Panel V (B): Internal Investigations, Whistle Blowers and Other Crisis Situations

Transcription

1 Panel V (B): Internal Investigations, Whistle Blowers and Other Crisis Situations Suzanne Bettman, RR Donnelley & Sons Company Irma Villarreal, Kraft Foods Inc. Craig Boggs, Perkins Coie LLP Ted Hawkins, PricewaterhouseCoopers LLP

2 Why Conduct an Internal Investigation? Identify and limit harm to the company Obligations under laws, regulations to self-disclose Assist in criminal defense of company Puts company in better light with government regulators Puts company in better light with shareholders, public 2

3 What's at Stake? Company's reputation and revenue Employees' reputation and jobs Civil litigation Civil fines, judgments and penalties Criminal penalties 3

4 Events that Prompt an Internal Investigation "External Event" Subpoena, arrest, search warrant or notice of whistleblower claim made to government "Internal Event" Tip or whistleblower (no government involvement) 4

5 Who Should Direct the Investigation? The Audit Committee or Compliance Committee A special committee of independent directors A "Qualified Legal Compliance Committee" under Sarbanes Oxley (a committee formed to consider and investigate allegations of a material violation of the federal securities laws) Legal Department HR Compliance & Ethics 5

6 Who Should Conduct the Investigation? Investigator with proper skill set Objective and unbiased; no conflict of interest Appropriate expertise (include experts) Potential conflict of in-house counsel Privilege issues; in-house vs. outside counsel Outside counsel retained specifically to conduct the investigation (i.e., not the company's regular counsel) The company's regular outside counsel Benefits of in-house counsel working together with outside counsel 6

7 Developing a Game Plan Define scope of investigation Who should be interviewed (both inside and outside the company) What data bases need to be searched? Who needs to be notified? Privacy issues and concerns How to track and document what is done Written game plan is advisable 7

8 Triage the Allegations Determine the nature of the allegation Assess seriousness (stealing pencils vs. backdating stock options) Title, role and responsibilities of supposed wrongdoers Dollar value and public relations exposure Nature, length and scope of purported wrongdoing What are the consequences, if true? To the company and its policies? To an employee? Level of law enforcement activity or awareness 8

9 Communication Issues Essential that the client be apprised of important developments Important to advise restraint until investigation is completed Caution needed in apprising operations managers of progress of investigation - do not want to "educate" them to facts since they may be witnesses 9

10 Disclosure to the Government Need to consider any statutory or regulatory requirements on incentives to disclose If government already investigating, is beneficial to make contact and have dialogue with them to hopefully avoid precipitous action by them Apart from disclosure requirements, need to consider benefits of self-disclosure at appropriate time HHS OIG Self-Disclosure Protocol (SDP) 10

11 Preserving Documents Document Hold Notice: Should immediately distribute memo to employees instructing them not to destroy relevant documents Notice should instruct employees to search for certain documents and identify specifics concerning the time frame of allegations and substance of allegations Err on the side of inclusion and update as necessary Engage IT department to ensure preservation 11

12 Involvement of the External Audit Firm Primary area of concern is typically whether a member of Management who provides the Auditor with representations and warranties lacks integrity Early communications with external audit firm is crucial Comfort with the scope of the investigation Schedule periodic updates to include, Audit Committee, Auditors, Independent Investigator and Experts Allow them to provide input, discuss progress and remain comfortable with scope 12

13 External Auditor Landmines Privilege There is none Threatened litigation with external auditors Investigations of the external audit procedures rather than the event, particularly when the experts are not part of a public accounting firm Lack of transparency into interviews conducted of Management considered key by the external auditors 13

14 Potential Consequences of External Auditor Conflict Audit and financial statement filing delays Qualified opinion resulting from perceived scope limitations Investor issues including lawsuits Auditor Resignations 14

15 Key Statutory Requirements Whistleblower must voluntarily provide the SEC Original information derived from independent knowledge or analysis That leads to successful enforcement by the SEC of an action That results in monetary sanctions of more than $1 million 15

16 STRATEGIC & ETHICAL CONSIDERATIONS in the EMPLOYEE INTERVIEW 16

17 Protecting the Investigation "Upjohn Warnings" at all interviews Consider providing warnings in writing (see United States v. Ruehle (C.D. Cal.) SA CR CJC) Protect privilege at every stage Courts have recently upheld work product and attorney-client privileges (see Sandra T.E., 2010 WL , 7 th Cir.) Even language of engagement letter is important 17

18 Protecting the Investigation (cont'd) Privilege Waiver Issues Change in DOJ Policy Filip Memo: Government generally cannot require waiver of privilege for company to obtain cooperation benefits SEC Adopted Same Policy Consider How Investigation is Documented Fact based vs. opinion based information 18

19 Ground Rules for Interviews Upjohn Warnings at the outset Counsel represents the company, not the employee Privilege is held by the company Company's decision alone to waive the privilege Interview should be kept confidential 19

20 Ground Rules for Interviews (cont'd) Notes should document facts (which may be produced to the government) as opposed to opinions (which probably will not be produced to the government) Do not share information with interviewee (for instance, about what others have said) Do not say anything that you do not want repeated to third parties or government investigators 20

21 Who Should be Interviewed Anyone with first-hand knowledge of the event or issue Anyone who had after-the-fact conversations about the event or issues Anyone who has had conversations with government investigators, the media, the whistleblower, or adverse party 21

22 Addressing Employee's Questions: Do I have to talk to you? Potential repercussions of refusing to talk: Most companies have "talk or walk" policies What if employee is willing to talk, but wants to delay interview? Fairness concern Employee says reviewing documents will refresh recollection Risks of agreeing to delay Destruction or removal of evidence 22

23 Addressing Employee's Questions: Am I under investigation? Witness vs. Subject Distinction Investigator should consider employee status preinterview Depending on stage of investigation, there may not be clear line between witness and subject Typically, witnesses should be interviewed prior to subjects being interviewed Additional precautions should be taken with known subjects (e.g., at least two interviewers should be present) 23

24 Addressing Employee's Questions: Do I need a lawyer? If question asked, investigator should: Make clear that the investigator cannot provide the employee with legal advice Document that the investigator did not provide advice on the matter If unclear whether employee is invoking "right" to counsel, seek supervisory guidance 24

25 Addressing Employee's Questions: Do I need a lawyer? (cont'd) Whether represented or not, employee has obligation to provide accurate, complete and truthful information If employee requests counsel, investigator should consider setting appropriate deadline for procuring counsel 25

26 Can Company or Outside Investigator Recommend or Pay For Counsel? When interests of employee and company diverge, company may recommend employee retain separate counsel Timing of referral should be considered Who pays? Indemnification of legal fees is governed by state law and the company's articles of incorporation or by-laws 26

27 Addressing Employee's Questions: What will I get for my cooperation? Without making promises, how can investigator make progress with suspected wrongdoer? Job concerns Prosecution concerns Personal and public embarrassment concerns 27

28 Addressing Employee's Questions: Can we do this "off the record?" "Off the record" approach is inconsistent with investigator's obligation to document all material facts In the real world, how can investigators obtain information while complying with professional obligations? Importance of gaining the employee's trust 28

29 Addressing Employee's Questions: Will I lose my job? What can you say to encourage employee to speak? Appeal to employee's sense of loyalty Understand the difference between a whistleblower and a wrongdoer who is not volunteering information Explain how truth is always the safest route 29

30 Addressing Employee's Questions: Will I be prosecuted? No promises can be made to employee in exchange for cooperation Company will make decision whether to provide information to law enforcement Law enforcement will independently decide whether to prosecute Law enforcement will independently decide what benefit, if any, of cooperation 30

31 Ethical Considerations Pretexting Pretexting has many forms beyond investigators representing themselves to be someone other than they are (Hewlett-Packard) Purpose of investigation Who the targets are Potential consequences or use of investigation Other witnesses contacted during investigation Content of other witnesses interviews Suggesting you know more than you do Providing false comfort 31

32 Ethical Considerations (Cont'd) Retaliation Against whistleblower Against participants in investigation Hatmaker v. Memorial Medical Center, Case No (7 th Circuit, August 30, 2010) Retaliation takes many forms Termination Demotion Suspension with pay "Shunning" or "silent treatment" 32

33 Ethical Considerations (Cont'd) Employee Concerted Activity The National Labor Relations Act ("NRLA") prohibits employers from interfering with Employees' concerted activities to improve working conditions Demands for confidentiality or imposing limitations on communications with other co-workers may interfere with Employee's protected rights under the NLRA. 33

34 Ethical Considerations (Cont'd) Privacy Employee privacy laws vary by state Maintain a solid up-to-date privacy policy Consent sometimes required to access certain employee information 34

35 Ethical Considerations (Cont'd) Choice of counsel for employees Thorough conflict analysis required Choose cooperative, but independent counsel Communications with employee's counsel often not privileged Joint defense agreements are not infallible 35

36 Report Writing & Recordkeeping Report findings of investigation clearly and completely, highlighting key facts and identifying any unresolved material issues Factual Information vs. Mental Impressions Understand potential significance of this distinction (new DOJ corporate cooperation guidelines emphasize fact disclosure over mental impressions) 36

37 Report Writing & Recordkeeping (Cont'd) Avoid unnecessary characterizations Conclusory database entries (e.g., "this is illegal" in synopsis field narrative) Unnecessary commentary (e.g., s prejudging or gratuitously opining on a witness) that call into question investigator's open-mindedness 37

38 Reporting Alleged Misconduct to Law Enforcement Timing of law enforcement disclosure is critical Preserving key evidence is a priority Protecting against allegation of coercion Developing roadmap of corroboration Preserving option of covert investigation Recorded conversations Key surveillance Wire tap options 38

39 Risks Associated with Outside Counsel/Private Investigators Understand that outside investigator is agent of the company in virtually all respects Clearly define scope of engagement in written engagement agreement, particularly in foreign jurisdictions Secure written agreement to comply with the company's policies and applicable laws Supervise work of outside investigator closely to monitor compliance with company policy 39

40 Concluding the Investigation Finish the investigation don't permit perpetual investigative mentality; saps morale and is counterproductive Written or oral report pros and cons Consider government disclosure Any statutory or regulatory obligation? Any incentive to disclose (leniency policy)? Is government already investigating? 40

41 DODD-FRANK ACT 41

42 Dodd-Frank Whistleblower Overview Implementing rules/regs must be issued by April 21, 2011 SEC Proposed Rules: November 3 Comments due December 17 SEC looking for issuer comments Eligible SEC Whistleblowers 10-30% of monetary sanctions > $1 MM Can make claims now (SEC already receiving reports) Increased risk that public companies will be target of SEC investigations Proposed regs attempt to balance competing SEC and corporate interests 42

43 Enhanced Whistleblower Incentives Size of awards increased Increased oversight of awards SEC will annually report to Congress on its administration of program SEC orders as to whether or to whom to make an award may be appealed Easy submission process through SEC website or using standardized forms Anonymous submission through attorney Whistleblower identity confidential until award made 43

44 Enhanced Whistleblower Incentives (cont'd) Anti-retaliation protections No requirement to report internally Cause of action in federal district court Statute of Limitations extended Right to jury trial Entitled to reinstatement, retaining seniority status and double amount of back pay, with interest, if prevail in court Entitled to compensation for litigation costs, expert witness fees and reasonable attorneys fees 44

45 Support for Internal Compliance Programs? 90-day grace period preserves place in line SEC has discretion to make higher awards In certain cases, SEC will give company first opportunity to investigate SEC believes that encouraging Whistleblowers to report securities violations through internal compliance programs is consistent with SEC s investor protection mission Awards will encourage a larger number of tips, but will not necessarily promote higher quality leads 45