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I’ve been around a while and I know from first-hand experience that there is little more disconcerting to an in-house lawyer than being contacted by the government when it starts investigating your company. It makes your stomach feel like The Hulk has reached down your throat to give your intestines a good squeeze. What happens in such an investigation, in large part, depends on what’s being investigated and on how you respond. You will know the seriousness of the circumstances fairly quickly, depending on what tools the government uses for its initial contact with your company. Regardless of how it starts, there are many things common to any company’s response to a government investigation. There are several initial questions to ask when a government investigation into your company is launched. This edition of “Ten Things” explores what to do when the government comes knocking on your door:
1. Which agency is looking at your company? The first thing to determine is which agency is asking for information. Once you know which agency is investigating, start to determine if the issues are civil or criminal (or potentially both). For example, the Department of Transportation does not have criminal enforcement powers, but the Department of Justice does. Regardless, any civil investigation can morph into a criminal investigation under the right circumstances.
2. How were you contacted? How you are contacted by the government means a lot. Here are three key ways the government will contact a company under (or part of an) investigation:
- Civil Investigative Demand (CID) – a civil subpoena from the government directed to the company. Nothing criminal is present. A CID can command documents, interrogatories, witness testimony, or any combination thereof. Failure to comply can subject the company to court sanctions. The government may serve a CID on any person or business in any jurisdiction in the United States and in any foreign country provided such service complies with due process requirements.
- Grand Jury Subpoena – a criminal investigation is underway and, if your company is a target or subject, bad things are possible. Unlike a civil subpoena, failure to comply or adequately comply with a grand jury subpoena can mean a criminal charge of obstruction of justice. It also means the government is well underway with whatever case it is looking to bring.
- Search Warrant – the company is the target and law enforcement has convinced a judge of probable cause of a crime and that evidence of that crime resides on your company’s premises. While in-house counsel should meet with the lead agent and ensure the search is limited to the areas listed in the search warrant (get a copy), they must not interfere in any way with the execution of the warrant. You should get outside counsel on the phone immediately.
The type of government investigation in-house counsel in the U.S. will most likely deal with is a Civil Investigative Demand (CID). This article will now focus on what to do when responding to this type of request. Yet, the core points below can generally apply to any government investigation, anywhere in the world. The one universal constant is to take any government investigation seriously. Very seriously. While the worst thing you can do is be untruthful or misleading. Second is being dismissive of any government agency.
3. Engage outside counsel. Unless you are experienced in dealing with a CID, you should consider calling outside counsel to help you with the response. Yes, this will add cost to your response but here’s the bottom line: government investigations (civil or otherwise) are expensive. You will find yourself frustrated and exasperated at times. Having experienced outside counsel to help you understand the process (and there is indeed a process) and serve as a buffer between you and the government – or you and senior management – is worth the cost. Additionally, the involvement of outside counsel can help cement claims of attorney-client privilege and can, depending on the circumstances, help reduce the risk of your personal exposure, which is not something to take lightly.
4. Call the government’s lawyer. Do this within 24 hours of receiving the CID if possible. Typically, a CID has a very short response time and you’ll likely need to extend the deadline. It won’t happen automatically, and then only with the consent of the attorney in charge of the CID. Unless you are experienced in dealing with government investigations and the type of CID received by the company, this is a task for outside counsel. One thing to do on the call is to find out as much as you can about the investigation: What it is about? What triggered it? Why is your company involved? Is it a target? Regulators can be tight-lipped but it’s worth a try as they typically will give you some helpful information. Another goal of the call is to establish a good rapport with the government attorney, including giving your assurance the company will cooperate, comply in good faith, and in a timely manner. It is in your company’s interest (and yours personally) to deal with the government in good faith and maintain the highest personal and professional standards throughout the process.
5. Can you narrow the scope of the request? The next task is trying to narrow the scope of the request. A CID is typically broad in terms of the information sought and the time frame covered. Unless you have an agreement with the government attorney to narrow the scope or a court order, you are duty-bound to comply with the CID as written – which can be an almost impossible task. The government attorney usually welcomes a request to narrow the scope as they only want documents and information useful to their inquiry. Consequently, truthfully informing them about how what they are asking for in the CID may or may not be relevant can be helpful to both sides. This requires you to be on top of what information you do or do not have. Promise to begin a rolling production of responsive documents you can easily gather and produce quickly. This will usually satisfy any concerns the government may have about granting an extension of time to comply.
6. Put a document hold in place and suspend record destruction. Another thing to do quickly once you receive a CID is to put a document hold in place with the people who may have responsive documents. There is a little bit of art here because you are guessing somewhat about the scope of the investigation and which employees it might involve. Still, you should make a good faith effort immediately to get a document hold in place with the most likely affected employees. After a call or two with the government attorney, you should be able to narrow the scope of the CID and agree on the custodians of interest. Then you can limit the document hold to just those people. Additionally, you need to ensure any document destruction policy is suspended as to those identified individuals, as well as any automatic deletion of documents or email. Don’t rely on sending an email and assuming everyone is complying. Require signed acknowledgments from each individual affirming three core things:
- They have received, read, and understand the hold notice.
- They will not delete or destroy any relevant records (and they err on the side of over-inclusion).
- They understand bad things can happen to them and the company if they fail to comply.
Make sure you do not rely on employees to gather their own documents for you. They are hardly incented to do a thorough job. Also, skip the email and walk over to the IT department and talk to the people in charge of suspending automatic deletions and ensure they understand the importance of what is needed and the penalties the company can face. You also need them (and HR) to ensure that if anyone under the document hold leaves the company, they will secure their laptop and other company devices and turn them over to you. Finally, as you look for places where relevant information might be stored, don’t forget home computers, phones, personal laptops, and – yes – paper, which many people still use.
7. Consider a parallel internal investigation. Depending on the subject matter of the CID, and after discussing with outside counsel, you may wish to conduct your own internal investigation. There are several reasons to conduct such an investigation, including:
- Stop any ongoing wrongdoing.
- Take steps to prevent problems from re-occurring.
- Remediate potential fines by showing the government you are taking action yourself. (There is no guarantee but it can’t hurt.)
- Protect executives and members of the Board of Directors from claims they have breached any fiduciary duties owed to the company.
Before you go down this path, decide whether in-house or outside counsel will conduct the investigation. If you already have outside counsel involved, it is better to let them handle the internal investigation. If not, consider engaging them for such an investigation. First, it will secure the appearance of a neutral third-party conducting the investigation. Second, using outside counsel helps protect the attorney-client privilege as courts often heavily scrutinize privilege claims by in-house counsel. Third, it takes in-house counsel out of the line of fire if there are serious problems uncovered, where in-house counsel can – in some cases – be pressured internally to look the other way.
8. Employee interviews. It’s very possible investigators may wish to interview company employees. Likewise, any internal investigation will require employee interviews as well. Depending on the agency issuing the CID and the possibility of material exposure for the company, here are some things to keep in mind about interviewing employees:
- For internal investigations, give the Upjohn warning before starting each interview. The Upjohn warning makes it clear counsel represents the company and not the individual being interviewed, giving the individual the ability to obtain their own counsel before proceeding if circumstances warrant. Best practice is to have the warning written out and read to the employee at the beginning of the interview. Underscore the importance of them telling you everything, including the “bad stuff.” It is better to know if there are problems now then letting the government surprise you down the road.
- For employee interviews with government investigators where the company is not putting these individuals forward as company witnesses, emphasize with employees:
- They can refuse to be interviewed or go forward with the interview – it’s their choice. But, it is a choice.
- They have the right to have counsel present during any government interview.
- The importance of telling the truth. Lying will almost inevitably backfire on them and on the company.
- The company will pay for counsel to represent them (if this decision has been made by in-house and outside counsel). You may qualify the willingness to do so long as interests are aligned. If interests are not aligned, they may need to obtain and pay their own counsel.
9. Figure out your response plan. As you begin the CID response process, take some time to sketch out your response plan. Your plan will include:
- Carefully reading the CID and understanding what the government is looking for.
- How will you staff the investigation? Do you need any outside experts?
- How you will keep and preserve the attorney-client and work product privileges, including how you best ensure no privileged documents are accidentally turned over to the government.
- The process to identify “hot” documents and ensure those get to you and outside counsel promptly.
- Updating your document hold process and ensuring IT is not forgetting about any processes put in place to suspend document destruction.
- If witnesses are required, how will you identify them and prepare them?
- Steps to remediate any wrongdoing you uncover.
- How you will keep the C-Suite and Board updated on the investigation’s progress, especially if the investigation morphs into something more serious than a CID response.
- The cadence of meetings for the team in charge of the response to ensure things are moving forward as planned.
- How you will protect yourself, as in-house counsel, from any personal exposure with regulators, including relying on the advice of outside counsel. This will include creating documentation about how you directed the company’s response to the CID.
10. Dealing with public disclosure. The existence of the CID may become public due to necessary disclosures if your company is publicly traded or due to leaked information. This means once you receive a CID you must be prepared to deal with negative press. Unless there is a well thought out strategy behind saying more, the standard response to a press inquiry is to simply confirm the inquiry, the company’s good faith cooperation, and faith in your company’s compliance with the law. Your public relations team and outside counsel will be able to assist in crafting specific language to avoid adding to the concerns.
If you work for a publicly traded company you must be concerned about the potential need to disclose the CID in a public filing, i.e., 8K or quarterly/annual filings. If the existence of the CID is already publicly known, there is little downside to disclosing. If it’s not public, then you must determine if the investigation is material to investors. This is a difficult analysis as there are no bright lines to follow. It depends on who is asking and what they are asking about. You may need to seek guidance from outside securities counsel. If you decide disclosure is needed, then you will likely look to give the minimum amount of detail possible and draft carefully with the understanding that whatever you write can and will be used against your company.
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Any type of government investigation into your company must receive the highest attention of the Board of Directors, senior management, and the in-house legal team. A CID is nothing to take lightly, as civil can morph into criminal at any time. Unless you have extensive experience dealing with CIDs and the agency that issued it, your first call should be to outside counsel. Brace yourself (and senior management) for a big-time commitment and expensive process. Finally, know which outside counsel you will use in the event of an investigation and consider developing a playbook now for how you will deal with any type of government investigation, including a search warrant so that if the day comes, so you’re already prepared. Being prepared is what it’s all about.
Sterling Miller
December 3, 2018
My third book was released last week. It’s called The Slow-Cooker Savant. Yep, it’s a cookbook. Just one of my hobbies. You can buy it here on Amazon.com or at SterlingMillerBooks.com. Perfect gift for the holidays!
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“Ten Things” is not legal advice nor legal opinion and represents my views only. It is intended to provide practical tips and references to the busy in-house practitioner and other readers. If you have questions or comments, please contact me at sterling.miller@sbcglobal.net.
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