Tag: corporate miranda

Structuring Internal Investigations

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My notes, live, from the presentation by Neal Stephens and Bill Freeman of Cooley Godward Kronish on the top ten problems and how to avoid them. The focus of the session was to help companies who must conduct an internal investigation avoid pitfalls that add expense, embarrassment and exposure.

There are many problems that come from internal investigation failures. Cost is a big item. Expenses can get out of control. You could end up with a loss of credibility with the public and the government. You want to avoid re-opening the investigation in response to shareholder attacks.

Failing to Establish the Right Investigative Body

You want to make the investigator is sufficiently independent and has the necessary powers. If it is serious, you will want an impartial committee from the board of directors. For an independent investigation, you may need to pick a new law firm. If the law firm has represented other board members or been involved in the subject transaction, you should not use them.

Failing to Preserve Evidence

You have to immediately notify record custodians. Often the document destruction ends up being a greater offense the original transgression. It is important to document the entire preservation and collection process. The SEC will typically send you a preservation notice before they send a subpoena.

Don’t forget about home computers and mobile devices. If people are doing business on their home computer, you need to preserve the information on them.

Failing to Get Buy-In from the Government and Outside Auditors

You want to make sure the people with the handcuffs agree to the scope, methods, timing and the sharing of information.  You want to make sure you do not have to go back and cover the same information again. That increases costs.

Failing to Supervise Vendors

You want to train your document reviewers. You have to educate the investigators about legal means of obtaining information. Vendors need to be educate on what to reveal to who. Messing up document review is embarrassing and can taint the case as a whole.

Treating Witnesses Differently

Consistency is very important. You can’t treat one group with kid gloves and another with rubber hoses. The way to protect the company is letting the evidence to take you where it goes rather than presuming innocence of a party.

Jumping to Conclusions

You have to follow the evidence. You need to understand the company policies and practices at issue. Consider placing employee on leave during the investigation, instead of termination. The DOJ typically does not care that much. They want you to find the facts and properly punish the offender. You do not have to give the government a head on the platter to appease them. Just do the investigation right.

Mishandling Privilege Issues

You need to advise witnesses of their legal rights. Make sure they realize that the attorney represents the company and may turn the information over to the government. You need to anticipate third party challenges to information shared with the government or auditors.

Give the corporate Miranda. Employees typically still talk to investigators. But you don’t want them to think that the attorney represents the employee.

Mishandling the Flow of Information

Always update the board committee first. Get their approval before revealing information to the government, auditors or senior management.

Failing to Anticipate the Mid-Investigation “Show Stopper”

Something else always pops up or evidence of a cover up appears. At some point a witness realizes they are in trouble and will withhold information. You are also likely to see witness intimidation or collusion.

Failing to Communicate Carefully to Outsiders

Statements in 8K’s will be attacked. Statements to opposing counsel must be considered “on the record.” Statements to the government must be complete and accurate.

Much of the conversation was couched in how these two had just defended Kent Roberts, the former general counsel of McAfee in a stock back-dating case. It was a useful combination of practical advice, war stories, and theory.

(These notes are taken live, so I apologize if I left out anything or misquoted someone. Please forgive any typos or grammatical errors.)

Corporate Miranda for Internal Company Investigations

agent_reads_the_miranda_rights_As in-house counsel are often the ones starting an internal investigation, they need to be mindful of the same issues that appear when outside counsel are conducting an internal investigation. I wrote about the referral for discipline in the Ruehle case and the malpractice claim in Pendergast-Holt investigation in Attorney-Client Privilege and Internal Investigations.

It is even more important to clarify that the in-house counsel represents the organization. Employees are often used to dealing with in-house counsel as colleagues and give little regard to who they actually represent. After all, it is natural for employees regularly interacting with with in-house counsel to view them as their lawyer. Under the ABA’s model rules, Rule 1.13 (f) requires:

In dealing with an organization’s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.

It is important to keep notes that you made the disclosure. Part of the issue in the Ruehle case and the Pendergast-Holt investigation is over what was said to the individual employees regarding representation. Treat the clarification statement as a “Corporate Miranda.”

Does the employee then have the right to remain silent? The Miranda rights under the Fifth Amendment are a limitation on the government, not a private company. The employee can remain silent, but you can terminate the employee for not cooperating. Of course it is good practice to let the employee know ahead of time what the consequences are for not cooperating.

Do they have the right to attorney? Again, the Miranda rights under the Fifth Amendment are not a limitation on a private company. There is a practical question about how you want to treat employees and whether the responses will be better if the employee talks with a lawyer before answering. It is probably better to give the employee a reasonable amount of time to get their own lawyer.

One aspect of the Miranda warning does come into play. What the employee says can be used against them.

What if they can’t afford an attorney? Back to the statement that the Miranda rights under the Fifth Amendment are not a limitation on a private company.

But corporate law does come into play for attorney costs. Under Delaware corporate law, a Delaware corporation must indemnify an officer or director who is successful on the merits or otherwise in the defense of a qualifying claim. (see §145 (c) of the Delaware General Corporation Law) In addition to the required indemnification, a Delaware corporation may indemnify individual employees for expenses incurred “if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.” (see §§145 (a) & 145 (b) of the Delaware General Corporation Law) Then there are often contractual arrangement with senior management for indemnification and a D&O insurance policy that may trigger the payment of defense costs. Other types of entities and other states’ laws that may have different treatment of defense costs and indemnification.

It is important to set up guidelines and protocols for investigations. Has your organization put together its own Corporate Miranda?

See also:

Image is from Wikimedia Commons:CBP Border Patrol agent reads the Miranda rights