Picture it: You return to your desk from lunch on a typical Tuesday afternoon, and you have a message from the senior manager of one of your company’s most lucrative business units. The chief of the business unit informs you that she received a call from an attorney at the local Securities and Exchange Commission office. The message says that the SEC has opened a civil investigation and would like to chat with the manager about a series of recent transactions involving two of your company’s top customers. The meeting would be informal and off the record, the government enforcer emphasizes. They just want to have a talk, to gather some background information.
The question of what to do next has plagued in-house lawyers for generations. You first breathe a sigh of relief that the manager heeded years of admonitions from the general counsel’s office imploring employees never to communicate with government lawyers or investigators before first speaking with a company lawyer. The next step, however, is a bit more difficult. Do you return the SEC lawyer’s call yourself, or do you retain experienced outside counsel to make the call for you?
Years ago, there was little risk in returning the enforcer’s call to get the lay of the land: Why are they interested in the customers? Does the government suspect your company or any of its employees of wrongdoing? By and large, the typical experience was to receive straightforward responses to these questions—even if the government lawyers simply told you that they were not going to answer them. There was a mutual benefit to this candor: You knew where your company stood—without any expense—and the government could try to secure your cooperation in the investigation. And it was generally easy to tell after such an introductory phone call whether your first call should be to an experienced white-collar or securities lawyer, or to the CEO to inform him that the investigation was nothing to worry about.
But our experience and several widely reported cases in recent years have demonstrated that times have changed. Government lawyers are now playing their true intentions much closer to the vest, even going so far as to use the lure of an informal meeting to lead employees to believe that they—or the company—are at most potential third-party witnesses. Sometimes the government will even use a technique (commonly called “parallel construction”) to convince unwitting witnesses that they are giving information in a civil matter—only to find, once they have taken the bait, that the real focus is a criminal investigation. Recent experience has shown that the government has used information gathered from the “comfort” of those meetings to extract information that may result in charges against your employees or the company.
No example better demonstrates these concerns than the recent case of former Dewey & LeBoeuf employee Zachary Warren. After graduating from Stanford University, Warren joined Dewey to help partners collect on client invoices for $40,000 a year. In June 2008, Warren was promoted to “client relations manager” for the firm, at more than double the salary. Warren later left Dewey to attend Georgetown University Law Center, where he graduated magna cum laude, and then pursued two federal clerkships and received a job offer from a prestigious Washington law firm. Warren was on the fast track to a successful legal career—or so he thought.
Earlier this year, Warren was indicted—along with former senior executives of the Dewey firm—as an alleged co-conspirator in the major accounting fraud that led to the firm’s 2012 implosion. Imagine Warren’s shock. In early 2013, prosecutors in the Manhattan district attorney’s office had contacted him only for background information about his time at the firm. Warren heard nothing until October 2013, when an SEC attorney investigating Dewey’s bond offering asked Warren to provide additional information in what Warren believed was a civil investigation. Warren agreed. So when, in a subsequent call, the SEC attorney asked Warren if he would mind if a Manhattan DA sat in on their meeting, he had no cause for concern. After all, unlike the senior Dewey executives, Warren had no idea he was under a criminal investigation. At the meeting, the SEC attorney asked some initial questions and then the Manhattan DA took over and gave Warren, who attended without counsel, a drubbing. The indictment followed several months later.
The bottom line: There is no such thing as a casual chat with a government enforcer. The Warren case and other similar recent experiences teach us that corporate counsel no longer can treat a prosecutor’s request for information as anything other than very serious. After all, there is nothing illegal about the government’s strategies, so any information you give them, even under false pretenses, can be used in a later prosecution. As a result, you should be reluctant to have any substantive conversations with government lawyers until your legal department, in coordination with outside counsel, has had the opportunity to consider carefully and deliberately the government’s request.
Your approach should include these four best practices:
1. If one of your employees receives a call from a government agency or prosecutor, have an attorney experienced in dealing with the particular agency or office return the call. An attorney with experience in the field will be far better positioned to “read between the lines” than someone who is making a call for the first time.
2. Gather as much information as possible about the subject of the government’s request, so that you can assess your company’s risk in providing any information to the government. Companies and their employees should never agree to meet with government lawyers until all possible information sources have been exhausted, and you have considered the full range of potential reasons for the government’s interest in obtaining information from you.
3. Ensure that company employees are trained to report any contact from government attorneys—whether purportedly in connection with a civil or a criminal matter—to your department as soon as possible. Too often it is too late for you to analyze the risks of a government meeting, or to prepare a corporate officer or other employee for an interview with the government, because the officer or employee has already spoken to a government lawyer on his or her own.
4. Be aware of potential exposure for company employees whose interests may be—or may become—divergent from the company’s. Most employees do not realize that what they tell a company attorney can be divulged to government lawyers at the company’s sole discretion. It is important, therefore, to remember to advise company employees that in-house and outside counsel do not represent them personally, and that they should consult a personal attorney. While it is an acceptable and common practice for the company’s lawyers to recommend personal lawyers for employees—we suggest providing them with at least three recommendations—it is imperative that your employees be permitted to select and retain their own counsel.
Following these rules of thumb can go a long way toward helping your company—and its employees—avoid the significant pitfalls of dealing with government lawyers.