Richard J. Morvillo ()
The Division of Enforcement of the Securities and Exchange Commission is scrutinizing the practices of defense counsel in preparing witnesses for testimony. An Enforcement Staff perception that a witness testified falsely will have a profound negative impact on the staff’s view of the merits of the client’s defenses. Similarly, a staff view that an attorney improperly “coached” a witness will undermine the lawyer’s reputation and his ability to convince the staff of the bona fides of the client’s legal or factual arguments. And, in extreme cases, the staff may even recommend that the SEC bar an attorney from practicing before it for obstructionist conduct.
Scrutiny of Lawyers’ Conduct
In a 2011 speech, Robert Khuzami, then director of SEC Enforcement, highlighted “episodes of questionable tactics by defense counsel in SEC investigations.” He stressed that “the lack of recollection by witnesses in SEC testimony is a significant issue” and ruminated that “one is left to wonder whether witnesses are under instructions only to testify about those events that they recall with near certainty, even in response to questions inviting the witness to qualify the answer with whatever level of recollection the witness possesses.”1 He predicted that such practices could increase referrals to the SEC’s Office of the General Counsel (OGC) for obstructionist conduct.
The staff has also questioned the veracity of lawyers. Recently, now Director of Enforcement Andrew Ceresney commented: “Any defense lawyer appearing before agency enforcement officials must provide all relevant information in the case, provide a thorough analysis of the facts and be wholly honest with the SEC staff. SEC personnel speak among themselves about those defense lawyers who are trustworthy and those who are not.”2
The commission has taken action against attorneys for providing false information. For example, in 2011, the commission proceeded against an attorney who provided altered documents to the SEC and destroyed metadata.3 The OGC found that the California lawyer violated that state’s rule against “[t]he commission of any act of moral turpitude, dishonesty, or corruption.”4 More recently, the attorney was sentenced to prison for his conduct.
Authority to Bar Attorneys
The SEC has authority to deny an attorney the privilege of appearing before it for engaging in “unethical or improper professional conduct.” 17 C.F.R. 201.102(e)(1)(ii). The terms “unethical or improper professional conduct” are not defined, but the commission has interpreted them to include conduct violating an ethical rule of the state in which an attorney is admitted. As the commission noted the rule “enables the Commission to discipline professionals who have engaged in improper professional conduct by failing to satisfy the rules, regulations or standards to which they are already subject, including state ethical rules governing attorney conduct….5
The U.S. Court of Appeals for the D.C. Circuit recently gave deference to the commission’s determination that a state’s ethics rules were violated. In Altman v. SEC, the D.C. Circuit upheld the commission’s bar of an attorney who violated New York’s ethics rules even in the absence of disciplinary proceedings against him by the state.6
Relevant Ethics Rules
While state rules vary, the ABA Model Rules for Professional Conduct, which most states have adopted, are instructive here.
The Truthfulness of the Witness. Lawyers generally advise clients to provide truthful answers based on personal knowledge or recollection and not to speculate. Their more particularized advice can become risky, however, if the lawyer encourages a particular version of events or counsels the client to fall back on a lack of recall wherever possible.
The thrust of Khuzami’s 2011 message was that defense counsel should advise clients to provide qualified answers where their recollection is limited or vague. Khuzami emphasized the importance of sharing with the SEC even a limited recollection, instead of repeatedly answering “I don’t recall.”
The rules do not speak directly to what distinguishes appropriate preparation from improper “coaching.” They are nevertheless a starting point for evaluating a lawyer’s ethical obligations. Rule 1.2(d) prohibits an attorney from counseling a client “to engage in, or assist a client, in the conduct that the lawyer knows is criminal or fraudulent.” Rule 3.3(a)(3) adds that a lawyer may not “offer evidence that the lawyer knows to be false.” Moreover, Rule 3.4(b) provides that a lawyer shall not “falsify evidence, counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law.” Accordingly, attorneys should avoid behavior that could reasonably be construed as assisting a witness in making misleading statements, including statements that a witness does not recall an event when, in fact, the witness does.
The Truthfulness of the Attorney and Conduct Adversely Reflecting on his Fitness. The rules also prohibit attorneys from engaging in dishonest conduct. For example, Rule 8.4(c) prohibits conduct involving dishonesty, fraud, deceit or misrepresentation. Rule 8.4(d) forbids conduct prejudicial to the administration of justice. Rule 3.3(a)(3) addresses a lawyer’s obligation to take remedial measures if a client offers false testimony—it requires an attorney who knows that his witness has offered material evidence that the attorney knows to be false to take reasonable remedial measures including, if necessary, disclosure to the “tribunal.” Although the rule is not applicable to SEC investigations because the staff is not a “tribunal,” a client’s exposure to possible prosecution for false statements to the government as well as ethical and reputational considerations may still warrant immediate corrective action by the attorney when remonstration with the client fails.
In Altman, an attorney representing a company employee attempted to secure payment from the company in exchange for his client’s agreement not to provide testimony to the SEC that would damage the company.7 The commission found that the attorney violated the New York rules prohibiting “conduct involving dishonesty, fraud, deceit, or misrepresentation,” “conduct that is prejudicial to the administration of justice,” and “conduct that adversely reflects on the lawyer’s fitness as a lawyer.”8
While the conduct at issue in Altman was clearly over the line, disciplinary rules prohibiting “conduct that adversely reflects on the lawyer’s fitness as a lawyer” are open to interpretation. Importantly, as noted, in Altman, the D.C. Circuit held that a commission decision that state ethics rules are violated will be given deference and upheld unless arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
Defense counsel’s duty to prepare a witness is not a license to improperly influence the substance of a client’s testimony.9 There is a difference between “developing testimony so that it will be effective and suborning perjury by telling the witness what to say.”10 A lawyer’s obligation is to extract facts from the witness and to learn what the witness knows, not to teach the witness facts he does not know or should be expected to know. Helping a witness distinguish between actual recollection (including refreshed recollection) and the reconstruction of events based on practice, hindsight or speculation carries risk that the witness will be unduly influenced by what his lawyer says and how he says it.
Experienced defense lawyers use common techniques to prepare witnesses without crossing the line:11 They explain the investigative process, the role of testimony and the appropriate demeanor of a witness to give the client the proper perspective. They generally review with the client the legal implications of the underlying events, with particular emphasis on the key issues, to help a client understand how truthful testimony can help his position. That discussion can illustrate how speculation not rooted in real recollection can create a misleading record concerning what the witness actually knew at the relevant time.
It is useful to emphasize the importance of providing direct and on-point answers to questions to make a client appreciate how non-responsive answers can appear evasive. One of the ancillary benefits of focusing a witness on making sure that he answers the actual question is to provide a framework that will help the client avoid volunteering information the staff has not sought. Similarly, cautioning the witness against providing long narrative answers when the truth can be provided more concisely can also ensure a clean, crisp response that does not stray into other subjects.
Clients often need help understanding what “recollection” really means. For example, clients should understand that they are not being asked to reconstruct what likely happened or to offer opinion. Likewise, a client should distinguish between present recollection and past recollection recorded in a document. Vague recollection is still recollection, and clients should learn how to provide it but qualify it appropriately. It is also appropriate to advise the client of questions she will likely be asked and to review her recollection and probable testimony.
A lawyer is also free to refresh the witness’ memory by, for example, reviewing documents so long as the lawyer does not direct that recollection. Educating the witness as to what evidence has been or is likely to be adduced from other sources; determining how other evidence may affect the witness’ recollection and how differing recollections from others can or cannot be reconciled with his are fruitful exercises. So is challenging the witness’ recollection if, for example, it is incredible, illogical or deviates from his routine practices. Moreover, it is worth explaining how, if true recollection fails her, she may in some circumstances be able to use business routine and practices rather than say “I don’t remember.”
There is, of course, no substitute for practice or rehearsal, though scripts should be avoided. Going over the questions and critiquing possible answers will help the client understand what information he should provide to be responsive. It also helps to ensure that the witness’ response will include the relevant facts and information in a credible and understandable order.
Finally, there is an aspect of “wordsmithing.” Having the client hear her own answer can facilitate her understanding of what is required and how a proposed answer may be misleading or misinterpreted. Where a client needs help in expressing himself clearly, the lawyer may suggest wording so long as the substance of testimony remains the witness’ and would not be false.12
Any of the foregoing can be taken too far. Clients feeling the stress of impending testimony are often impressionable, and lawyers must be careful not to use tactics designed or likely to cause the witness to suppress, distort or falsify testimony. For example, a lawyer should not suggest wording that while not literally false will convey a misleading impression. Nor may a lawyer use preparation to manufacture a recollection the witness does not actually have. Conversely, a lawyer may not encourage a witness to claim a lack of recollection when, in truth, the witness does have some recollection.
As Khuzami’s comments illustrate, the staff is often frustrated by witnesses who claim not to recall events the staff expects them to remember. The staff believes that witnesses often hide or shade the truth, particularly “bad” facts. While the staff often asks specific questions about events that took place years before, if the witness still recalls any pertinent information, the lawyer should encourage the witness to provide that information, with appropriate caveats that it is based on a recollection that is not vivid, precise or complete. At the same time, staff members who investigate historical events that were often fleeting for witnesses often expect too much. The staff is somewhat unrealistic in expecting witnesses readily to recall details about conversations and events that, in hindsight, may appear to the staff to be momentous but were not in real time.
Defense lawyers are not at fault for ensuring that a record accurately captures the state of the witness’ current knowledge. Though the staff may posit that witnesses deny remembrances absent “near certain” recollection, defense lawyers worry that it is also misleading for a witness to offer speculation as a proxy for recollection, especially without being clear as to the nature of his answer. After all, defense lawyers have to contend with the long-lived consequences of having a talkative salesperson or seasoned executive fearful of appearing to be dim-witted testify to “facts” when the witness is really guessing or reconstructing on the fly.
Although approaches to preparation vary with the lawyer’s personal style and experience, the client, the investigation and other factors, counsel has an impact on the staff’s view of her client’s credibility. For example, it is essential to get the client comfortable with facing up to unfavorable facts that she should admit. Moreover, teaching the witness to start an answer with what she does recall can avoid a record of countless “I don’t remembers.” Advising on the use of custom and practice can help soften a failed recollection. Clients should also be advised how to deal with the staff questions that repeat or recast testimony in a manner that does not exactly match the witness’ recollection.
Counsel should also be active during testimony to avoid certain pitfalls. Make sure the witness qualifies his answers appropriately and that the record is clear when the client (unavoidably) speculates. Speak up if a question is vague, ambiguous or compound to make sure the record is clear as to what the client is addressing. Because a non-responsive answer will hurt the witness’ credibility, if it happens, counsel should focus immediately on having her answer the question asked.
Pay attention to the staff’s body language and engage the staff to try to defuse developing tensions and restore the client’s credibility; it might even be useful to help the staff ask the right questions. It may also be helpful to interrupt with questions (most staff will tolerate it if done for the right purpose) to elicit clarifying or important information the client neglected and without which the answer may appear evasive of incorrect. Breaks should be used to review testimony that might be unclear, incomplete, misunderstood or inaccurate so that any error can be fixed promptly on the record. And, accept the staff’s invitation to ask clarifying questions to address false impressions that may linger.
Finally, post-testimony vigilance is necessary. Upon discovering a problem with testimony after-the-fact, take remedial steps at an early time. Moreover, consider supplementing the record with information necessary to avoid any confusion or error.
Although the rules give lawyers leeway in preparing clients for testimony, defense counsel must scrupulously avoid conduct that can reasonably be viewed as improperly influencing a witness to offer false or misleading testimony. Defense counsel can help a client learn how best to articulate testimony in a clear and truthful manner, but must be careful not to pressure or steer a witness into fabricating recollection or lack of recollection.
Richard J. Morvillo is a partner at Morvillo, LLP, in the New York and Washington, D.C., offices. Jennifer Vakiener, a former associate at the firm, assisted with the preparation of this article.
1. Robert Khuzami, SEC Division of Enforcement Dir., Remarks (June 1, 2011), available at http://www.sec.gov/news/speech/2011/spch060111rk.htm.
2. Stephen Joyce, Ceresney Provides Advice to Defense Counsel About SEC Changes in Enforcement Function, BNA Sec. Reg. & L. Rep. (Oct.1, 2013).
3. In the Matter of David M. Tamman, 2011 SEC LEXIS 332, Administrative Proceeding No. 3-14207, Exchange Act Release No. 63785 (2011).
4. Id. at *7
5. Implementation of Standards of Professional Conduct for Attorneys, 67 Fed. Reg. at 71,671 n.13.
6. Altman v. SEC, 666 F.3d 1322 (D.C. Cir. 2011).
7. Id. at 1325-26.
8. In re Stephen Altman, Esq., 2010 SEC LEXIS 3762, Admin. Proc. File No. 3-12944, Exchange Act Release No. 63306, at *44-50 (Nov. 10, 2010) (citing New York State Bar Association Lawyer’s Code of Professional Responsibility Disciplinary Rules 1-102(A)(4), 1-102(A)(5), and 1-102(A)(7), respectively).
9. Geders v. United States, 425 U.S. 80, 90 n. 3 (1976).
10. James W. McElhaney, McElhaney’s Trial Practice Notebook at 99 (4th Ed. 2005).
11. See Section 116, Restatement (Third) of the Law Governing Lawyers (2000); Erin C. Asborno, Ethical Preparation of Witnesses for Deposition and Trial, Summer 2011, ABA Verdict 25:3 at 12 (Dec. 13, 2001).
12. See D.C. Bar Legal Ethics Comm., Op. 79 (1979) (lawyer’s suggestion of words to make testimony clear is permissible if substance of ultimate testimony remains, to lawyer’s knowledge, truthful and not misleading).