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 for the government. Investigations often address conduct that is problematic, but not clearly unlawful, and the investigative record is never perfect. Counsel is required to exercise discretion concerning how to characterize events, to judge witness credibility and motive, and to determine whether conduct crossed the line from questionable or inadvertent to improper. In making these assessments, investigative counsel has a client—a client who may be keenly interested in whether conduct is characterized as improper or criminal and in how investigative counsel exercises discretion. Sometimes that client will have an interest in protecting the employees under investigation; other times, it will have an interest in trying to build a case against those employees. It will rarely be disinterested. It is important for investigative counsel to be aware of the different constituents who have a stake in how counsel’s discretion is exercised, and to be cognizant of the consequences that would flow from exercising discretion broadly or narrowly. Most of the commentary on this issue involves situations where counsel “under charged” during the course of an investigation. We have all read about investigations conducted by counsel who is too close to management, or had some prior involvement with the transactions under review, and were not sufficiently skeptical of motives and events and, consequently, failed to ferret out wrongdoing. But the issue can also arise in the other direction, and investigative counsel also may err by being too quick to find there was unlawful conduct based upon minimal or equivocal evidence. There are many incentives that may cause investigative counsel to “over charge.” For example, the various Justice Department and regulatory pronouncements reward corporations (and their counsel) who uncover wrongdoing and root out wrongdoers. 207 There is a one-way regula- 207. See Cutler, Remarks Before D.C. <strong>Bar</strong>, n.177 above, at 6: The larger lesson is the continuing importance of what we refer to as cooperation . . . . First, I believe the Commission is placing a greater emphasis than ever before on assessing and weighing cooperation when making charging and sanctions decisions. . . . Second, I think the Commission is using a more graduated scale when it assesses cooperation. There are cases in which the Commission has found cooperation early in an investigation to have been inadequate, and taken that into consideration, even if the conduct of the same party was later exemplary. In other words, the Commission no longer begins and ends its assessment by asking, ‘did this party cooperate, yes or no’ Now, it routinely goes on to consider, if the party did cooperate, how much How often You should expect that we will seek to reflect the answers to these sorts of questions when we resolve investigations and actions. Thompson memo: The main focus of the revisions is increased emphasis on and scrutiny of the authen- T H E R E C O R D 196
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 tory ratchet; except in rare instances, regulators do not punish corporations and their counsel for being overly aggressive in determining that unlawful conduct occurred. Similarly, investigations undertaken when there is new company management who were not employed at the time of the transactions under review, or where there has been a decision to restate financial statements, often find problems in a broad swath of conduct, as there is an incentive in those situations to redress even marginal issues so the company, under new management, can have a fresh start and not be burdened by grey area decisions made by former management. In addition, no counsel is a hero for missing conduct that is later characterized as a crime, so investigative counsel often has an incentive to stretch to find problems. Balancing these concerns may be difficult. There are substantial costs of not finding all unlawful conduct. Improper conduct may go unremedied. If later found, the original investigation may be undermined, wasting time, money and goodwill. The failure to uncover wrongdoing may also call into question, in the eyes of prosecutors and regulators, the adequacy of the company’s cooperation. And, a wrongdoer may be allowed to stay in place. However, counsel’s decision to characterize as criminal conduct that no reasonable prosecutor would prosecute is also not cost-free. An overly aggressive decision to characterize innocent conduct as wrongful is not just unfair. It can also impose regulatory costs on a corporation, result in a drop in shareholder value, lead to the departure of key executives, and cause the loss of business. Such an outcome would injure the shareholders directors are charged with protecting. Just as under enforcement may compromise corporate governance, so too may over enforcement: a too zealous investigation, and one that does not take into account all the ticity of a corporation’s cooperation. Too often business organizations, while purporting to cooperate with a Department investigation, in fact take steps to impede the quick and effective exposure of the complete scope of wrongdoing under investigation. . . . [S]uch conduct should weigh in favor of a corporate prosecution. The revisions also address the efficacy of the corporate governance mechanisms in place within a corporation, to ensure that these measures are truly effective rather than mere paper programs. See also Arthur F. Matthews, Defending SEC and DOJ FCPA Investigations and Conducting Related Corporate Internal Investigations: The Triton Energy/Indonesia SEC Decree Settlements, 18 Nw. J. Int’l L. & Bus. 303, 418 (1998); SEC Litig. Rel. No. 19517, SEC Charges Six Former Officers of Putnam Fiduciary Trust with Defrauding Clients of $4 Million (Jan. 3, 2006) (announcing that the SEC was not commencing an enforcement action against corporation because of corporation’s “swift, extensive and extraordinary cooperation” including terminating and disciplining any responsible employees). 2 0 0 7 V O L. 6 2 , N O. 1 197
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THE RECORD OF THE ASSOCIATION OF TH
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Of Note THE NEW YORK CITY BAR PRESE
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2007 Issue 1 - New York City Bar Association

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