Conducting Internal Investigations: Staying Ethical in a Cost-Effective World November 7, 2014

Transcription

1 10th Annual General Counsel Institute National Association of Women Lawyers Conducting Internal Investigations: Staying Ethical in a Cost-Effective World November 7, 2014 Nancy Saltzman ExlService Holdings, Inc. 280 Park Avenue, 38th Floor New York, New York (212) nancy.saltzman@exlservice.com Sally Strauss Mount Sinai Health System 770 Lexington Ave., 9 th Floor New York, New York (212) sally.strauss@mountsinai.org Jacqueline C. Wolff 7 Times Square New York, New York (212) jwolff@manatt.com Ellen C. Yaroshefsky Cardozo School of Law 55 Fifth Avenue, Room 1115 New York, New York (212) yaroshef@yu.edu

2 Agenda 2 Corporate Internal Investigations Purpose Key Considerations: Who Are Your Stakeholders? Key Considerations: Targeting of CCOs and GGs Who Fail to Thoroughly Investigate Key Considerations When Formulating Your Plan Conducting the Investigation Investigations Involving High Level Executives Required and Voluntary Disclosures Hypotheticals Appendix: ABA Formal Ethics Opinions and Model Rules

3 Corporate Internal Investigations: Purpose 3 What is the Purpose of Conducting an Internal Investigation? An allegation has been made and you need to get the facts Fix the problem Take disciplinary action against employees Decide not to go forward on a deal Prevent the problem in the future Revise corporate policy or procedure Determine whether there are necessary or voluntary disclosures to be made Avoid misleading media leaks or leaks to customers/clients (reputational risk) Prepare for potential government investigations and/or potential shareholder or other civil lawsuits Report to the Board and the Audit Committee

4 Key Considerations: Who Are Your Stakeholders? 4

5 Key Considerations: Targeting of CCOs and GCs Who Fail to Thoroughly Investigate and Implement Procedures 5

6 Key Considerations: Targeting of CCOs and GCs Who Fail to Thoroughly Investigate and Implement Procedures 6

7 Key Considerations: Targeting of CCOs and GCs Who Fail to Thoroughly Investigate and Implement Procedures 7

8 Corporate Internal Investigations: Key Considerations 8 Key Considerations When Formulating Your Plan Know your stakeholders and what they will want from you business, audit committee and auditors, shareholders, government agencies Timing: how fast do you need to move? Avoid business disruption Avoid panic At the same time, consider potential whistleblowers and government and audit committee expectations Data Privacy issues when collecting documents overseas Business impact How will an investigation impact on the business? How will clients/customers react if they learn of the investigation? Consider third party(ies) seeking an investigative report in the future Non-retaliation whistleblower provisions may prevent desired disciplinary action Union employees may preclude a request for confidentiality. (Banner Health Systems, 358 N.L.R.B. No. 93 (July 30, 2012))

9 Corporate Internal Investigations: Conducting the Investigation 9 Conducting the Internal Investigation Internal investigation protocol should already be in place Clarify that all documents and s belong to the company All employees expected to cooperate with counsel Routine nature of investigation Issue an understandable document hold and freeze servers Team with management and Human Resources at the outset to remind employees of their responsibility to cooperate Gather and review relevant documents Preserve metadata Use data protection contracts to transfer and process overseas s into the U.S. or set up a system to review overseas Interview witnesses Initial and post-document review Upjohn warnings Notes vs. tape vs. stenographer Comply with local laws for overseas witnesses/employees

10 Corporate Internal Investigations: Conducting the Investigation 10 Review and analyze financial and other relevant data When hiring forensic accountants and other third parties to assist, preserve attorney-client and work product privileges Consider auditor s needs Take appropriate disciplinary, corrective and disclosure actions as needed throughout the investigation Memorialize in report?

11 Corporate Internal Investigations: High Level Executives 11 Particular Considerations/Issues Separate counsel? When? Whose privilege? Fifth Amendment issue? Indemnity issues (D&O?)» Undertaking Agreements Joint Defense Agreements Does a corporation want one? (Joint defense conundrum) Conflict and waiver issues sword and shield

12 Corporate Internal Investigations: Required and Voluntary Disclosures 12 Required disclosures Securities laws FAR Other laws CIA Bank agreements Insurers Voluntary Disclosures Pros Good corporate citizen Will become public due to overseas public prosecutor investigation Anticipated Qui Tam: public disclosure/original source bar under FCA Timing considerations under Dodd-Frank Easier to ensure accuracy in the media and to customers/clients Potentially reduce damages Better ability to control investigation costs than if government initiates matter

13 Corporate Internal Investigations: Required and Voluntary Disclosures 13 Cons Expanding investigation may well result, accompanied by its attendant costs Excluding Antitrust Division s Amnesty Program, there is no guarantee of NPA or even a DPA Even if no criminal charge, company may be assessed steep civil fines and imposition of a monitor Shareholder lawsuit inevitable Key Question: When is the right time to disclose?

14 Hypothetical #1: The Hotline Whistleblower 14 You are the General Counsel for a healthcare company that conducts business in the U.S. and that has recently started conducting business overseas with a joint venture partner. The overseas opportunity, which is the result of a significant investment of company capital, could grow the business significantly and much media coverage has been devoted to this business initiative. The third party vendor who mans your hotline tells you they received an anonymous call an hour ago claiming that the COO of your joint venture partner has been bribing the overseas health ministries for years and your U.S. Executive V.P. has been directing your sales personnel to provide your customer health care providers with knowingly false Medicare and Medicaid reimbursement coding assistance.

15 Hypothetical #1: The Hotline Whistleblower 15 What do you do? Does the calculus change if the whistleblower also tells the hotline that she is going to the media with this story if she doesn t see it addressed in a week? What if your auditors happen to be on site conducting an audit when the hotline call comes in? Do you, and when do you, have to tell them? Do you hire outside counsel immediately or is it worthwhile to conduct a preliminary investigation on your own? What if, when you start investigating, your CEO comes to you and tells you that the company could go under without this joint venture opportunity and 10,000 jobs are at stake? What if your joint venture partner is in a country where you cannot access their books and records, or interview the COO? What if your joint venture agreement lacked audit rights or access to the JV partner s books? What if you start investigating the reimbursement issue and decide repayment and voluntary disclosure is in the best interests of the company, but your CEO will not authorize you to do so? Can you go to the Board? The Audit Committee?

16 Hypothetical #1: The Hotline Whistleblower 16 What if during the course of your investigation, the company gets a subpoena for documents from the DOJ and you learn that one of the company s key employees destroyed all of his documents when he heard of the internal investigation; do you have to tell the DOJ? What if you can, in fact, recover all the deleted s do you have to tell the DOJ about the destruction or can you just produce the documents? Can you suggest Human Resources fire the U.S. Executive Vice President and include a False Claims Act waiver in his severance agreement? If so, would a court uphold such a clause? What if the DOJ wishes to interview the Executive Vice President? Do you get him separate counsel? Do you enter into a joint defense agreement? What if, at the end of your investigation, you determine that a crime has been committed and is, in fact, ongoing, and you propose corrective action steps to management and the Board, all of which are ignored. Do you need to resign? Report the crime? Hire your own lawyer?

17 Hypothetical #2: The Litigator 17 You are the Deputy GC in charge of Litigation at Company W, a company that is the leading purveyor of widgets in the country. One of the attorneys on your team, a seasoned litigator with whom you have worked for many years, has been handling a personal injury lawsuit alleging that a widget consumer died by ingesting a faulty widget. You have dozens of litigators who report to you at monthly meetings regarding their cases and you have a written policy requiring all attorneys to inform you if a case or series of cases suggest there is a systemic problem with the widgets. Before you came to work at Company W, you were W s outside counsel and successfully defended W in two litigations and one government investigation where similar allegations were made about consumers ingesting and dying from faulty widgets. The only current faulty widget case you are aware of is the one noted above. Although you have missed the monthly meetings since you have been traveling so much, you are confident in your litigators knowing to contact you if they see an issue.

18 Hypothetical #2: The Litigator 18 Do you have any responsibility to flag for the business the one current case? Do you need to affirmatively determine if there is currently more than one faulty widget case pending? Do you have an affirmative duty to conduct an internal investigation? And, if so, when do you need to consult with the Board, the Audit Committee and Company W s auditors? Do you, as the head of Litigation, need to review the testimony of the safety expert in the pending litigation, rather than rely on your staff attorney s judgment? Could your lack of attentiveness make you personally liable? If the lead widget engineer is subpoenaed by the DOJ and asserts her Fifth Amendment rights, can you terminate her for failing to cooperate with the government as per company policy?

19 Appendix: ABA Formal Ethics Opinions and Model Rules 19 Withdrawal When a Lawyer's Services Will Otherwise be Used to Perpetrate a Fraud (1992) Conflicts of Interest in the Corporate Family Context (1995) Representation Adverse to Organization by Former In-House Lawyer (1999) In-House Consulting on Ethical Issues (2008) Organization as Client ABA Model Rule 1.13 Confidentiality of Information ABA Model Rule 1.6