2007 Issue 1 - New York City Bar Association

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L A W Y E R ’ S R O L E I N C O R P O R A T E G O V E R N A N C E SEC pursued a reactive approach to business-crime and regulatory actions. 177 When wrongdoing was exposed, law enforcement and regulators typically addressed it by conducting extensive inquiries and meting out appropriate sanctions. As such, lawyers and clients responded to government inquiries from a more defensive posture. However, in recent years the government has become more proactive in its enforcement activities and has encouraged companies also to be proactive in reporting problems. Cooperation with government investigators has always been a way potentially to mitigate charges or penalties or avoid them altogether. But in 2001 and 2003, respectively, the SEC, in its “Seaboard Report,” 178 and the DOJ, in its “Thompson Memo,” 179 formally set forth their expectations in memos detailing the factors their staffs would take into account in charging companies. While the nature and seriousness of the underlying conduct and its pervasiveness within a corporation will always be the dominant consideration, cooperation with investigatory proceedings stands out as the next most important factor affecting the outcome. Both agencies underscore that working with the government, voluntary disclosure of wrongdoing, and internal investigations are strongly encouraged and will be substantially credited; but these efforts must be authentic and effective in getting the facts out. The government is more than willing to pursue perjury and obstruction-of-justice charges when it believes the evidence is sufficient to support them. Coupled with this cooperation bias is an increased emphasis on, and rewarding of, effective compliance and ethics programs, both as prophylactic and remedial measures. To further these enforcement goals, the government has allocated enormous resources to prosecuting corporate wrongdoing and is actively pursuing harsh penalties against companies and individuals. In addition, parallel criminal and civil proceedings have become increasingly common, 177. See, e.g., Stephen M. Cutler, Remarks Before the District of Columbia Bar Association (Feb. 11, 2004) (“Remarks Before D.C. Bar”), available at http://www.sec.gov/news/speech/ spch021104smc.htm. 178. On October 23, 2001, using its authority under Section 21(a) of the 1934 Act, the SEC issued its Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions. SEC Rel. No. 34-44969, 76 SEC Docket 220 (Oct. 23, 2001) (“Seabroad Report”). Section 21(a) of the 1934 Act authorizes the Commission to issue a report of investigative findings if it determines that an enforcement action is not warranted. 179. Memorandum from Larry Thompson, Deputy Att’y Gen., to Heads of Dep’t Components & U.S. Atty’s (Jan. 20, 2003) (“Thompson Memo”), available at http://www.usdoj.gov/ dag/cftf/business_organizations.pdf. T H E R E C O R D 182
L A W Y E R ’ S R O L E I N C O R P O R A T E G O V E R N A N C E with the Justice Department and the SEC coordinating investigations and prosecutions, and sharing information. The stakes and risks that companies face are extremely high. Now, more than ever, cooperation is key. Although the 2001 SEC and 2003 Justice Department corporate charging statements remain their official policies, these agencies’ expectations and aspirations have since shifted and been heightened further. 180 Stephen Cutler, the former Director of the SEC’s Division of Enforcement, committed to, and the current Director Linda Thomsen has continued, a “forward looking-approach,” which involves “seeing around the corner,” “identifying trends, practices, and risks within our capital markets,” and nipping problems in the bud. 181 Similarly, the Justice Department now pursues “real-time enforcement,” a strategy that depends upon swift investigations and indictments, and “stresses rooting out corporate fraud and restoring public confidence in the integrity of our markets.” 182 Long and comprehensive investigations and indictments have largely been replaced by “segmented” and prompt ones, often for less complex violations. Today, full cooperation is essentially expected. Although the SEC and Justice Department statements may stress that self-policing and self-reporting are encouraged and will be credited, in practice a company may now be punished for failing to cooperate adequately with government investigations, judged from the perspective of the investigators. Indeed, Cutler has explained that cooperation is currently assessed using a “more graduated scale” and that the Commission takes into account both cooperation, and “lack thereof,” in making charging decisions. 183 Similarly, federal prosecutors “now take a harder look at whether the company is really [fully] cooperating” in deciding whether to bring charges. 184 Moreover, the government often expects companies to waive the attorney-client privilege and work-product protection as part of a company’s full cooperation. 185 Evidence of these enhanced overall expectations can also 180. Cutler, Remarks Before D.C. Bar, n. 177 above. 181. Id.; Linda Thomsen, SEC Enforcement Director Responds to Questions About Program’s Direction, SEC Today, at 1 (Nov. 16, 2005). 182. Christopher Wray, then Assistant Att’y Gen., Crim. Div., Remarks to the ABA White Collar Crime Luncheon (Feb. 25, 2005) (“ABA Remarks”), available at http://www.usdoj.gov/ criminal/press_room/speeches/2005_3853_rmrkCrimLuncheon030205.pdf. 183. Cutler, Remarks Before D.C. Bar, n. 177 above. 184. Wray, ABA Remarks, n. 182 above. 185. See Marcia Coyle, Waiving Privilege a Crucial Sentencing Issue, Nat’l L.J., Aug. 29, 2005, 2 0 0 7 V O L. 6 2 , N O. 1 183
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2007 Issue 1 - New York City Bar Association

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