Defending An Employee During An Internal Or External Investigation

Chilivis Grubman Dalbey & Warner, LLP
3127 Maple Drive, N.E.
Atlanta, GA 30305
(404) 233-4171

  1. “The Call”

    As is often the case, you will be sitting at your desk, the telephone will ring, and counsel for a corporation will tell you he just recommended that one of the company’s officers, directors, or employees contact you because of an ongoing investigation. After you quickly run your conflicts check, you call him back and typically receive a general outline of the fluid situation.

  2. The First Meeting

    A meeting with your putative client is quickly arranged. At this first meeting, there are several important considerations:

    1. First impressions are important – Trust is indispensable.

      You are making your first impression on your client. As the investigation goes forward, your client will need to have a high and solid level of confidence in you because you may well be the one and only person with whom he can talk about this matter openly, without fear of embarrassment, self-incrimination or loss of employment.

      You may be the only thing standing between your client and a lengthy jail sentence.

    2. Undivided loyalty.

      You must assure your client that your loyalties are with him, and him alone, notwith the company that referred him to you. For instance, under Model Rule 5.4(c), if the client is being indemnified by the corporation, you should assure him that the corporation will not and cannot direct or regulate your professional judgment even though it pays for your legal services.

      You should send a detailed bill to your client, but only send a generic bill – with no descriptions of your activities – to the corporation so as not to waive the attorney-client privilege. Plus, you may not want the corporation to know what you are doing on behalf of your individual client.

    3. Who are our friends, and who is the enemy?

      You must quickly ascertain the client’s strategic position vis–vis the company.

      1. Common interest agreements.

        For instance, is there the possibility of having a Common Interest Agreement with company counsel, and sharing information?

        Joint Defense Agreements have gotten a bad reputation among prosecutors, so I never enter into Joint Defense Agreements. Rather, I enter into Common Interest Agreements. There is a substantial body of law supporting the concept of a common interest privilege embodied within the broader concept of the attorney-client privilege. [The Attorney-Client Privilege and the Work Product Doctrine, (4thed.), Section of Litigation American Bar Association, pp. 196 – 218, “Common Interest.”]

      2. The company cooperates with the Government.

        On the other hand, is there any risk that the client’s employment could be terminated; or, worse yet, is there any risk that the company will waive its corporate attorney-client privilege and make a referral to the United States Attorney’s Office or a State prosecutor?

        The current policy of the Department of Justice strongly encourages corporations towards disclosure of the “relevant facts” concerning the alleged misconduct, regardless of whether or not the source of these facts is privileged. This current DOJ policy, which has undergone numerous revisions in recent years, was authored by then Deputy Attorney General Mark R. Filip. This “Filip Memorandum” revises the “Principles of Federal Prosecution of Business Organizations,” United States Attorney Manual, 9-27.000, by forbidding prosecutors from requesting waivers of “core” attorney-client communications or work product, as well as barring prosecutors from conditioning cooperation credit upon the waiver of privilege with respect to this information. [Memorandum from Mark R. Filip, Deputy Attorney General, to Heads of Department Components and United States Attorneys, August 28, 2008].

    4. Has your client given a statement?

      You need to determine whether your client has already been interviewed by company counsel, and, if so, whether you can obtain a copy of any transcript or memorandum of interview. Even if company counsel does not want to give you a hard copy, ask if they will read it to you. Your client needs to exhaust his memory to remember everything he told the company representatives, and every question they asked him.

    5. “Loose lips sink ships”.

      You must admonish your client not to discuss this matter with anyone, except you. I often tell my clients, “Loose lips sink ships,” or “The fish who doesn’t open his mouth never bites the hook.” I often give them a modified Miranda warning that “anything you say to anyone else, can and often will be used against you.”

      • He should be told that even his best friend could be surreptitiously tape-recording a conversation. The classic example of this is Martha Stewart’s “friend” who recounted a conversation she and Ms. Stewart had one evening over drinks while on vacation.
      • He should also be told someone who overhears him may innocently misunderstand what he said, or meant, e.g., he said to “dispose” of toxic waste, but an employee understood to “dump” the waste.
      • Finally, he should also be told not to send e-mail in lieu of conversations.
      1. The Media.

        Press coverage is always a risk; and your client must be told to make “no comment” if he is contacted by the media.

        Under Model Rule 3.6(c), “a lawyer may make a statement that a reasonable lawyer would believe is required to protect a client from substantial undue prejudicial effect of recent publicity not initiated by the lawyer or the lawyer’s client. A statement made pursuant to this paragraph shall be limited to such information as is necessary to mitigate the recent adverse publicity.”

        Beware that statements to the media can –

        • bring unwanted attention to your client;
        • challenge the prosecutor to go forward with an investigation;
        • cause witnesses to come forward; or,
        • prejudice the Judge.
      2. Witness tampering.

        Another critical reason to admonish your client not to speak with any potential witness is that there are severe penalties for “corruptly persuad[ing] another person” or for “engag[ing] in misleading conduct toward another person” with intent to “influence, delay, or prevent the testimony of any person in an official proceeding.” 18 U.S.C. 1512.

        18 U.S.C. 1513 now contains a 10-year felony for “intent to retaliate” against a whistleblower after providing information “to a law enforcement officer”; additionally, there are civil remedies, 18 U.S.C. 1514A.

    6. Develop the true facts.

      You must immediately begin to marshal the evidence and to challenge the polished public story of the company about what supposedly happened. I always tell my clients about the “rule of human probabilities” that Louis Nizer wrote about in My Life In Court – Does the story square with how people ordinarily react under similar circumstances?

      1. Document control.

        You need to make arrangements with your client (and hopefully with company counsel) to obtain and analyze all of the available documents, e.g.,e-mail, appointment calendars, “side letters,” work papers, cell phone records, bank statements, and cancelled checks, for example.

        Do not rely on your client to make a thorough search for documents. Your client might want you to see only the favorable documents. Go to your client’s office and go through the documents yourself, including his computer. Verify whether your client uses a home or laptop computer in which he stores information. When producing documents to an investigator or in response to a subpoena, you may want to have your client make the delivery so you do not later end up as a witness involved in an authenticity dispute or the chain of custody.

        Admonish your client – and document your advice – not to destroy or delete any documents, e-mail, etc.

        Carefully document all production requests so you can prove exactly what was produced.

        You should be alert to the possibility of asserting the “act of production” privilege against self-incrimination. White Collar Crime: Business and Regulatory Offenses, Obermaier and Morvillo, Vol. 1, 8.04[1], p. 8-33.

      2. Obstruction.

        The Sarbanes-Oxley Act of 2002 broadened the reach of obstruction of justice statutes. 18 U.S.C. 1519 (2002). [ 802 of SOX – 18 U.S.C. 1519 – makes it a felony to destroy, mutilate, or conceal any record or document in contemplation of any investigation of any matter within the jurisdiction of any department or agency of the United States]

      3. Test the public, polished story.

        As is always the case, “follow the money.” Do not take anything at face value. Challenge all stories and versions of events. Test them against the other available evidence. Test them against the “rule of human probabilities.”

      4. What is your client’s defense/explanation?

        Often your client’s explanation of what happened is based on a technical interpretation of some arcane, ambiguous regulation. You should quickly retain a highly-qualified expert who can advise you in this technical area.

        For instance, the Eleventh Circuit has reversed a conviction of healthcare executives because the Medicare regulation at issue was ambiguous. U. S. v. Whiteside, 285 F.3d 1345 (11th Cir. 2002). InWhiteside, the Defendants were convicted in the United States District Court for the Middle District of Florida of making false statements in Medicare cost reports and of conspiracy.

        On appeal, the Defendants contended that no Medicare regulation or other authority exists that indicates that their characterization of debt interest was incorrect, much less knowingly and willfully false. The convictions were reversed because “The government cannot meet its burden in this case because, despite its contention to the contrary, no Medicare regulation, administrative ruling, or judicial decision exists that clearly requires interest expense to be reported in accordance with the original use of the loan.”

      5. Reliance as a defense?

        You should carefully consider whether your client relied on the advice of counsel, or accountants, or other professionals. United States v. Miller, 658 F.2d 235, 237 (4th Cir. 1981); United States v. Johnson, 730 F.2d 683, 686 (11th Cir. 1984).

      6. Realistically evaluate your defense/explanation.

        When evaluating your client’s defense or explanation, obtain and evaluate the company’s policies and procedures. Apply the “Principles of Federal Prosecution” to your client’s situation. USAM 9-27.000. For instance,

        • What is the nature and seriousness of the alleged offense?
        • What does the Government see as the deterrent effect of prosecution?
        • What is your client’s culpability in connection with the alleged offense?
        • Does your client have any criminal history?
        • What is your client’s willingness to cooperate in the investigation?
        • What is the probable sentence or other consequences if your client is convicted? Are those consequences disproportionate to the alleged offense? See, e.g., James Olis, a mid-level executive with Dynegy, Inc., in a $105 million stock fraud scheme. A jury conviction resulted in a 24 year, 4 month jail sentence.
        • What are your client’s personal circumstances? “Some circumstances peculiar to the accused, such as extreme youth, advanced age, or mental or physical impairment, may suggest that prosecution is not the most appropriate response to his/her offense; other circumstances, such as the fact that the accused occupied a position of trust or responsibility which he/she violated in committing the offense, may weigh in favor of prosecution.” USAM 9-27.230B.7.
        • Does there exist “an adequate non-criminal alternative to prosecution”? USAM 9-27.220.A.3.
        • What is the likelihood that an effective alternative sanction will be imposed? USAM 9-27.250.
    7. Who is your client?

      Begin to learn about your client, and his background. The Government will probably only see the conduct in question, and will not see your client’s lifetime of law-abiding, exemplary behavior.

      You may discover your client has a generous history of community involvement, and that makes him more sympathetic to the Government, or in a worst case, qualifies him for a downward departure for aberrant behavior. [Under U.S.S.G. 5k2.20(b), a defendant can obtain a downward departure if he committed a single crime (a) without significant planning, (b) of limited duration, and (c) it represents a marked deviation from an otherwise law-abiding life.]

      If your client has led an otherwise law-abiding life, you should explore the possibility of First Offender status in the State system or Pretrial Diversion in the Federal system. [Under USAM 9-22.000, pretrial diversion “is an alternative to prosecution which seeks to divert certain offenders from traditional criminal justice processing into a program of supervision and services administered by the U.S. Probation Service. In the majority of cases, offenders are diverted at the pre-charge stage. Participants who successfully complete the program will not be charged or, if charged, will have the charges against them dismissed.”]

      You may discover you client has some psychiatric condition, e.g., obsessive compulsive or bipolar. Diminished capacity can be used to avoid charges, or, in the alternative, it can be used to seek a downward departure. U.S.S.G. 5K2.13.

      You may discover your client is a closet alcoholic. [Under the Bureau of Prisons’ Residential Drug Abuse Program, pursuant to 18 U.S.C. 3621(e)(2)(B), an inmate can obtain up to a 12-month reduction in sentence for successfully participating and completing residential drug or alcohol treatment.]

      Find out what his colleagues and potential witnesses think of your client. Has he left angry people in his wake? Are there potential witnesses who are just itching to get even with your heavy-handed client? Are witnesses likely to say nice things about your client when they are interviewed behind closed doors, without your client being present?

    8. What kind of witness will your client make?

      You need to begin evaluating your client as a potential witness.

      Is he a good listener? Is he responsive? Does he believe he can talk himself out of any situation? Does he talk too much? Does he appear sincere? Nervous? How quickly does he think on his feet? Are jurors likely to like him as a person? Does he have a narcissistic personality – Does he “believe that [he] is superior, special, or unique and expect others to recognize [him] as such”? Does he “often usurp special privileges and extra resources that [he] believe[s] [he] deserve[s] because [he is] so special”? Diagnostic and Statistical Manual of Mental Disorders,(4th ed.), pp. 658-59. Does he believe the events in questions are everyone else’s fault?

      Does your defense depend on your client testifying?

  3. Hit the street running.

    After that first meeting, remember that you cannot and will not fully understand or “win” the case by sitting behind your desk. You must understand your client’s business, so visit it if at all possible. Meet with and talk to witnesses. Make sure you understand the business well enough to explain it someone who knows nothing about the business, someone like a juror. Also remember, “knowledge is power” – Push to find out as much as you can about your client’s role in the events under investigation. The more you know, the more “landmines” you can avoid, and the more convincing you can make your client’s version of events.

  4. Out of the closet.

    Once you feel it is appropriate for your involvement to become known, call, or better yet, meet with counsel for the company and for any other individual who is involved as either a “witness,” “subject,” or “target.” The same is true for the investigator, be it independent outside counsel, a prosecutor, or an investigative agent – call, or better yet, meet with them to find out what they will tell you about your client’s involvement. Always follow-up and become ubiquitous. Success requires that you know more and work harder than your opponent.

  5. Beware of the Federal Sentencing Guidelines.

    When assessing your client’s strategic position vis–vis the company, you mustquickly evaluate the Federal Sentencing Guidelines, asking such questions as:

    • Is the company publicly-traded? [“If the offense . . . involved 250 or more victims, increase by 6 levels.” U.S.S.G. 2B1.1(b)(2)(C)]
    • Was your client an organizer, leader or supervisor? [If the defendant’s “role in the offense” was as “an organizer, leader, manager, or supervisor in any criminal activity,” the increase could be between 2 and 4 levels. U.S.S.G. 3B1.1]
    • Did your client have fiduciary duties or a position of trust? [“If the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense, increase by 2 levels.” U.S.S.G. 3B1.3]
    • Did the alleged events occur after the effective date of The Sarbanes-Oxley Act of 2002? [Sarbanes-Oxley dramatically raised the penalties for crimes involving publicly-traded companies. While it contains many provisions, generally speaking, the effective date was July 30, 2002, when it was signed into law.]
    • Did your client obstruct the investigation? [If “the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice during the course of the investigation,” the offense level is increased by 2 levels. U.S.S.G. 3C1.1]
    • Is your client in a position to accept responsibility? [“If the defendant clearly demonstrates acceptance of responsibility for his offense,” he can obtain a 2 or 3decrease in the offense level. U.S.S.G. 3E1.1]
    • If your client is a professional, what are the collateral consequences to his license if he enters a guilty plea? [The SEC routinely bars individuals from serving as officers and directors of publicly-traded companies. Physicians, attorneys and accountants typically lose their licenses in state administrative proceedings during or following criminal prosecutions.] The existence of “parallel proceedings” requires counsel to carefully consider collateral consequences whenever advising his client.
    • There are many collateral consequences that need to be considered:
      • Money damages
      • Civil money penalties
      • Treble damages
      • Injunction/Cease and desist
      • Costs of investigation
      • Prohibition/suspension/debarment/exclusion
      • Loss of license
      • Loss of employment
      • Loss of insurance coverage
      • Public notice to professional colleagues, to clients/patients, to prospective employers
      • For physicians, a report is made to the National Practitioners Data Bank
      • O.C.G.A. 43-34A-1 “Patient Right To Know Act of 2001” – Physician Profiles
      • Adverse publicity
      • Fines
      • Penalties
      • Restitution
      • Incarceration
    • Does your client have the possibility of obtaining a downward departure for significant assistance to the Government? “Upon motion of the government stating that the defendant has provided substantial assistance in the investigation or prosecution of another person who has committed an offense, the court may depart from the guidelines.” U.S.S.G. 5K1.1. The amount of the departure depends on –
      • “the significance and usefulness of the defendant’s assistance”;
      • “the truthfulness, completeness, and reliability of any information or testimony provided”;
      • “the nature and extent of the defendant’s assistance”; and,
      • “the timeliness of the defendant’s assistance”.
  6. Always develop a timeline.

    As you marshal the evidence you must prepare a working timeline of events that is cross-referenced to the source of the information. Certain inferences arise or change depending on the sequence of events. As a simple example, did your client send his e-mail before or after he knew about a certain fact? If he sent it before, he was simply predicting the future. If, on the other hand, he sent it after the fact became known, he was trading on inside information.

    Never, never, allow your client to be interviewed until you and he have thoroughly created, analyzed, and challenged the facts contained in a timeline. Invariably, the one document you do not look at or consider is the one document that will rise up to bite you and your client where it hurts the most.

    Before allowing your client to be interviewed, have another experienced attorney in your office cross-examine your client using all of the inside information you can feed him in advance. Make the preparatory, simulated interview more intense than anything the real questioner can possibly throw at your client.

    Conduct your preparatory, simulated interview several days in advance of the actual interview to allow your client to absorb the experience. Never conduct the preparatory, simulated interview the day of the actual interview – That courts disaster.

  7. Cooperation? – Try to get there first.

    If your client is seriously considering cooperation with the Government, can he be the “first one in the door”? One factor under the Federal Sentencing Guidelines for obtaining a downward departure is “the timeliness of the defendant’s assistance.” U.S.S.G. 5K1.1(a)(5). A downward departure can be obtained for voluntary disclosure of the offense “prior to the discovery of such offense, and if such offense was unlikely to have been discovered otherwise.” U.S.S.G. 5K2.16.

    If he is seriously considering cooperation, he must be told in the strongest terms that he must not hold back anything, and he must be completely honest. One factor under the Federal Sentencing Guidelines for obtaining a downward departure is “the truthfulness, completeness, and reliability of any information or testimony provided.” U.S.S.G. 5K1.1(a)(2). A materially false statement to a federal investigator could result in a prosecution under 18 U.S.C. 1001.

    Most proffer agreements with the Government require completeness and truthfulness. Nothing irritates an investigator more than a supposedly cooperating witness who makes the interview process difficult by being evasive, cagey, or argumentative. Cooperation means cooperation, not half-hearted, begrudging disclosures only after it has been bludgeoned out of the witness with incriminating documents that are necessary to refresh the witness’s memory.

    1. Is immunity a possibility?

      Immunity should always be considered and explored. If your client is a mid- to low-level employee, either statutory, 18 U.S.C. 6001 et seq., or letter immunity is always a possibility. You always need to be aware of the risk of prosecution in more than one federal district or in a state jurisdiction when evaluating the form of immunity. When convincing a prosecutor that your client has valuable information, you will have to make a proffer of testimony. Before doing so, however, make certain you have pinned down the ground rules – What use, if any, can the Government make of the information if immunity is not granted? At some point, your client may be required to give an interview to corroborate the attorney proffer.

      The Government will require a written cooperation agreement if your client is a “subject” or “target” and agrees to be interviewed. [Under the United States Attorneys’ Manual, a “subject” is “a person whose conduct is within the scope of the grand jury’s investigation.” USAM 9-11.151. A “target” is “a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant.” USAM 9-11.151. The written policy of the Department of Justice is “to advise witnesses who are known ‘targets’ of the investigation that their conduct is being investigated for possible violation of Federal criminal law.” USAM 9-11.151.]

      Even if the Government tells you that your client is a mere “witness,” you will still want certain written assurances from the Government.

    2. The proffer.

      A “Queen for a Day” letter or other similar letter agreement concerning a proffer simply says the Government will not use the statement of the client given pursuant to the agreement to indict or prosecute the client. However, this is very limited protection and simply means the statement cannot be introduced into evidence against your client in the Government’s case in chief. It typically can be read to the jury, however, if your client takes the stand and testifies inconsistently with the substance of his proffer. Moreover, and more importantly, the substance of your client’s statement may “let the cat out of the bag,” disclosing information the Government was previously unaware of. The Government is free to make “derivative use” of your client’s statement which means the Government can pursue any investigative leads they obtain from your client’s statement and can use any derivatively-obtained evidence to prosecute your client. His statements can be used in rebuttal at trial. Logically, letter agreements offer no protection against a subsequent prosecution for false statements made during the interview.

      As you can see, the decision to give a proffer can be a delicate decision.

    3. Private insurance (polygraph)?

      Often, if a client wants to seriously consider cooperation, arrangements should be made for the client to take a polygraph examination privately within the attorney work product privilege. A well-qualified, experienced polygrapher should be used to ensure authenticity for the client. If the results are favorable, they can be disclosed to company counsel or to the prosecutor in an effort to obtain a favorable outcome. If, on the other hand, the results are unfavorable, the results can be “buried” within the work product privilege. Moreover, unfavorable results may indicate that you have not yet obtained the entire story from your client, particularly if you used a well-qualified experienced polygrapher. This will help the client evaluate his status vis–vis the investigation, as well.

      Another reason to consider a privately-administered polygraph examination is that the Government often makes one condition of a written cooperation agreement that your client agree to submit to a polygraph examination. Having already gone through such an examination, your client’s confidence level and anxiety about a government-administered examination will be improved.

  8. “Take 5”?

    Of course, there are times when your client should simply invoke his Fifth Amendment privilege against self-incrimination. This is particularly true when there are parallel proceedings. A statement during an internal investigation can later be used in a criminal prosecution. An answer given during a deposition taken by the SEC can be used to incriminate your client. Statements given to an investigative agency can be used to investigate, outmaneuver, and beat your client’s defense.

    Your client will invariably resist the stigma of invoking his privilege against self-incrimination. An explanation of the collateral consequences will usually open his eyes to the lurking risks, and resolve the matter. I always have what the client should say when invoking his privilege typed out on a 5 x 7 card so he can read it – Laymen are understandably nervous and may stumble over the words, particularly if they are uncomfortable in the first place with having to invoke their privilege.

    Always remember that if the Government does not know your client’s explanation until he testifies at trial, you retain a huge tactical advantage.

  9. Sage advice.

    Finally, do not make any decisions until you have to; and obtain as much information as you can before making any decisions. There will often be times when you will believe that a co-defendant may take some step that will undermine your client’s position, or that the Government may take some step toward prosecution of your client. While swift action is often necessary – for instance, to get your client “in the door first” – beware of acting precipitously based on false assumptions.

    Your client will often be anxious about developments during the investigation. Remember to tell your client not to worry about what you cannot control. Your client will have certain options that he can evaluate and control – Everything else is wasted energy.

    Finally, your client will naturally go through emotional highs – where he is euphoric – and lows – where he is despondent. Reality always lies somewhere in between. You have to provide that calm, steady judgment your client requires to see him through the most difficult ordeal of his entire life.