2007 Issue 1 - New York City Bar Association

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
This is a request that any corporation seeking to be viewed as a cooperator
may find difficult to reject. Indeed, given the government’s greatly
heightened sensitivity to severance payments, many corporations will not
even attempt to make such payments, out of concern such an attempt
will be viewed as uncooperative. In short, a contemplated severance payment
may never reach its intended recipient, as a result of a negotiated
escrow or a court-ordered freeze, followed by an enforcement action in
which—if successful—the SEC obtains a monetary recovery which it can
satisfy with the escrowed or frozen funds.
A Board of Directors should carefully weigh the costs and benefits of
such payments in light of the evidence that exists at the time and the
stage of the investigation. In some circumstances, the advantage of paying
severance may outweigh concerns about regulators’ perceptions. When
a Board concludes that severance is appropriate, it may be advisable for it
to precondition any payment of severance on full cooperation and on
the absence of any finding that the employee in question is culpable.
7. Waiving attorney-client privilege
Though the Thompson Memo provides that waiving attorney-client
privilege is not an “absolute requirement,” the DOJ often expects organizations
that are the subject of investigations to waive attorney-client privilege.
Similarly, the CFTC assesses whether the company willingly waives attorney-client
privilege and work product protection for internal investigation
reports, corporate documents, and employee testimony. Moreover,
regulators often cite waiver of privilege as a factor in determining cooperation.
215 One difficulty for clients, among others, is that waiver of the
privilege renders otherwise privileged documents, information, and advice
readily discoverable by future civil litigants.
Recently, regulators have been increasingly willing to enter into partial
waiver agreements, whereby the privilege is ostensibly waived only as
to the regulators. Courts, however, have been reluctant to recognize the
limited waiver exception and many courts have held that the privilege,
once waived as to regulators, is waived as to all. 216
Guillaume Hannezo, (Dec. 23, 2004) (former CEO was required to relinquish claim to
severance package that SEC had escrowed under Section 1103); Yochi J. Dreazen, SEC, In
Inquiry Into Vivendi, Seeks to Freeze Messier Payouts, Wall St. J., Sept. 17, 2003, at A18.
215. See, e.g., SEC Litig. Rel. No. 19517, n. 207 above (SEC not commencing an enforcement
action against corporation because of corporation’s cooperation, including not asserting any
applicable privileges).
216. See, e.g., In re Royal Ahold N.V. Sec. & ERISA Litig., 230 F.R.D. 433, 438 (D. Md. 2005)
T H E R E C O R D
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