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.)

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