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§ 24.02 CONDUCTING AN INTERNAL

INVESTIGATION

CONDUCTING AN INTF,RNAL INVESTIGATION

Last Updated: 6/2oi8

Allegations of misconduct, no matter what the source, must Ue

~' carefully evaluated. A preliminary investigation into the allegations
may indicate whether the matter is one that should be handled as a
violation of an internal rule or whether there is a serious risk of
criminal prosecution. The entire investigative process needs to be
conducted so that employees will have confidence that they will not
be embarrassed Uy inappropriate release of unproven allegations and
that there will not be retaliation for providing information to the
investigators. ~ A proper investigative process will support a culture
of compliance and will yield results that will Ue credible to law
enforcement authorities if it becomes necessary to report them. 3

A document retention memo will usually be sent to the relevant

employees directing them to maintain all hard copy and electronic
documents pertaining to the subject matter of the investigation.
Sometimes the employees must be directed to save items that would
otherwise be automatically deleted.

The investigation should be conducted in such a way that Uoth the

investigation and its results are kept confidential to the extent
possible. °+ Usually, this will require that co~msel conduct the
investigation in order to make certain that the activities qualify for
protection under attorney-client privilege. ~5 Management should
make a formal request that cotmsel conduct whatever investigation is
appropriate in order to provide legal advice to management in
anticipation of litigation. f'

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§ 24.02 CONDUCTING AN INTERNAL INVESTIGATION ~ Secondary Sources ~ West... Page 2 of 7

But the dividing line between privileged and unprivileged

investigations is not clear. In United States ex rel. Barko v.
Hallibi~rton C,o.,' the court initially ordered production of
documents related to an internal investigation regarding possible
violation of its code of conduct. The court determined that attorney-
client privilege or work product protection would not apply, since the
investigation was conducted to comply with federal acquisition
regulations, rather than for the purpose of obtaining legal advice.
Also significant was the fact that the investigation was conducted by
non-lawyers. The investigations group seemed to have operated very
independently from the in-house lawyers, and there was no record of
legal advice being requested or offered. The investigation started with
a tip to the Director of Business Conduct; who started the
investigation without attorney involvement, unlike the im~estigation
discussed in the Upjohn case, which involved internal and e~cternal
counsel. The Hallibi~rtoii court went a step further in its ruling,
finding that the investigation would have Ueen conducted regardless
of whether legal advice was sought based on the government
regulations. The defendant was not helped by earlier statements that
the investigation did not reveal any evidence of misconduct when the
court conducted an in camera review of the investigation report
which actually concluded that a subcontractor had bribed employees
to get more business.

On appeal, the district court's approach was rejected.' ~ The appellate

court ruled that Upjohn did not require any. "magic words" notifying
employees that an investigation was for legal advice, but KBR had
informed employees that the legal department was conducting a
confidential investigation. As long as legal advice was a significant
purpose of the investigation, the attorney-client pri~~ilege applied
even if the investigation was mandated by a regulatory obligation.

In states where the "control group" concept is important for

preserving the privilege, the request for legal advice should make it
clear that it comes from a corporate official empowered to make
decisions in this area.

In many cases, outside counsel may Ue utilized for the investigation.

Outside counsel may provide certain benefits that in-house cotmsel
may lack: they may have specific criminal expertise and the resources
to move quickly, and they may Ue able to persuade management to
take certain actions more effectively than inside counsel, who are
likely friends as well as colleagues of management.

In the most important investigations, involving high-level executives

or allegations of pervasive misconduct, independent outside counsel

a.
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should be hired. These attorneys have no relationship with the

company and have expertise in conducting investigations. In these
cases, the investigators will report to the Audit Committee.

The investigation should be both rapid and thorough. Speed is

important 3 because if the company decides to disclose the
wrongdoing to authorities, the company wants to be the first to do so.
The company's argument that it should be punished lightly or not at
all is greatly strengthened if the company has self-disclosed rather
than responded to a government investigation, and if it has moved
promptly to address a suspected wrongdoing. There are strong
economic incentives for employees to report the wrongdoing ahead of
the company. `> Self-disclosure will defeat a qui tam whistleblower
suit filed after the date of disclosure. 7O

Tlie investigation must be thorough so the company can make a

decision based on as much knowledge as possible. If the company
acts rashly, a defamation case against the company may allege that
the investigation was incomplete and failed to uncover information
favorable to the employee. An investigation that is not thorough, even
if conducted in good faith, may fail to uncover key facts relating to
the allegation. And some investigations appear to be so superficial
that they leave a company open to allegations that the entire process
was a sham designed to find a way to absolve the company or certain
executives from liability. This can result in shareholder lawsuits and
harsh actions by regulators. "

An investigation should also be conducted with discretion. The

numUer of employees aware of the investigation should be kept to a
minimum to decrease the chances of false accusations being made, a
whistleblower claim, or a qui tam action being filed. If an employee
asks about a prior investigation of the person being investigated, even
if the prior investigation was about a subject similar to the current
investigation, it is immaterial. It is hest to avoid prejudicing the
person you are interviewing by simply saying that you do not
comment on prior investigations.

In the Yates Memo, the Department of Justice (DOJ) stated that

companies will not receive any benefit from cooperating with the
government unless they turn over evidence against individuals at the
company.'`' If there is any chance that the results of the
investigation will be disclosed to the government, the investigators
must look for evidence of individual culpaUility. Because of~this
renewed focus on individual prosecution, negotiation of a plea
agreement that protects both the company and indi~~idual employees
from liability becomes even more complex. The DOJ may insist that

L~

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 § 24.02 CONDUCTING AN INTERNAL INVESTIGATION ~ Secondary Sources ~ West... Page 4 of 7

,- particular individuals who appear to be the most culpable in a

violation will be "carved out" from any plea agreement with their
employer so that they may Ue prosecuted. If not specifically
identified, current employees ~n~ill be protected from prosecution by a
plea agreement. Former employees are not specifically protected,
although they maybe included if they cooperate with the
government's investigation.

T'he investigation should follow a specific work plan. Employees

should be advised that the investigation is designed to obtain certain
facts, that the lawyers are acting at the direction of senior
management and represent the company, not the employee, and that
the substance of the investigation should be kept confidential by the.
employee. The company will decide whether the information
supplied by the employee will Ue disclosed. Information given to
employees should be carefully controlled, and except for members of
senior management not involved in the possible ~nn~ongdoing being
investigated, employees should not be part of the team managing the
investigation or otherwise advised as to its status. To minimize the
risk, the numUer of persons involved in an inteLnal investigation
should be kept to an absolute minimum. If an employee has reported
wrongdoing, the investigator should make it clear that the purpose of
the investigation is 'to uncover wrongdoing, not to solve an employee
grievance.

The investigation will normally include a search of computer files

that maybe relevant to the area in question. If company policy
regarding e-mail and computer use has been properly created, with
prior general consent to access electronic files, employees will know
in advance that they have no expectation of privacy for anything on
their computer at work, and should have no Uasis for oUjection under
U.S. law if the electronic search takes place without their specific
knowledge. Because privacy laws differ in other countries, the laws of
each jurisdiction should be checked before proceeding with a
computer search. If the suspicion of wrongdoing pertains to theft of
employee property, where the company is a victim rather than the
violator, the company may want to emend the length of the
surveillance of the employee before making any accusations.

Companies may have to decide whether to pay for separate counsel

for employees. State laws or the corporate charter may require that
the corporation indemnify the employees and provide them with
separate counsel. l' Whatever actions are taken by-the corporation,
they should be documented as Ueing required actions, rather than
actions designed to protect a wrongdoer. The U.S. Attorney Criminal
Resource Manual prohibits Department of Justice prosecutors from

~•

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§ 24.02 CONDUCTING AN INTERNAL INVESTIGATION ~ Secondary Sources ~ West... Page 5 of 7

punishing a company for advancing legal fees unless it is part of an

effort'to obstruct justice.'; If disciplinary action is appropriate, then
a corporation's reluctance to ptmish the wrongdoer inay cause a
prosecutor to question the corporation's commitment to compliance.
Taking immediate action against these employees (including
suspension or termination) is appropriate if their misconduct is such
that there is a risk of further damage (such as compromising the
company's business plans) if action is not taken. Prompt disciplinary
action against the employee also supports the argument that the
company was not to blame and the misconduct was, in fact, the
unauthorized action of a rogue employee.

Footnotes

z For example, Sherron Watkins, who complained to Enron

management aUout fraudulent accowiting, testified that she thought
that the investigation conducted by management was "bogus." The
lawyers and accountants who conducted the investigation were the
ones who had approved the transactions Watkins had criticized. Later.
it was learned that the company began looking into the possibility of
firing her after she complained about the inappropriate accot►nting. J.
Pranks, Memo Almost Got Watkins Fired, USA Today, Mar. i6, 2006,
at 5B.

3 A properly conducted investigation, along with appropriate remedial

actions, may result in a mitigation of penalties or a decision by a
prosectrtor or enforcement agency not to bring an action. For
example, after a class action lawsuit was filed, Career Education Corp.
foilned a special committee to conduct an independent iirvestigation
into allegations of securities laws violations. After ii months, the
company announced that there was no evidence that senior
management engaged in illegal activity, although certain individual
employees engaged in inappropriate conduct. The company improved
its internal controls and expanded its compliance program, and, ou
Janua~.y i~, 2008, the SEC's Midwest regional office completed its
investigation, finding that nn enforcement action was necessary.

q However, confidentiality poses its own problems. The National Labor

Relations Board (NLRB) ruled in F3am~er Health Systems, 358
N.L.R.k~. No. ~3 (July 30, 2012), that a blanket request that
employees maintain the confidentiality of an investigation violated §
8 of the National Labor Relations Act, which provides that it is an
tmfair labor practice to interfere with the exercise of employees' right
to organize. 29 LT.S.C. § z58(a)(~.). Instead, the NLRB suggested that
the need for confidentiality be determined on a case-by-case basis.

See the discussion of attorney-client privilege in the compliance

context in Chapter 2g.

✓.

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§ 24.02 CONDUCTING AN INTERNAL INVESTIGATION ~ Secondary Sources ~ West:.. Page 6 of 7

6 LJpjohn Co. v. iJuited States, ~~}9 L1.S. 3~;3 (i98t), made it clear that
where management requested an internal investigation Uy counsel to
ascertain legal ilghts, and the advice was maintained iu confidence,
the attorney-client privilege would prevent production of the
documents to the Internal Revenue Service.

~ 4 F. Su~>p. gd t62 (D.D.C. 2a~4). In a suUsequent ruling, the court

determined that. legal hold notices were not privileged since they were
sent to large group of people without any intent to be kept
confidential. No. i:o5-CV-.1276 (D.D.C. Nov. 20, 2oiq).

7.1 756 F.3c1754 CI}.C. Cir. 2014).

H However, the investigation should not be rushed to the point where

errors are made and employees falsely accused. In August 2oio,
Renault SA began investigating anonymous tips against three
employees, who were dismissed. It was later determined that there
was not adequate evidence to support their terminations. A. Jones &
J. Lublin, Firms Revisit Whistleblowing, Wall St. J. (Mar. i4, 2oli).

g The Internal Revenue Service pays a bounty for conviction of tax

violators. Treas. Red. § 3oi.~623-i. The qui tam statute, 3i L.S.C. §
37go(b), allows a person reporting fraud against the government to
share in the amount recovered. Section 922 of the Dodd-Frank Wall
Street Reform and Consmner Protection Act (enacted July u, 2oio),
contains a provision that allows a whistleblower to recover a bounty if
information he or she provides leads to an enforcement action that
recovers over $i million. The award will be between io and 30
percent of the amount recovered by the Securities and Exchange
Commission (SEC) or other enforcers, and there is a concern that the
potential recovery maybe so lucrative that it may deter employees
from reporting possible compliance problems to the company.

its Rush Presbyterian-St. Luke's Medical Center Hospital in Chicago

obtained a dismissal of a health care fraud qui tam byself-disclosing
to the government before the whistle blower filed suit. United States
ex rel. Cherry Grant v. Rush Presbyterian-St. Luke's Med. Ctr., No. 99
C 6313 200o U.S: Dist. LEXIS 2/mo (N.D. Ill. 2001) (see CD-ROM
Appendix).

ii For example, the Australian company Redflex Holdings, which is in

the business of providing red-liglrt cameras to cities, was accused of
paying a hotel bill of a City official wl~o oversaw the contract. An
initial investigation by a law firm found no other misconduct. Farther
news stories caused the company to hire a different law firm that
conducted a much more thorough investigation, which reviewed
thousands of documents and interviewed dozens of employees. D.
Kidwell, Redflex Losing Contract Bids Amid Chicago Scandal,
Chicago 'Triblme (Apr. u, 2oi3). Possibly millions of dollars in bribes

~.

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§ 24.02 CONDUCTING AN INTERNAL INVESTIGATION ~ Secondary Sources ~ West... Page 7 of 7

were uncovered, which resulted in the indictment of the company's

U.S. CEO, the City official, and a consultant. Au enhanced compliance
program was detailed in a filing to the Australian Securities
Exchange. See CD-RUM Appendix.

«..I S. Yates, Individual Accountability for Corporate Wrongdoing (Sept.

9, 2oi5), https://www.justice.gov/dag/file/~6go36/download ("Yates
Memo").

~M> The SF,C and Lucent Technologies reached an agreement in principle

to settle charges of improper accounting practices. I~efore the
agreement was finalized, Lucent expanded the scope of employees
that could be indemnified against the consequences of the SEC
enforcement action beyond those that were required to he covered by
state law or its corporate charter. This was held to be evidence of non-
cooperation, and resulted in a fine of $25 million. See
http://www:sec.gov/news/press/2oo4-6~.htin (May i~, 2004)
(accessed May 2g, 209). The SEC is now taking that position that it
will require parties to forgo any rights to indemnification, insurance
recovery, or tax benefits as part of a settlement. See
http://www.sec.gov/news/speech/spcho429o4smc.htm (Apr. 29,
2004).

i~3 U.S. Attorneys' Manual Title 9, Ch. 9-28.730, available at

http://~r~~~h~.usdoj.g~v/usao/ eousa/foia_readi ng_room/ usa m/titleg/:
Copy in CD-ROM Appendix [Filip Memo].

dud cif O 2oiH Thumson Rcuterc, Nn claim to original 1J.4. GncernmanT 4tiorks.
Dncwe~ent

~~ ~'~ttrs ~C~uv~er

Westlaw. C?018 Thomson Reuters 1. Privacy Statement Accessibility ', Supplir~r Terms I GoMact Us 1-800-REF-ATTY (1-800-733-2889) Improve Wesll~w ~ ~.~~ ~ rt ,,,.,,,.;~1y rat ~r Ek^,
~." .

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 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS C,03

have uncovered? Did the company ask its employees to cooperate

,staff and make all reasonable efforts to secure such cooperation?
12. at assurances are there that the conduct is unlikely too ur? Did
the compa adopt and ensure enforcement of new and snore fective in-
ternal contro nd procedures designed to prevent a recurr ce of the mis-
conduct? Did the mpany provide our staff with suffici t information for
it to evaluate the co any's measures to correct th ituation and ensure
that the conduct does nit rf
13. Is the company the sa company in w ch the misconduct occurred,
or has it changed through a me r or ba ruptcy reorganization?
Report of Investigation Pursuant to Sects 21(a) of the Securities Exchange Act of
1934 and Commission Statement on t el 'onship of Corporate Agency Enforce-
ment Decisions, Exchange Act Rele No. 4496 Oct. 23, 2001), http:/www.sec.gov/
litigation/investreport/34-44969 tm#P54_10935.
The SeaUoard factors in ' ate that the SEC will look ore favorably on internal
investigations conducte or overseen by only outside dire rs. The SEC will also
look more favorably on outside law firms and experts assistin in the investigation
who have not pre 'ously been engaged by management.
The SEC a places particular emphasis on when the Audit Commit and Board
of Directo were "fully informed:' Accordingly, a careful record should be ade re-
gardin e chronology of disclosures that occur once the first report of wron oing
is r eived within an organization in order to document the timeliness of disclosu
the ladder and to the SEC.

Decision to Conduct an Internal Investigation

When deciding whether to commence an investigation, a number of considerations
generally apply. These considerations include: the source and specificity of the in-
formation; the potential scope of the wrongdoing; whether the allegations involve
violations of criminal or regulatory laws or the company's code of conduct; whether
the allegations concern fraud, particularly fraud by management or other employees
who have a significant role in the company's internal controls; and whether the alle-
gations concern the accuracy of material information the company has disclosed to
the investing public or call into question the effectiveness of the company's disclosure
controls or procedures or its internal controls over financial reporting.
Obviously, where allegations of wrongdoing are referred to the board by attorneys
or auditors pursuant to SOX, or where they are contained in a shareholder demand
or shareholder derivative lawsuit, the decision to investigate is virtually compelled
by law. Similarly, where the company is put on notice of potential violations by pros-
ecutors or regulators, often in the first instance through the service of subpoenas or
investigative demand or inquiry letters, the company is generally well advised to iin-
 604 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS

mediately commence its own investigation to get ahead of the government in devel-
oping the relevant facts, minimize government intrusion into company business, ob-
tain the benefits of cooperation, and prepare to defend against any unfounded
allegations of wrongdoing. Even in the absence of any specific evidence of wrongdoing,
companies should consider commencing internal investigations when they learn of
government investigations into other companies concerning conduct for which their
company is also at risk.
After deciding to commence an internal investigation, a company faces several im-
portant decisions regarding implementation. First, i.t must determine if the investi-
gationwill be carried out by in-house counsel, outside counsel or, in cases requiring
specific expertise, a third party investigative firm. Second, it must determine to whom
the investigators report. Lastly, it must determine whom to notify about the investi-
gation. Throughout the process, it is critical for companies to protect the confidential
nature of the information provided and discovered. While the attorney-client privilege
and work product doctrine are typically sufficient for such purposes (See Upjohn Co.
v. United States, 449 U.S. 383 (1981) and, most recently, In re Kellogg Brown e'rRoot,
Inc., 756 F.3d 754 (D.C. Cir. 2014), reh'g denied (en banc), 2014 U.S. App. LEXIS
17077 (D.C. Cir. Sept. 2, 2014)), internal investigations often require the assistance
of consultants whose work may be covered by such doctrines. See United States v.
Kovel, 296 E2d 918 (2d Cir. 1961).

Corr~pany Official Overseeing the Investigation

Should Be Conflict Free
Once the decision is made to conduct an investigation, the next question is who
shall oversee the investigation. Careful consideration must be given to this question
to avoid conflicts of interest, ensure the integrity of the investigation and preserve,
to the extent possible, all legal privileges and protections. Several recent cases illustrate
the dangers that arise when careful thought is not given to these questions.

regulate " onsumer reporting agencies" and any company or individual seeks
to rely on a "co mer report" in connection with making an empl ent decision,
extending credit or i ante, or other decisions in connec ' with a "consumer."
While the FCRA is not lima to employment decisio is chapter focuses on the
4 effects of the FCRA on the emp ent relati ip. In the employment context;
I;
the "consumer" is either an applicant fo loyment or a current employee (here-
inafter, collectively "applicant").
One well-known case il rating the pitfalls of not c ing conflict-free directors
" to oversee an inter investigation is In re: Oracle Corp. De ' tive Litigation. 824
i; A.2d 917 (De .2003). Oracle arose from a shareholder derivativ tion brought
~ agains rtain Oracle directors and officers based on allegations of insi ading.
~_ _ _ ___. __ . r o-, _.______

O
 616 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS

is etter left to separate memoranda.

Dr ctors serving on an Audit Committee or Special Litigation Committees ould
also exe ise extreme caution when communicating with fellow board memb s so as
not to imp operly disclose factual findings or legal analysis that may constit a waiver
of the attor -client or work product protections. They should reco ize that the
Audit Commit e or the Special Litigation Committee is distinct fro oth the com-
~ pang, the board a the individual. board members, and that it has its wn independent
,1;
attorney-client priv' e and work product protections that can Ue ' advertently waived
"' if the information is s red with other board members ar ma gement.
If the Special Litigatio Committee decides to discloses me portion of its inves-
tigative facts and conclusio s either within the compa , to the government or to
'~ third parties, (such as outside uditors who maybe le ally entitled to demand such
information) such disclosures sh uld be structured minimize the danger that they
will be deemed a waiver of the attor y-client or wo product privileges. For example,
citing to public documents, disclose underl ng business records not created as
part of fihe investigation, providing on su ary conclusions of the investigation,
or making witnesses available for indepen nt interviews, are all means that should
be explored to avoid opening the door t a 'vilege waiver claim. The issues arising
from the waiver or selective waiver of e atto ey-client or work product privileges
are discussed at more length in a la r chapter.
Press releases and other com nications with t .press should also be carefully
scrutinized to ensure that they o not waive the attorne -client or work product priv-
ileges. Care should also be en in what is shared with ublic relations firms and
what they are authorized disseminate on the compan~s ehalf to avoid waiver of
the attorney-client and ork product protection and to avo potential fraud and
obstruction of justic harges based on the dissemination of fal misleading or in-
complete informat' nor details. Compare In re Grand Jury Subp nas, 265 F. Sup.
2d. 321, 330-33 (S.D.N.Y. 2003), and In re Cooper Mkt. Antitrust L ig., 200 F.R.D.
213, 220 (S.D. .Y. 2001) (recognizing role of public relations firm in a ising clients
and extendi gattorney-client privilege to them), with Haugh v. Schroder vestment
Managem nt North America, Inc., 2003 U.S. Dist. LEXIS 14586 (S.D.N.Y. g. 25,
2003) enying extension of attorney-client privilege to consultant even thou re-
taine through attorney engagement letter because the assigned task did not consti to
;'I ;, "le al advice" and Plaintiff did not identify "any nexus between the co '
,,>:

4':
i"i
l«

Selecting an Investigator —Factors to Consider

In most cases the person appointed to conduct an internal investigation should
be an attorney. The primary benefits of selecting an attorney to conduct an investi-
gation include availability of the attorney-client privilege and work product protection.
 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS 617

The attorney-client privilege and the work product doctrine are important because
they provide a legal basis for keeping the results of any investigation from becoming
a matter of public record or easily attainable by plaintiff's counsel.
Another question is whether in-house or outside counsel should be put in charge
of an investigation. One of the most crucial factors in determining who should conduct
an internal investigation is whether the impending. investigation is likely to uncover
conduct of a criminal nature, resulting in an investigation by the government and
possible criminal charges against employees of the corporation, the corporation, or
both. If it is, the best person to oversee such an investigation is one who has no vested
interest in the outcome of the investigation, whose objectivity will not be questioned
by the government, and who likely has had no previous relationship with the corporate
entity subject to the investigation —in other words, neither inside nor the corporation's
regular outside counsel. That said, the following is a list of factors that should be
considered when deciding whether in-house or outside counsel should be appointed
to conduct an internal investigation:

Selection Factors
• What is the nature of the conduct Ueing investigated (criminal vs. civil) (as
noted, an investigation involving criminal conduct may be better overseen by
outside counsel with no prior relationship to the corporation);
• How widespread or serious is the alleged misconduct to be investigated (the
more serious/widespread the alleged misconduct, the more important it is to
consider hiring outside counsel);
• How high up the corporate chain of command is the alleged misconduct believed
to have taken place (the higher up the targeted individuals are, the more im-
portant it is to utilize outside counsel);
• Whether the cost of conducting an investigation will be a factor (if so, use of
in-house counsel would be most cost effective; but if cost drives the investigation,
government may not view with favor the employer's efforts to uncover employee
misconduct);
• Whether the investigation must be conducted quickly (if so, outside counsel
might be more able to handle an investigation under time constraints);
• Whether in-house counsel has the necessary investigative skills (e.g., skills to
conduct an investigation of criminal conduct) to conduct the investigation;
• Whether in-house counsel has the necessary subject matter e~ertise to conduct
the investigation;
• Whether in-house counsel has sufficient independence to the conduct investi-
....+;..,-. (o ~. ;o ., +orno+ of invncfl(TattAYl cI1t71PflIlP - ~"h WflhTll in-hnn~e counsel 15
618 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS

• Whether in-house counsel has a potential conflict of interest (e.g., is a potential

witness to or a .target of investigation);
• Whether in-house counsel has a vested interest in the outcome of the investiga-
tion;
• Whether in-house counsel's institutional knowledge of the corporation would
aid investigation;
• Whether in-house counsel's employment status will encourage or discourage
employees to be cooperative and forthcoming during the investigation;
• Whether in-house counsel's employment status would be viewed unfavorably
by the government and diminish the value of the corporation's internal inves-
tigation and its perceived level of cooperation in addressing the unlawful conduct
(particularly where in-house counsel's internal investigation failed to uncover
misconduct that is the subject of a governmental inquiry); and
• Whether in-house counsel's employment status could jeopardize the corpora-
tion's ability to assert attorney-client privilege or work product protection vis-
a-vis its investigatory findings in subsequent criminal, administrative, or civil
proceedings.
Even when a determination has been made to use outside counsel to oversee an
internal investigation, in-house counsel still may play a vital role by assisting outside
counsel in identifying potential witnesses, identifying and securing relevant docu-
mentation, putting procedures in place to ensure that relevant documentation is not
destroyed, and laying the necessary groundwork to ensure that employees will coop-
erate fully with outside counsel's investigation.

The Nuts and Bolts of an Internal Investigation

Entire treatises have been written on the myriad issues that must be taken into ac-
count in conducting an internal investigation. Such a broad treatment is beyond the
scope of this chapter. That being said, the following is a summary of some of the
most important rules of the road:
• Investigate promptly once provided with information warranting investigation;
failure to timely investigate may hamper subsequent negotiations with govern-
ment in seeking leniency based on the internal investigation;
• Prior to the investigation, clearly articulate the purpose, scope, budget, and timeline
(when investigation needs to be completed) of the investigation in a written doc-
ument signed by the responsible senior executive and given to the investigator;
• Determine who will oversee the entire investigation in order to ensure ongoing
compliance with the purpose and scope of the investigation, that proper inves-
tigatory tactics- are utilized, and that the investigator is familiar with any laws
that maybe implicated by the investigation (e.g., if potential witnesses are located
in different states where laws may differ from one another);

,?'
 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS 619

• Identify the client so that employees/witnesses are not misled into believing that
in-house or outside counsel represents them or that their communications are
protected by attorney-client privilege that only they can waive;
• Employees questioned as part of the investigation shottid be advised at the outset
of every interview, that: 1) counsel represents the company, or the Special Com-
mittee, as the case maybe; 2) counsel is not the employee's lawyer and does not
represent the employee's interests; 3) the employee is expected to be truthful ____.____________.
and cooperate fully; 4) the interview is protected by the attorney-client privilege;
but the privilege belongs to the company, not the employee;.5) in order to pre-
serve the privilege, the employee is directed not to discuss the interview with
any third party; 6) the company can choose to waive the privilege and disclose
all ar part of what the employee discloses during the interview, to outside parties,
including outside auditors, regulators, or prosecutors. If the company has already
agreed to cooperate with the government and/or waive its attorney-client priv- - -.
ilege, it should strongly consider advising the employee of that fact and warning
the employee that lying to the interviewer in such circumstances maybe deemed
obstruction of justice by the government;
• Determine at the outset whether the corporation's. normal document destruction
procedures need to be suspended in order to ensure that relevant documents-
tion/electronic data is not inadvertently ar intentionally destroyed prior to (or
during) the investigation;
• Any documents generated during the investigation should be marked "Privileged ',
and Confidential";
• Keep work product documents separate from attorney-client privilege documents;
in other words, factual summaries should not contain attorney impressions;
• Information pertaining to the investigation should be conveyed to a limited
number of persons in order to avoid inadvertent waiver of attorney-client priv-
ilege; and
• Weigh the pros and cons of drafting a written report versus giving an oral pres-
entation of one's findings at the conclusion of the internal investigation.

Beware of Obstructing Justice

Company officials conducting internal investigations should be careful that they
do not turn themselves into targets by running afoul of criminal laws, ethical or fi-
duciary duties or employees' rights. There are many traps for the unwary.
For example, SOX expanded the range of conduct that constitutes obstruction of
justice and increased the penalties for such conduct. These statutes criminalize certain
behavior that might not on its face appear to be obstruction of justice, such as de-
stroying documents or other evidence of a crime before a governmental investigation
has even commenced or lying to company lawyers ornon-governmental investigators.
620 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS

Company employees should be educated at the outset of any investigation as to the

range of prohibited behavior and the severe penalties for obstructing justice.
Prior to Sarbanes-Oxley, the primary relevant federal obstruction statutes, Title
18, U.S.C., Section 1503 and 1505, required obstructive conduct to be connected to
a pending judicial proceeding or a pending investigation by a federal agency. Thus,
the destruction of documents, for example, prior to the convening of a grand jury
or the commencement of a formal investigation did not constitute obstruction of
justice under these statutes. Note, however, that under 18 U.S.C., Section 1001, a
false statement to a federal agent is prosecutable- absent any investigation.
Sarbanes-O~ey amended ].8 U.S.C., Section 1512 to remedy this gap. Section
1512(c) now provides, in relevant part, that whoever corruptly—
(1) alters, destroys, mutilates, or conceals a record, document, or other
object, or attempts to do so, with the intent to impair the objects integrity
or availability for use in an official proceeding; or
(2) otherwise obstructs, influences or impedes any official proceeding, or
attempts to do so shall be fined under this title or imprisoned not more than
20 years or both.
Section 1512(f) was also amended to provide that: "an official proceeding need
not be pending or about to be instituted at the time of the offense:' Also, it is no de-
fense that the testimony, document or other object subject to obstruction is not ad-
missible in evidence or is covered by a claim of privilege. 18 U.S.C. 1512(f). Section
1512 was also amended to reach individuals who actually destroy or shred documents,
not just those in supervisory position to order their destruction.
Sarbanes-0~ey also added broader prohibitions against document destruction
and other obstructive conduct. It created a new criminal statute, 18 U.S.C., § 1519,
commonly referred to as the general anti-shredding provision. Section 1519 provides:
Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies,
or makes a false entry in any record, document, or tangible object with the
intent to impede, obstruct, or influence the investigation or proper admin-
istration of any matter within the jurisdiction of any department or agency
of the United States or any case filed under Title 11, or in relation to or con-
templation of any such matter or case, sha11 be fined under this title, impris-
oned not more than 20 years, or both.
Troublingly, Section 1519 prohibits the destruction of documents not only once an
investigation or litigation has been commenced but also in situations where an in-
vestigation is only "contemplated." The broad reach, potential for confusion, and
dangers inherent in these statutes were illustrated in a recent case where an attorney
was charged with obstruction of justice and destruction of .evidence, for destroying
a laptop computer containing child pornography that belonged to an individual,
Tate, who was employed by a church the attorney represented. United States v. Russell,
639 F. Supp. 2d 226 (D. Conn. 2007). Russell arose when a church employee using
Tate's laptop discovered numerous images of naked boys. The following day, church

(✓
 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS 621

officials retained Russell, a lawyer specializing in civil and criminal litigation, to rep-
resent and advise the church in the matter. According to the indictment, Russell and
two other church officials met with Tate, who acknowledged his responsibility for
the images and resigned. Russell gave Tate the name of a local criminal defense attorney
and took possession of the computer. The following day, Russell destroyed the com-
puter. Unbeknownst to Russell, however, three days earlier and one day before the
church employee had discovered the laptop pornography, the FBI had independently
initiated an investigation into Tate's possession of child pornography.
Russell moved to dismiss the indictment arguing that it failed to allege a sufficient
nexus between his actions and an official proceeding or investigation at issue, arguing
that he was not aware of the FBI investigation at the time he destroyed the computer.
This fact was not disputed by the government. Russell also moved to dismiss Count
II, arguing that Section 1519 only prohibited the shredding of business records and
documents, not the destruction of contraband such as child pornography.
The court held that, under the facts alleged in the indictment, there was more than
sufficient basis for a jury to conclude that an official proceeding was reasonably fore-
seeable to Russell at the time he destroyed the laptop. Id. at 233. The court relied
upon the fact that the church had treated the computer as evidence, that Russell was
a criminal defense attorney, that Russell was retained by the church and not Tate, that
Tate was in fact being investigated by the FBI, and that Russell gave Tate the name of
a criminal defense attorney. The court also rejected Tate's argument that Section 1519
was limited to the destruction of business records and documents. Id. at 236-37.
The court's ruling in Russell is extremely disturbing. The factors relied upon by
the court to find that it was reasonably foreseeable to Russell that an official proceeding
might commence could equally apply to any case involving a potential criminal vi-
olation. Under the court's analysis, a company that becomes aware of evidence of a
crime cannot destroy such evidence, arguably even in the ordinary course of business,
without risking exposure to an obstruction of justice charge.
While this may not seem troublesome, think of the dilemma Russell faced. If he
held onto the laptop containing the child pornography, he ran afoul of 18 U.S.C.
§ 2252 which makes it illegal to possess child pornography. However, for destroying
the pornography he was charged with obstruction of justice. His only safe choice,
adopting the court's reasoning, would be to disclose the evidence to the federal au-
thorities. While such a remedy may be advisable in many instances, it is not always
in a company's best interest to do so.
While it is arguable whether another court, or a jury, would reach the same result,
the Russell court's holding should serve as a strong warning to all company officers,
directors, and attorneys to proceed cautiously when deciding how to handle and dispose
of potential evidence of wrongdoing, whether or not it rises to the level of contraband.
Ultimately, the U.S. Attorney's Office offered Russell a plea to misprision of a felony,
in violation of 18 U.S.C. § 4, for failing to report the commission of a felony. Transcript
of Change of Plea Hearing dated Sept. 27, 2007. (Document No. 62), at p. 37.

~~
622 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS

Interestingly, this statute creates additional potential issues for officials overseeing
investigations. The misprision of felony statute, 18 U.S.C. §4, provides:
Whoever, having knowledge of the actual commission of a felony cognizable
Uy a court of the United States, conceals and does not as soon as possible
make known the same to some judge or other person in civil or military au-
thorityunder the United States, shall be fined under this title or imprisoned
not more than three years, or both.
On its face, this statute can be broadly applied to many instances where an indi-
vidual or corporation, including its board, audit committee or directors, is aware of
a felony violation and fails to report it. In practice, however, the statute is typically
not applied by U.S. Attorney's Offices in such a broad reaching manner. For one
thing, the statute contains an element of concealment and it has been construed by
courts to require an act of active concealment as opposed to a mere passive failure
to report the violation. See, e.g., United States v. Johnson, 546 F.2d 1225, 1227 (5th
Cir. 1977); U.S. v. Warters, 885 F. 2d 1266, 1275 (5th Cir. 1989). Thus, mere knowledge
of the commission of a felony by another individual should not be sufficient to con-
stitute aviolation of the statute.
In the Russell case, the destruction of the laptop was arguably a sufficient act of
concealment to meet that element of the statute. Whether an audit committee's de-
cision not to authorize a written report memorializing findings of commission of
felony offenses by corporate employees rises to the level of concealment is less obvious.
Destroying notes taken during interviews with employees who disclose incriminating
information or evidence of wrongdoing may also constitute concealment.
The Russell court's holding is also troubling in another context. For example, at the
end of an internal investigation, the audit committee may be informed of the com-
mission of certain felony offenses by certain employees. For various reasons, the audit
committee may well decide that the commission of these offenses is not something it
is going to report to the authorities. The question then arises as to what to do with the
underlying evidence, often in the form of emails or documents that would constitute
evidence of the commission of these offenses. Does permitting the destruction of these
materials in the ordinary course of business, pursuant to the company's otherwise ap-
propriate document destruction policies, constitute a violation of Section 1519? Inves-
tigators need to be aware of these concerns and think through them carefully to avoid
finding themselves the target of a government investigation for obstruction of justice.

Lying to an Investigator May Be

Obstruction of Justice
The federal obstruction of justice statutes have recently been applied in other un-
expected ways. United States v. Kumar (Indictment, United States v. Kumar and
Richards, CR. No. 04-840 (S.D.N.Y. Sept. 20, 2004; superseding indictment filed May
15, 2005; second superseding indictment filed June 28, 2005), was the first known
 16 •CORPORATE COMPLIANCT~ AND INTERNAL INVESTIGATIONS 623

case where individuals were charged with obstructing justice based, in part, on false
statements they made to non-governmental individuals, in this case private attorneys
working on behalf of Computer Associates and its Audit Committee. Kumar, com-
monly known as the Computer Associates case, involved an investigation by the U.S.
Attorney's Office for the Eastern District of New York and the SEC into accounting
fraud by Computer Associates, a computer software provider. The investigation fo-
cused on a suspected company-wide practice of falsely reporting quarterly revenues
associated with licensing agreements that had not been signed until at least several
days or longer after that quarter ended (the "35 day month practice").
Kumar and Richards, tevo senior executives of Computer Associates, were indicted
for conspiracy to obstruct justice, in violation of 18 U.S.C. Section 1512(c), as well
as various counts of perjury, false statements, securities fraud and false filings with
the SEC. The conspiracy to obstruct justice count alleged that Kumar and Richards
conspired with other employees to intentionally mislead the law firm retained to rep-
resentthe company in connection with the government investigations, by causing the
employees, including Kumar and Richards themselves, to lie to the law firm about the ',
existence of the 35 day month practice. Id. ~[~[ 78-79. The government alleged that
the defendants lied to the law firm with the intent that those lies would be conveyed
to and hopefully mislead the government in its investigation. Id. ~[~[ 80-83. The in-
dictment also alleged that Kumar and Richards lied to a second law firm subsequently
retained to conduct an internal investigation into the same allegations on behalf of
the Audit Committee of Computer Associates' Board of Directors. Id. at *24. Both
Kumar and Richards ultimately pled guilty to the obstruction and various other charges.
The Computer Associates case has been widely cited for the proposition that em-
ployees who lie in connection with an internal investigation can be charged with ob-
struction of justice, even when the lies are only made to company representatives and
not directly to government agents. It is certainly debatable whether lying in connection
with an internal investigation should constitute obstruction of justice where there is
no active government investigation, or no reasonably foreseeable expectation by the
interviewee that the contents of the interview will be shared with government au-
thorities. However, many internal investigative interviews are conducted in circum-
stances similar to those in the Computer Associates case, where the government
investigation is publicly known and the company has announced its intent to cooperate
fully and share its investigative findings with the government.
Computer Associates is not the only case where federal authorities have charged in-
dividuals with violations of Section 1512(c) for lying in connection with an internal
investigation. See, e.g., United States v. Singleton. 06 CR 080, Indictment ~[ 14 of Count
10 (S.D. Tex. Mar. 8, 2006). (charging employee with lying to outside counsel con-
ducting internal investigation into illegal trading practices and price reporting also
being investigated by the U.S. Attorney's Office and two other federal agencies; de-
fendant's motion to dismiss on grounds that lying to private attorney did not establish
sufficient nexus to an official proceeding denied; [Memorandum in support of Sin-
gleton's Motion to Dismiss Count Ten of the Superseding Indictment, United States
 624 16 •CORPORATE COMPLIANCE AND INTERNAL INVESTIGATIONS

v. Singleton, 06 CR-0080, n. 37, at 25.] Singleton's post trial motion for acquittal was
granted); Hearing Minutes and Order, United States v. Singleton, 06 CR-OOSO (S.D.
Tex. July 31, 2006); see also United States v. Ring, 08-CR-274 (ESH) (D.C. Sept. 5,
2008) Indictment, Counts IX and X.
As a result of Computer Associates and similar cases, many white collar practitioners
conducting internal investigations now make it a practice to routinely advise employees
that the contents of their interview maybe shared with government officials and that
lying or concealing evidence may be deemed a violation of the federal obstruction
of justice statutes.

}:
:~
with the Government
Federal prosec tors have often placed immense pressure on Corp rations to waive
their attorney-clien and work product privileges so that the gov nment will credit
them for cooperation. he United States Attorneys' Manual c for consideration of
a Company's "willingne to cooperate in the investigation o its agents" as factor in
deciding the proper treat nt of a corporate target. Such factor can be interpreted
as requiring such waivers. wever, prosecutors' abilit to induce such waivers has
;~~:~ been. significantly, albeit not en ' ely, curtailed based o recent changes in DOJ policy.

n~ ,
Waiver of Attorn -Cl' nt Privilege and
Work Prod Privileges
The Holder Memorandum
The origin of the Justice Depart ent's policy oncerning privilege waivers as an
expected component of cooperati dates back to J e 1999, when then Deputy At-
a ' torney General Eric Holder iss ed anon-binding m orandum to staff, entitled
Bringing Criminal Charges A inst Corporations ("Hold Memo"), the predecessor
to the current Principles. e memorandum listed eight actors that prosecutors
should consider in deter ping whether to criminally charge a orporation including:
"company's timely and-" oluntary disclosure of wrongdoing an illingness to coop-
erate in investigating~,'~s employees:' The Holder memorandum stat that prosecutors
could view waive Hof attorney-client and work product privileges satisfying the
"willingness to operate" factor. After the release of the Holder Mem prosecutor
requests fors ch waivers became far more frequent.

The T ompson Memorandum

A roximately six months after the Corporate Fraud Taskforce was establishe
Experts share tips and pitfalls for investigating misconduct.

By Melissa MaleskeAugust 1, 2011

1.21tShare

C)nline exclusive ~ LeaNn how to m~rintaan obiec~ivit~~ in self-investiQatrolis

The corporate internal investigation has become increasingly commonplace since the post-Enron days, when
Sarbanes-Oxley made good corporate governance a mandate. At the same time, government agencies and
prosecutors have come to rely on self-investigations to carry out costly, intensive company probes. The
Washington Post recently reported that an internal investigation into global bribery cost Siemens around $950
million—almost triple the budget of the Securities and Exchange Commission's (SEC) entire enforcement
division at the time the case was resolved in 2008.

"Most companies will have to deal with an intez~nal investigation at some point. You're very lucky if you don't;"
says Peter Leidenberg, a DLAPiper partner who spent 17 years as a federal prosecutor both at the Department
of Justice (DOJ) and the U.S. Attorney's Office in the District of Columbia. "In any large company, it's hard to
imagine that at some point in time there's not going to be some suggestion or allegation of internal
misconduct:"

Sometimes these investigations seek information on small, contained issues. But when they're triggered by a
criminal or regulatory inquiry, or when major problems—such as widespread company fraud or Foreign
Corrupt Practices Act (FCPA) violations—seem to be looming, designing them and carrying them nut correctly
becomes crucial. In the following pages, former prosecutors and other lawyers walk companies through the self-
investigation process, offering tips and warning against pitfalls along the way.

1. Issue a Hold

Any number of events may launch an internal investigation at a company: a subpoena, a search warrant or a
notice of investigation from federal prosecutors; a phone call from a regulatory agency; an employee complaint;
a shareholder demand letter; concerns from auditors; or even a media report that makes management aware of a
potential legal issue. Whatever the driver may be, a first step in carrying nut an investigation is to ensure any
potentially relevant documents are preserved by issuing a litigation hold that suspends any routine document-
destruction practices and makes clear to all relevant parties that they must preserve documents or
communications related to the investigation.
"If this is an investigation that's likely to be scrutinized by the government, this will be a crucial step," says
Ba~•ry Pollack, a member of Miller &Chevalier's White Collar &Internal Investigations Group. "One of the
biggest pitfalls [in investigations] is that you might have an allegation that, at the end of the day, the
government would not have pursued, but because they have concerns about after-the-fact destruction of
evidence, they pursue it."

2. Define the Scope

Simultaneously, the client should begin working with outside_ counsel to determine the scope of the
investigation going forward.

"Sometimes these issues can get away from you if, at the outset, you haven't identified what needle you're
going to look fox in the haystack," says Valecia McDowell, a member at Moore &Van Allen. .

If a subpoena triggered the investigation, it's necessary to claxify what prosecutors are seeking. In some
instances, the, subpoena might be specific enough to' understand tk~e general allegations. But often, prosecutors
cast wide nets.

"Subpoenas are normally drafted way more broadly than even the prosecutor wants," says Kenneth Julian, who
should know. Now a partner at Manatt, Phelps &Phillips, Julian was previously deputy chief of the U.S.
attorney's office in Orange County and a federal prosecutor in California.

In that scenario, getting in touch with the U.S. attorney on the case can. help determine what exactly the
subpoena is targeting and avoid overbroad investigations and the production of potentially thousands of
documents. The conversation can yield valuable information for the company about where the investigation is
.likely to go and what exactly is being investigated, and the U.S. attorney gets targeted information rather than
hundreds of thousands of documents.

"If that conversation goes well, it normally will be grounds for narrowing the subpoena and attempting to figure
out what's at the heart of the subpoena," Julian says.

If the investigation is the result of an employee tip ox another internal trigger, it's just as important to define the
scope, although the conversation will be different: In either case, it's vital to be as specific as possible about
where the probe is going at its outset.

"Circumstances and facts may present themselves over the course of the investigation that may alter your scope,
but you want to make sure you're ready at the beginning and that everybody understands where you're
beginning," McDowell says.

3. Focus the Investigation

Steven Tyrrell, a Weil, Gotshal & Manges partner who was chief of the DOJ's fraud section from 206 to 2009,
says the most common pitfall in internal .investigations is doing too -much and lacking focus. The other extreme
is another misstep: If prosecutors don't think the investigation is thorough enough, he says, the company might
not get any credit for it. "Strike the right balance and have a dialogue with the people to whom you're reporting
the results of the investigation," he says.

It's impossible to define the scope without considering the client (the board, management or a special
committee) and the ultimate destination of the final report. Is it an outside governmental agency? Is it going to
the FBI or DOJ with criminal implications? Or will it be reported to an internal audit committee, the board or
senior management?
"That has a very dramatic impact on how I approach the process going forward," says McDowell, "Really
determining what -the end product is going to look like informs the decisions I make over the course of the
investigation itself"

Determining who gets the end product also will affect the scope of the investigation and the level of detail the
ultimate report contains. It also will inform the decision to deliver either an oral or a written report, which is
heavily dependent nn the audience. That can be a complex decision, McDowell says.

When reporting to the board, the conventional thinking today is that it's more appropriate to do an oral as
opposed to a written report because of disclosu~~e issues, according to Zeidenberg. "The first thing the
government's going to ask for is any reports you've done," he -says.

4. Build a Team

A strong team experienced in internal and white-collar investigations can lend credibility to a company's
findings.

"You need people who are vocal and prepared to disagree because it can take a lot of intellectual back and forth
to get to conclusions," McDowell says: "It helps navigate what can be a mountain of information to get to more
well-reasoned ultimate conclusions."

In any matter that could be explored by a regulatory agency or in the criminal context, companies almost always
turn to outside law firms. It would be "foolhardy" not to, Julian says.

Many large companies now have sophisticated and substantial enough legal departments that they may actually
have the capability to handle the investigation internally. "People at the DOJ don't believe that," Tyrrell says.
"They don't think in-house lawyers can be objective, which is kind of an insult, the idea that they can't be
impartial legal advisexs and stay true to their ethical obligations:"

Still,l'yrrell says, the expectation among prosecutors is that companies retain outside counsel to carry out the
investigations. An internal investigation that involves smaller matters unlikely to interest regulators or
prosecutors is a more appropriate matter for a legal department to handle fully.

At the same time, the general counsel shouldn't just be a bystander, says 7eidenberg.

"Il's a difficult situation," he says, "because- the idea is that the outside counsel is supposed' to be basically
independent in the sense that they're generally working for the audit committee or special committee, not
working directly for the general counsel."

But general counsel should sfill ask questions, ensure their understanding of the situation and work with outside
counsel to help guide the investigation in a constructive and productive way. Their knowledge of the company
can be an invaluable resource to investigators.

5. Collect and Review Documents

Once the investigation team lays the groundwork and deals with the mast pressing initial issues, the meat of the
investigation begins. The investigation team identifies search terms and custodians, and begins document
production and review. It's usually the costliest part of an internal investigation, but the assistance of the
government agency or prosecutor can help snake the process more manageable.
 "I iittd the government is pretty amenable to having the company share search terms with it before you run them
and start document review," says Rachel Skaistis, a litigation partner at Cravath, Swaine &Moore. "The
government can agree with them or say, `Why not add these following 10 terms before you get started?"'

Early in an investigation, determining where potentially relevant documents are likely to reside—in particular
business units, geographic areas and servers—can be a complex exercise, and this is an area where in-l~►ouse
counsel's knowledge of the company can be invaluable. Because of its hefty cost, it's important to get discovery
right the first time. If a company is disclosing information to the government and the government isn't satisfied
with the initial search, it won't hesitate to force the company to go back and make fixes.

"In my experience, whezi companies have to go back and redo things, it's usually, but not always, document-
review issues," Skaistis says.

Investigation teams also. must ensure that during the course of the investigation .they don't disclose any
documents to authorities that would inadvertently create a waiver of privilege.

"It can and often does happen when you're dealing with tremendous amounts of documents—hundreds of
thousands or even millions, all stored electronically," Zeidenberg says.

6. Interview Witnesses

Along with identifying search terms, investigators should identify potential witnesses. Deciding whether to
interview witnesses before or after document review usually depends on the situation. If the investigation time
frame is short and things are moving quickly, sometimes there's not enough time to wait until after review. In
` other instances, the lawyer conducting the interview wants to go in with full knowledge of what documents
were uncovered in discovery.

Either way, before interviewing any employee witness, it's imperative to consider attorney-client privilege
issues. Particularly in criminal probes but also in other government investigations, the witness may need his
own specific counsel, which may or may not be clear at the outset. The interviewer. should give the employees a
so-called Upjohn warning notifying them that the lawyer administering the interview represents the company,
not the individual employee, and that the company can choose to waive the attorney-client privilege and deliver
the contents of the interview to the government.

Often confidentiality issues will preclude recording the interview, so a best practice is to have a second person
in the room responsible for taking thorough notes and writing up a report of the interview. That person should
be able to take the stand in court if someone needs to testify about the contents of the interview.

"As a lawyer, you don't want to be that person," Julian says. He uses former FBI agents in that capacity because
they have special training onnote-taking, they have report-writing skills, they're thorough and they make "very
good" testimonial witnesses, if it comes to that. Often, he says, a paralegal of the law firm doing the interview
will fill this role, but he doesn't recommend it.

"Paralegals may take good notes and write good reports, but they aren't trained in testifying," he says. "There's
also an inference of bias because they work directly for the lawyers."

McDowell adds that there's great.value in specifying how people take notes and write reports too, Because
styles vary so much, a standard form may be useful.

"You don't want to freestyle," she says. "You need consistency, there because when you have to go back after a
period oP months or years, it can be very important to your ultimate ability to synthesize that information."

6" '
7.1V~ind the Privilege

biter analyzing the collected information and determining proper remediation for any uncovered misconduct,
investigators will put together a summary report of the investigation. Then companies must decide whether to
turn over the entire report to prosecutors or a government agency or to keep it privileged. It's a thorny issue
because once the company decides to waive the attorney-client privilege and disclose the report to a third party,
the privilege is waived forever. .

"You have to consider the collateral impacts of the decision to cooperate and decide how best to manage the
investigation and get to a result that one hopes the company can live with and continue to do business under,"
says Peter Spivack; co-leader of the investigations, white-collar and fraud practice area at Hogan Lovells.

Skaistis says it's possible to share factual findings with the government while maintaining privilege over legal
advice. But where there are DOJ or SEC investigations, follow-on litigation is never far behind, and the first
thing plaintiffs in a civil litigation will ask a company to produce is any written documents given to the
government:

"There are certain ways to protect documents you give to the. government," Skaistis says, "but none of them are
foolproof, depending upon what jurisdiction you are in. You have to operate under the assumption. that any
written work product you give to the government could potentially end up being produced to plaintiffs in a civil
action."

Since the DOJ set forth updated charging guidelines in the 2008 Filip Memo, the government is not supposed to
consider a company's failure to waive privilege in deciding whether to charge it. iJnder current guidelines,
companies can give authorities a narrative of what the investigation uncovered while avoiding specifics such as
who revealed information and what documents back it up.

"When you start getting into who told you what and what document reflects it, you get into the question of
attorney-client privilege or work-product privilege," Tyrrell says, noting that the only time he would suggest
waiving privilege is to invoke an advice-of-counsel defense: "But there is still an expectation that you will iri
some fashion keep the department informed about what you're Ending [in a reasonably prompt manner]."

Julian adds that while the Filip Memo is the rule on papet•, a company's failure to cooperate with authorities still
raises suspicions.

8. Time Any Disclosures

For companies cooperating with government agencies or prosecutors, another decision is when in the
investigation process to self-report to the government, either in real time or after the investigation's completion.
"It's a real debate in the corporate community and the defense community," says Pollack.

Report immediately and the risk is that companies will disclose something to the government that may, at the
conclusion of the investigation, turn out to be meritless. Now the company has attracted scrutiny for no reason,
and it likely will incur additional investigation costs—the government could direct a deeper investigation of a
reported potential issue. The decision to go talk to authorities can be made at any time, Pollack says. Giving
yourself some time to learn more about the allegations and the company's exposure allows you to keep your
options open and avoid a premature judgment.

"Having the government involved can add tremendous cost, which you wouldn't have had to incur had- you
done an investigation first and then decided it wasn't something that needed to he reported," Pollack says. On
the flip side, if you decide to report after the investigation process is complete, the government may discover the
und~;rlying conduct before you report, which means less government buy-into the design of the investigation
ar~d less credit for cooperation.

What form that credit takes can vary widely.

Cooperation credit can mean the authorities bring nb charges, a reduced charge or a charge against a subsidiary
instead of a parent company. It can mean a narrowing of charges, a reduction in fines or a reduction in other
collateral impacts. It may mean a government contractor avoids being debarred from future contracts or a
pharmaceutical manufacturer can continue getting Medicare and Medicaid reimbursements.

Different prosecutors may view the same sets of facts differently; an SEC enforcement lawyer may have
another view. And every one of these matters is bound up in the facts and circumstances of what occurred.

"In reality,-it's the subject of raging debate," says Pollack. "The government will tell you that you get
significant credit [for cooperating) but, speaking anecdotally, it depends on the seriousness of the offense, how
regulated your industry is and, frankly, a bit of luck."

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