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Article Excerpt
The corporate defense bar has long resisted the U.S. Department of Justice's (DOJ's) policy with respect to corporate cooperation (1) on a number of grounds. By far the loudest, and most sustained, objection has been to DOJ prosecutors' (allegedly) routine insistence that corporations waive the protections of the attorney-client privilege and the work product doctrine. These "compelled-voluntary" waivers (2) are, or so the defense argues, virtually a precondition to securing credit for full cooperation and thus, perhaps, a declination of criminal charges against the corporation or other valuable regulatory or sentencing considerations. The defense bar charges that the DOJ's cooperation and, in particular, its waiver policies mean the death of adversary justice for corporations and convert defense counsel into junior G-men. (3)
With respect to the first charge, practitioners seem to be objecting to the pervasive presuppositions underlying the DOJ's policy, as well as the policies of a wide array of federal regulators: that corporations have a duty not visited upon individuals to self-report potential wrongdoing within the company, to cooperate fully with government investigators, to remedy any damage, and to act aggressively to prevent recurrence of the objectionable behavior. The assumption that corporations should engage in a "crime-fighting partnership" with the government--even if it means criminal prosecution and hefty penalties--is a constant. The second theme resonating throughout the literature flows from the first. The bar argues virtually with one voice that the waiver policy essentially "deputizes" corporate counsel in furtherance of this "crime-fighting partnership" between corporate America and the government.
The sponsors of this symposium have wisely encouraged contributors to be brief, so I will not assay a lengthy explanation of the dynamics of corporate internal investigations or the effects of the DOJ policy on that dynamic. Suffice it to say that a variety of circumstances conspire to make it virtually impossible for many or even most public companies to fall to investigate allegations of wrongdoing and to cooperate with the government by sharing at least some of corporate counsel's investigative findings. (4) And it is true that the pressures that bring many corporations to heel at the first hint of government concern have also changed corporate counsel's role in fundamental respects, although perhaps not as completely as some suggest. If the corporation decides to cooperate, it must cooperate "fully" by government lights; to appear to cooperate but resist in reality simply invites the government to hammer the company for obstruction as well as whatever underlying criminal activity may be uncovered. Thus counsel, in serving the interests of his "cooperating" client (the entity), must investigate fully, fairly, and without shielding any particular corporate constituency. Counsel's job is to lay his client bare before the prosecutor, hoping that the prosecutor, in return, will do the "right" thing and pass on a criminal prosecution. The object of this essay is not to explore the wisdom of this transformation of corporate defense counsel from zealous advocates to junior G-men. My less ambitious aim is to point out that the DOJ--the architect of this transformation---seems to have either ignored the implications of its "deputization" of corporate counsel, or hopes that courts in future will do so.
The DOJ's cooperation policy is designed to maximize the extent to which the government can piggyback on private counsel's work. Viewed from the government's perspective, this is a wise policy. The two primary categories of evidence upon which both the defense and the government will focus in trying to determine whether a crime was committed, and by whom, are corporate records and witness statements. Corporate counsel's work provides federal prosecutors with an invaluable leg up, first, in identifying the relevant hard evidence amidst a mountain of paper and millions of computer files and emails. For example, in the Computer Associates International, Inc. (CA) cases (Computer Associates) discussed within, it was reported that counsel undertook "a piecemeal search through hundreds of employee computers, many of which had e-mails that were overwritten. Technical experts ... used a computer-disk imaging technique to resurrect many files. Several dozen forensic accountants and attorneys then embarked on the arduous task of reading through all of them." (5)
Could the government replicate this work? Probably, but, at least at the beginning of an investigation, when the government, as in Computer Associates, may have strong suspicions but may lack the evidence to make a case, the commitment of the resources necessary to do so requires an expensive leap of faith. And the government--as seemingly massive as it is--simply cannot afford to devote the dollars and manpower to an effort such as that undertaken in the Computer Associates internal investigation only to come up empty or with a borderline case. To illustrate, the U.S. Attorney's Office in the Southern District of New York, which has jurisdiction over Manhattan and thus Wall Street, has approximately fifteen to twenty prosecutors in its securities division; should the office commit the manpower to undertake a search of the magnitude described above, it is a certainty that other pressing investigations will go begging.
Second, company lawyers will be better able quickly to identify the relevant witnesses--before evidence disappears, statutes of limitations run, or memories fade--in a corporate hierarchy that may be less than transparent to outsiders. Finding and talking to possible witnesses may also require the commitment of significant time, as well as additional resources. Thus, for example, in the Supreme Court's leading case on the applicability of the attorney-client privilege and work product doctrine in the context of corporate internal investigations, Up john Co. v. United States, counsel sent out questionnaires to employees around the world seeking information regarding "questionable payments" made to foreign public officials to obtain business, and then interviewed at least eighty-six employees, some of whom were foreign nationals residing abroad and thus beyond the reach of U.S. grand jury subpoenas. (6) In Computer Associates, counsel or their agents interviewed more than 100 people. Corporate counsel may also be able to obtain the statements and assess the credibility of employees who are unavailable to the government, whether because they ultimately decide, as the investigation unfolds and their, exposure becomes clearer, to claim their Fifth Amendment when approached by prosecutors or because they are beyond the federal courts' compulsory process.
Corporate counsel's advantages do not end with access to records and witnesses. The corporation's lawyers are better positioned to learn the structure, history, culture, and business of their client, as well as the character and background of individual employees. Accordingly, they can provide invaluable context for the facts developed. Critically, corporate counsel can gather the facts, and evaluate the legal significance of those facts, much more expeditiously than can government investigators, allowing those investigators to further leverage their limited resources. It is also notable that at least some of counsel's advantages with respect to obtaining evidence derive from their capacity as private actors. Most obviously, for example, corporations can threaten employees with seriously adverse employment consequences should they refuse to cooperate in the government inquiry, something that state actors cannot do without creating Fifth Amendment problems. (7)
The "partnership" that the DOJ's cooperation policy demands of corporations is obviously extremely valuable to the government. But the DOJ threatens to kill its own golden goose by bringing a spate of high-profile prosecutions of corporate executives for obstruction of an "official proceeding" (i.e., a regulatory and/or criminal investigation) premised on their lies to the corporation's own counsel. In Parts I and II within, these cases--involving executives at CA, Sanjay Kumar and Stephen Richards, and an energy trader employed by El Paso Corporation, Greg Singleton--are discussed at length.
To summarize, the key legal issue in these cases for our purposes is whether false statements made to counsel bear the requisite causal connection or, in the Supreme Court's terminology, "nexus," to an official proceeding because, after all, these are obstruction cases, not simple false statements cases. Federal prosecutors argued in defending these prosecutions that there was an obvious "nexus" between the executives' lies to corporate counsel and the official proceedings (grand jury and the Securities and Exchange Commission (SEC) investigations) at issue because the defendants knew (Computer Associates) or believed (Singleton) that the corporation was cooperating ( Computer Associates) or might cooperate (Singleton) with the government and, in so doing, intended (Computer Associates) or at least contemplated (Singleton) that counsel would turn over the defendants' false or misleading statements to the grand jury and SEC. As the District Court in Singleton indicated, the proposed "nexus" was, in essence, the fact that private counsel were working as "an arm of the (government)" (8) while conducting their nominally private investigations on behalf of the entity. These prosecutions are perfectly consistent with the government's conception of the proper role of the corporation and corporate counsel when allegations of wrongdoing erupt, as outlined above. It is not the theory of prosecution that fits ill with the DOJ objectives reflected in the cooperation policy. Rather, it is the unintended consequences of these cases--on the conduct of the investigations and in court--that makes them counter-productive.
As is discussed in Part III, these obstruction prosecutions threaten to put a stopper in the information flow that is the object of the cooperation policy by changing corporate counsel's conduct of internal investigations and, consequently, the likelihood that employees will share, freely, fulsomely, and candidly, what they know or suspect with counsel. For example, many white-collar lawyers are considering whether they should advise employees, at the inception of an interview, that the employees may be exposed to possible obstruction charges if their statements are not truthful. Other lawyers have responded to these prosecutions by suggesting that employees have separate counsel at the very beginning of an investigation. Either way, the bar recognizes that these approaches may well put a significant damper on employees' willingness to talk to corporate counsel and thus on counsel's ability to share with the government the information it needs and wants.
A second type of fall-out threatened concerns the possibility that courts will take the government theory to heart and decide that if corporate lawyers are indeed acting as "arms of the government," they must abide by the same constitutional restraints that bind state actors. While arguing that there is a sufficient "nexus" between lies to counsel and the conduct of the official investigation for purposes of the obstruction statutes, the DOJ has, at the same time, resisted attempts to impute to it the actions corporations take to secure the benefits of the cooperation policy. These actions, prosecutors contend, lack a sufficient "nexus" to the government's investigation and thus cannot constitute "state action" for constitutional purposes, It is difficult to credit the government's contention that a "nexus" sufficient to secure up to twenty years in jail for obstruction is not a "nexus" for purposes of constraining government action. And if the actions of counsel are deemed "state action," the information they secure, for example by threatening employees who do not cooperate with the government with employment termination, may well be suppressed and thus unusable by the government.
It is possible that the DOJ simply did not focus on the implications of these prosecutions, or that the decisions made in the two cases were not coordinated. (9) That said, these were not aberrant, small-time indictments; they were brought in high-profile cases involving some of the biggest firms in the white-collar defense business and seemed to be designed to get the attention of corporations and their lawyers. Indeed, there could hardly be a better way of getting the attention of the white-collar bar than cases such as these which, if taken to trial, promise the specter of well-known white-collar lawyers being called as the star witnesses against former executives of their clients. The statute selected was chosen very consciously to avoid, if possible, any need to prove a causal "nexus" between lying to private counsel and the compromising of an "official proceeding," perhaps indicating sensitivity to the "state action" case law. Finally, the DOJ chose to go after these defendants hammer and tongs, using a new and--in comparison to the usual charges brought in analogous circumstances--extremely punitive statute.
One can distinguish between the Computer Associates and Singleton cases in terms of the strength of the obstruction theory and the threat posed to the defense bar by these prosecutions. But the defense bar, as I understand it, has not accepted this distinction. The message received by white-collar corporate defenders is that the government is using a twenty-year count to charge persons who lie to corporate counsel in the course of internal investigations. Should the DOJ continue to bring these cases in future, it risks a great deal: the obstruction prosecutions may well threaten the invaluable pipeline of information it seeks to secure through its cooperation, and controversial waiver, policies. Ultimately then, these cases threaten to defeat the entire purpose of the DOJ's "crime-fighting partnership" with corporate America--that is, securing, in a quick and efficient way, the information needed to resolve corporate crime cases and bring those individuals responsible to justice.
I. THE COMPUTER ASSOCIATES CASES
A. The Facts
Beginning in 2002, CA, one of the largest providers of computer software for business applications in the world, came under the scrutiny of the U.S. Attorney's Office in the Eastern District of New York, the Federal Bureau of Investigation (FBI), a federal grand jury, and the SEC, because of allegations that the company engaged in improper accounting practices. At the end of the day, the government secured the guilty pleas of much of CA's senior management in connection with the accounting fraud: CA's Chief Executive Officer, Sanjay Kumar; Head of Worldwide Sales, Stephen Richards; Chief Financial Officer, Ira H. Zar; General Counsel and Senior Vice President, Steve Woghin; Senior Vice President of Finance and Administration, David Kaplan; and Vice President of Finance, David Rivard. (10)
Although the government initially investigated five allegedly questionable financial practices, it ultimately honed in on one: CA's practice of using a "35-day" month so that deals concluded, for example, five days after the end of one quarter could be included in that quarter's revenue numbers. It was alleged that this practice, denied until the end by CA's executives, was instituted to meet the financial projections of Wall Street analysts. The executives allegedly feared, with good reason, that failing to meet analysts' projections would result in the CA stock price taking a hit. (11) This practice was alleged to have extended through all four quarters of 2000 (but not, apparently, thereafter). (12) Obviously if one is going to take, for example, $2 million in contracts from the first five days of the second quarter to burnish one's results in the first-quarter, and one is still concerned with meeting Wall Street's projections for the second-quarter, five days are going to have to come off the third-quarter, and so on. This practice...
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