Nickel, ProTech’s CFO. He wants to retain you and says he’s been informed by company counsel that his interview in the internal investigation is scheduled for tomorrow at 9:00 a.m. Kirkley: First thing we need to do is stop the presses and take as much control as possible over the timing of a potential interview. This will be one of the most difficult client interviews I’ve done because I’ve just met Mr. Nickel. I want it to be a successful and cordial and profitable representation, but I have to deliver some very bad news very quickly because even knowing only a little bit about the case, I know that Mr. Nickel has a big bull’s-eye on his back probably from the government. But maybe from ProTech’s outside counsel, too. One of the ways in 2004 to save a company is to ditch the responsible executive ASAP. And while the client is sitting there I would also call the company’s counsel to try to learn as much as I can and to talk about fees. Gillen: How are you going to stall this 9:00 a.m. interview? Kirkley: I’m going to tell Steve, the company’s counsel, that I haven’t had enough time to prepare. You know and I know that this could be the most important day of Mr. Nickel’s life, and as a lawyer I will not be doing him adequate service if I show up tomorrow morning at 9:00. As things stand right now, Steve, obviously Mr. Nickel is loyal to the company and wants to cooperate, but I as his lawyer would have to give him the ultimate advice about whether he does so. Also, with adequate preparation and investigation, individual counsel can bring things to the table quickly that company counsel may not have yet had time to sort out. Cowen: Lest I seem like the Darth Vader of internal investigations, I generally agree with all that, and I don’t want to interview somebody cold. Particularly with the CFO, who has got all sorts of reporting and legal obligations on him in addition to what a business executive typically would have, I would want him to be adequately prepared. So I don’t think I would have any problem delaying that interview. Gillen: Barry, you as company counsel have gotten a call from Dorothy. She said, “I’d like at least 72 hours to get prepared. Mr. Nickel is a team player, and I would like to have your assurance first orally and then in writing that whatever communications we have will be protected pursuant to a joint-defense agreement.” What is your response? Armstrong: It would be unusual to enter into a joint-defense agreement between the corporation and an officer of the corporation, especially when the preliminary indication is that officer was involved in potential wrongdoing. I would like more information, but certainly I would indicate to her that we are not willing to make that agreement at this point in time. Gillen: What ramifications, if any, should the joining of the communications between Mr. Nickel and corporate counsel have on the corporation’s later ability to waive its internal investigation or waive the attorney-client privilege? Griffin: I think it could be a problem with the government. If this CFO is interviewed pursuant to a joint-defense agreement, I don’t think that Barry or Steve can go out and disclose the results of that interview. Remember the January 2003 Department of Justice memo, the Thompson Memorandum [issued by then-Deputy U.S. Attorney General Larry D. Thompson]. It talks about the factors that the government considers when deciding whether to indict a business organization. Those factors include, are you paying the culpable official’s attorney fees and do you have a joint-defense agreement? The government is looking for things that might suggest that instead of helping to resolve this case, the corporation is hindering the investigation. So that’s a factor in its decision about whether to prosecute. Gillen: Let’s say that you have a joint-defense agreement between ProTech and Aegis Steel Corporation, the company that supplied the lower-quality steel, regarding their joint communications about production problems. Cowen: I would have to formulate probably a fairly complicated response and deal with this ostensibly privileged document that’s in our files. Griffin: In this instance, where there is a risk of substantial harm to individuals because of alleged wrongdoing, I think the prosecutor is fully authorized to say, “I know you are doing your internal investigation. We want to resolve this quickly, and we are very interested in finding out whether the corporation is going to share the results with the government.” Kirkley: I want to express my outrage and constitutional concerns about that aspect of the Thompson Memo. Over the last 33 years of my practice, the joint-defense agreement and the ability of counsel to cooperate among themselves has been a cornerstone of defending white-collar cases. The Thompson Memo — without, in my mind, any legal authority — is abridging the right to counsel. Gillen: Steve, as company counsel, you are in an internal investigation. Are you going to tell the employees and officers you are interviewing that their statements to you may be turned over to the FBI and U.S. Attorney’s Office? Cowen: Yes. Gillen: Will you also tell them at least one case supports the proposition that if they know their statements might be given to the government, they could be prosecuted for a felony if they knowingly and willfully lie during the course of the internal investigation? [In an unpublished case, U.S. v. Zar, Cr. No. 04-331 (ILG) (E.D.N.Y. 2004), former executives at software company Computer Associates pleaded guilty to obstruction charges stemming from lies they told their company's lawyers during the course of an internal investigation. The lawyers gave the executives' false statements to the government.] Cowen: I’m trying to not scare the hell out of everybody I meet at this company, so generally I would try to emphasize the seriousness of the interview and not give them some sort of private Miranda warning. If the company has announced that it is fully cooperating with the government, and that it is preparing an internal investigation report to turn over to Justice, the SEC and the Department of the Army, I might add that additional warning because the case that you are referring to was similar to that situation. Gillen: Barry, would you fashion some sort of limited waiver of the privilege in work product in order to make Danny happy concerning your cooperation pursuant to the Thompson Memo? Armstrong: Every internal investigation you do in this kind of situation is likely to lead to a waiver of privilege. I would try to structure the investigation with that in mind. That said, if I conclude that we are going to have to waive privilege as part of doing business with the government, I would try to enter into a limited waiver and structure it so that we just give the government factual information, not the whole report. They may want the whole report and to control access to it, but we’d try to structure it so they don’t actually get a copy. They just come look at it. Safeguards like that. Gillen: Let’s say the government agrees with you and says we are going to have this joint-defense agreement with the corporation and the government so that the work product would be, at least under their agreement, protected. Dorothy, what are some of the ramifications of a potential waiver of the privilege in spite of this agreement? Kirkley: The question of waiver of attorney-client and work-product privilege has come up across the country with the HBOC-McKesson investigations. There’s a case pending in the Georgia Supreme Court on the waiver of work product. [The underlying case is McKesson Corp. v. Green, 266 Ga. App. 157 (2004)]. Every case except one — and there are now about 11 that have been litigated — held that because the company disclosed to the U.S. Attorney’s Office and the SEC, albeit under a supposed confidentiality agreement, that the waiver was complete. Gillen: Let’s talk about this smoking-gun document that shows ProTech knew it was using inferior-quality steel in violation of the government contract. Danny, that document has been marked as attorney-client privileged. It has been seized by the agent and segregated, but it hasn’t been reviewed. How will that document be handled at the U.S. Attorney’s Office? Griffin: If I were the prosecutor, I would probably have already designated what is called a taint attorney, someone in my office who doesn’t know much, if anything, about the investigation and will not be involved in it or in the prosecution. The agent who got the smoking-gun document would put it in a sealed envelope and hand it to the taint attorney, who’s responsible for reviewing it. Prior to the review, I would call Barry as outside counsel and say, “Look, we’ve got this. You need to look into it and tell me whether you are going to assert your privilege.” As soon as Barry tells me he’s going to assert privilege, then the taint attorney reviews the document. If the taint attorney decides it’s privileged, it may stop right there and no one within the government gets to look at it. But if the taint attorney decides that it is not privileged, the taint attorney would be responsible for calling that to the attention of a district court judge and getting the duty judge to make a determination. Outside counsel would be invited in to make their views known as to whether it’s privileged. Gillen: Barry, you have gotten a call from Danny about this document. You’ve also heard from Aegis Steel’s counsel, who is telling you at all costs to respect the agreement that this is a joint-defense privileged document. How do you proceed? Armstrong: Based on the facts as I understand them, the circumstances leading to the creation of this document are probably questionable as to whether it’s actually protected by a joint-defense privilege. But given Aegis’ objection, I’d put them on notice that the government has requested our position on privilege. If I conclude it’s not privileged, we need to give Aegis notice and give the government notice that Aegis is asserting the privilege. Then Aegis needs to assert the privilege and resolve it. Gillen: Dorothy, during the course of your initial interview with Mr. Nickel, he tells you that the assistant internal auditor, Mr. Pittman, told him back in 2001 about the problems with the steel quality. Given that, are you going to give Steve and Barry an interview in that internal investigation process? Kirkley: You have to explore the context of this conversation, what Mr. Nickel’s knowledge is of the operating process, whether he was responsible for defects in the product, how seriously did he take Mr. Pittman. Presumably somebody like the chief operating officer would be the person who would know the most about the quality of the product. Gillen: How would the Sarbanes-Oxley Act apply here? Cowen: Mr. Nickel may have an immediate problem with regard to the certification that he is required by law to submit to the SEC, because he certifies that he is not aware of fraud by senior management. So from the company’s perspective there is a problem with his certification. As an individual, he may be walking right into an immediate criminal problem. Sarbanes has put additional obligations on the audit committee, and the audit committee is going to have to address this because it directly relates to code-of-conduct issues and fraud by management as well as about one third of the company’s business. Outside auditors need to be briefed in a timely fashion because the audit committee and the CFO are both obligated under Sarbanes to talk to the auditors about fraud. Gillen: Danny, Mr. Pittman is one of your witnesses. He told you he talked with Mr. Newly, ProTech’s recently hired in-house counsel, about the conversation where he told the CFO about the smoking-gun document. Griffin: The question for the government is, did Mr. Newly enter the conspiracy by simply listening and being an in-house counsel and doing nothing? Gillen: The Department of Justice frequently refers to attorneys and accountants as “gatekeepers.” What were Mr. Newly’s responsibilities in that capacity? Cowen: Because of Sarbanes, he had an obligation to pursue the smoking-gun document and to escalate it through the chain of command, including the audit committee and the full board to see that remedial steps were taken and appropriate disclosures made. Gillen: Barry, the assistant internal auditor, Mr. Pittman, has hired a plaintiffs’ lawyer. Do you have concerns about whether he might be a relator in a qui tam matter? Armstrong: I certainly do. Based on his actions, he has all the indications of a potential whistleblower. You need to worry about whom he is speaking with and what he is telling them. You also have to be careful how you deal with him because a big part of whistleblower issues is retaliation. Gillen: Let’s look at an endgame strategy. Steve and Barry have been facing potential prosecution of ProTech. It’s fairly clear that there is a possibility of a False Claims Act problem and maybe a qui tam relator and maybe even a class action. Cowen: Basic endgame strategy is to try to make peace with the U.S. government. You’ve got three agencies to deal with: the Department of Justice, the SEC and the Department of the Army. I would like to do whatever those agencies see as necessary in order for them to view the company as a responsible company and one that should be allowed to remain in business and do business with the government. I would be looking for ways to do surgery here and get the patient healthy again, and if that means Mr. Nickel needs to be terminated, then so be it. If that means we need to have widespread disciplinary action and remedial measures, pay the government back for the monetary harm, then let’s do it. My secondary concern is the plaintiffs’ lawyers and the shareholder action, but that problem will diminish if I can keep this company alive and get it healthy. Armstrong: You want to wrap the False Claims Act potential criminal charges into a global settlement if you can. You’ve got the various government agencies to deal with. You may have multiple districts that you need to toll with depending on where the potential fraudulent actions took place. In addition, you always have debarment from federal programs, so you want to make sure that is on the table. Gillen: Danny, your endgame? Griffin: I don’t mind a global resolution. A line assistant is not going to be making these final decisions, but clearly this company is fairly important to the military, so I would look for a lot of money, not debarment. Gillen: Dorothy, any thoughts? Kirkley: Well, yes, because my guy is getting guillotined. My job is to walk him through the toughest time in his life, trying to get him the best treatment possible in a very harsh criminal justice system for white-collar officers and executives. After Mr. Nickel and I talk about his defenses, I’d ask him whom he can roll over on and give the government evidence on. The government works up the chain and its feeding frenzy is around the highest executives in the company, so I’m going to be looking at what good it does Mr. Nickel to cooperate. I’m going to look for a cooperation strategy with the government, to reduce a possible sentence of, say, six years, down to maybe a year. A large part of my endgame becomes negotiation.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.