Understanding the Intricacies of Internal Investigations

A key aspect of identifying litigation risks is uncovering where a company deviated from its established practices, best practices, internal guidelines, or stated values. This process often reveals critical issues, making it advisable for companies to engage counsel to conduct an internal review or third-party investigation. In this episode, SharkCast host Kent Schmidt interviews Dorsey Partner Margot Laporte on internal investigations. These investigations aim to determine what went wrong, why it happened, and whether any illegal conduct occurred that may need to be reported to authorities.

This podcast is not legal advice and does not establish an attorney-client relationship or create any duty of Dorsey & Whitney LLP or those appearing in this podcast to anyone. Although we try to assure that the content of this podcast is accurate, comprehensive, and reflects current legal developments, we do not warrant or guarantee those things. The opinions expressed in this podcast are the opinions of those appearing in the podcast only and not those of Dorsey & Whitney. This podcast is considered attorney advertising under the applicable rules of certain states.

Transcript

Voiceover

Welcome to another episode of the SharkCast on litigation risks management.  Where we explore why businesses are so frequently sued and how to mitigate and navigate the dangers lurking in these risky waters.  Join us now as we welcome our host, Kent Schmidt, litigation partner at the law firm of Dorsey & Whitney.

Schmidt

Welcome to another episode of SharkCast.  You know, a common thread in identifying litigation risks is figuring out where a company deviated from its established practices, the best practices, perhaps its own internal guidelines and aspirational statements of what its values are.  That process can lead to some very disturbing fact finding and it is often prudent and advisable for companies to engage counsel in, what we call, a internal review or a third-party investigation as to what went wrong.  To figure out what the deviations were and what conduct occurred, why it occurred, and, in some instances, to determine whether there’s been illegal conduct that even has to be reported to the authorities.  I’m pleased today to be joined by my partner from our Washington D.C. office, Margot Laporte.  And a significant part of her practice focuses on these types of internal investigations.  So, welcome to SharkCast, Margot.

Laporte

Thank you.  It’s a pleasure to be here.

Schmidt

It is great to have you here.  And, just by way of further background, Margot is recently joined Dorsey and we met for the first time a couple of months ago in Mexico City for the International Bar Associations Conference.  And we spent, along with a few other partners from Dorsey, a significant amount of time traveling around New Mexico going to various events and sessions.  And, so, it was great to get to know Margot and, as a result of some of those conversations, as often happens when I meet my partners, I say, you’d be a terrific guest on SharkCast.  So, thanks for accommodating that request and agreeing to join us today, Margot.  And we had a terrific time of meeting people from all over the world at Mexico City, didn’t we?

Laporte

Yes, absolutely.  And for us meeting for the first time as well, it was great to see Dorsey’s global reach and also to learn of your podcast and opportunities to share our thoughts on what we do in our different practices.

Schmidt

Well, before we dive into sort of the nuts and bolts of internal investigations, I’d like you to tell me a little bit about why you enjoy this aspect of your practice.  What makes it unique from, say, other, you know, commercial litigation or transactional practices or regulatory practices?  What sort of, perhaps initially drew you to internal investigation?  What keeps you focused on this area, just from an engagement standpoint?

Laporte

Well, I could spend our whole time talking about this, because it is an area that I really enjoy, but I think one of the main parts is that clients come to us with a problem and those problems differ based on who the client is, what their goals are, what their risks are, where they are located.  And we help them to solve it.  And in doing that, we interact with all parts of the company.  We need to understand their business, we need to understand what their risks are.  It’s quite a personal way of practicing law.  We have a lot of human interactions as part of what we do.  And we solve problems, and those problems are not the same day to day and there’s no one solution.  And so, I find that part of what we do very interesting.

Schmidt

So much of what you just said, even though it’s distinct, overlaps with litigation risk, which is, of course, the subject of this topic.  You said some key words that I use all the time, such as risks, problem solving.  And there are parallels - we’ll probably get into this shortly - there are parallels between internal investigation and litigation risk.  Sometimes what’s found in the investigation leads to litigation and that’s obviously one of the concerns in addition to activity.  But why don’t we get to that in due course and start at the beginning, as they say, a very good place to start.  What are the typical events or crises that you see that trigger the need for a company, to not just handle things internally and have, you know, their HR director or maybe their loss prevention professional do an investigation as to what went wrong, but to retain outside counsel, someone as you, to conduct a third-party audit or a third-party investigation?

Laporte

So, typically, when outside counsel is retained, there are several reasons.  One can be because of the type of entity that it is.  If it’s a U.S. public company and it is an accounting issue, there may be expectations of an independent investigator.  Independent meaning independent from management, independent from the company, perhaps even representing a border audit committee.  And those can be regulatory expectations that would suggest the hiring of outside counsel.  It could be because legal and/or compliance are conflicted.  Perhaps the allegations come from within their organizations and so, again, you would want someone independent.

Schmidt

You can’t have the investigator be someone who may have done wrong themselves.  They will inevitably taint it.

Laporte

Correct, correct.  Or someone who may report into the person against whom allegations has been made, within legal or compliance, would be a difficult set up.  So, you’d want someone from the outside.  It could be to coordinate global counsel because there are potential issues spanning the globe, and you need someone on the outside to coordinate local counsel in various jurisdictions and help make a strategy for dealing with regulators if that’s needed.  Or it could be because the subjects are so senior within the company, they’re senior executives or they’re board members, audit committee members that you’d really want an independent view of things.  So, those are some of the reasons that outside counsel might be retained.

Schmidt

One of the things that you said that resonates with me, and maybe to put in shorthand, is companies are political organizations and you can’t really do anything within a company without stepping on someone’s toes, or, you know, where the investigation’s gonna lead is itself sort of a, can be conflicted with politics.  And so, you, as the outside investigator, come in and you go wherever you feel like the facts merit, right?

Laporte

Typically, that’s the goal and I think being in an outside, independent position allows us a little more ease to do that than, perhaps, those in internal counsel.

Schmidt

So, when you’re first engaged and you know this is gonna be an internal investigation, it could be on any number of violations or malfeasance, what’s sort of your initial check list or process that you undertake in getting things launched?

Laporte

Sure.  So, with the caveat that every investigation is different, and we have to tailor our steps to what the particular investigation is, I think fundamentally answering the question from the beginning, what the purpose of the investigation is, and setting an initial investigation scope is critical.  Now, that scope can change, and often does during the course of the investigation, but understanding initially what are we doing and why?  And who is our client?  And what kind of business is our client?  What kind of regulations could be implicated here, if any?  Is this an internal issue, is it an HR issue?  Really understanding the scope of the risks can help to scope the investigation.  What is the level of the allegation?  What is the seriousness of the allegation?  How old is it?  If it’s a potential cross-border issue, what is the U.S. Nexus for this allegation?  And then starting to put together an investigation plan.  And so, who are the background witnesses that we might want to speak with to understand, often times, the basics of the client’s business?  How do things work?  How does the accounting function work?  Who is in charge of this, or that that we need to understand?  And then, I think finally, a key consideration is preserving evidence and information.  From the second you get in, how do we make sure, from now on, that evidence is maintained?  And then, finally, stopping any potentially ongoing questionable conduct.  The worst-case scenario is that this conduct is ongoing while the company is doing its investigation.  And so, a key consideration out front is, if there is something questionable ongoing, how do we stop it now?

Schmidt

So, I’d like to ask you a couple follow up questions on that and overlay also something I don’t think you mentioned in that answer, which is the need to minimize the communications that can take off within the company email system and sometimes even outside with text messages…

Laporte

Yes.

Schmidt

…about the fact that there’s been an internal investigation.  That can be big news within.  And then you can have, you know, all sorts of chatter and email about, you know, Margot Laporte is here from Dorsey and did an internal investigation and who are they gonna interview?  And all the chatter that takes place, even outside of the system, that creates documents that, people aren’t thinking about, could be very damning.  How do you address that issue so that parties don’t create documents that contain admissions just even in a reaction to the fact that an investigation is undergoing?

Laporte

Yes.  And in addition to that, there’s potential waivers of attorney-client privilege that could result, confidentiality concerns, both inside and outside the company.  These days on top of that, particularly for U.S. public company, there are rules around protecting whistleblowers.  And so, for everything, it used to be that we would come in and say you are absolutely forbidden from discussing anything about this investigation, inside or outside the company.  And the FCC has taken a hard stance on that and said no, the employees have to be allowed to lawfully inform law enforcement authorities of potential misconduct.  And so, everything we do needs to be a strategy both to prevent, as you said, unnecessary gossip and talk of the investigation while protecting employees’ whistleblower rights.  And again, particularly for U.S. public companies, and so from the beginning we are communicating, we are thinking about, for example, when do we send a document hold notice that informs employees that they should not destroy documents in their possession?  If you send it immediately to the entire company, the entire company is going to be on notice that there is an investigation, and sometimes that might be appropriate.  Sometimes it’s appropriate to send it in conjunction with requests for interviews and to use a more tailored response.  Sometimes it’s appropriate to send it up front, but to a limited number of employees.  And so, thinking through those kinds of decisions, when are we sending out interview requests?  Typically, it would be closer in time to the interviews as opposed to a month in advance.  And then I think, in thinking through who in senior management needs to be informed of this investigation, and everything should be on a needs-to-know basis.  Who is going to help us schedule interviews within the company?  Who is the appropriate person?  And so all of that are logistics that can seem a bit mundane but can actually have a really important impact on the credibility of the investigation.

Schmidt

Yeah, what you just identified is a real Catch-22.  Like on the one hand, you don’t want anyone destroying documents regardless of whether they know about the investigation or the underlying issue, but the knee jerk reaction that sometimes happens, you know, you can’t do what I do on the civil litigation.  Once the complaint is filed, we send it to a wide number of people, hey, preserve all your documents, or it sort of blows the cover, not the cover of the investigation but the need-to-know principle in…

Laporte

Yeah.

Schmidt

…the investigation.  A real challenge that I think calls for a lot of expertise, and I suppose just weighing the pros and cons, the risk, and benefits of the unique situation.

Laporte

Yes exactly, and sometimes companies are already under litigation hold, and in a sense that makes our job a little easier because we have some time to really think through the strategy for the document hold notice if employees have already been subject to litigation hold.  There are also now with technology, there are steps we can take on the back end such as turning off auto delete functions and remotely collecting electronic data and information from company laptops and phones.  And so, there’s a lot that we can do on the back end without affirmatively informing the entire company that we are doing an investigation.

Schmidt

But the back end only goes to the systems that the company controls and…

Laporte

Correct.

Schmidt

…that’s always the challenge, I mean it’s a challenge in, you know, e-discovery and litigation.  So many communications are in sort of noncontrolled mechanisms or platforms.  You know, WhatsApp or…

Laporte

Yeah.

Schmidt

…text messaging with a personal phone.  Nothing you can do about that, other than to advise them to preserve at the appropriate time.  You mentioned a moment ago the attorney-client privilege, which is again something we deal with in civil litigation all the time.  What are the risks associated with waiver of the attorney-client privilege in connection with an ongoing investigation?

Laporte

Well, I think that there are two major pitfalls that I often see.  One is in cross-border investigations not understanding sufficiently or anticipating the differences in privilege rules between the United States and other countries.  The U.S. has fairly broad privilege.  In other countries, they may have more limited privilege protections, and so in much of the EU, for example, if you are communicating with an in-house lawyer, in-house lawyers’ communications are not subject to privilege because they are typically not members of the local bar.  And so, while in the U.S. your communications with in-house lawyers are privileged, in the EU what an in-house lawyer does internally in the documentation they create could be deemed not privileged.  And so, if we’re thinking about where could litigants request discovery, or if you’re dealing with U.S. and foreign regulators, what documents are you producing in the U.S. versus abroad that could result in a broad privilege waiver.  Those kinds of strategies need to be thought of up front and often in consultation with local counsel in the various jurisdictions to make sure that you are thinking through these issues in advance and not when you get a discovery request from litigants and realize that all of the communications with in-house counsel may not be privileged.  The second is not understanding who the client is.  And this can be particularly tricky when we represent companies or boards or audit committees, and what kinds of information are we giving to members of senior management that may not be on a need-to-know basis.  And what kind of communications are we having about legal advice and strategy as opposed to facts and process that could result in a finding of a privilege waiver.  And so, I think having those issues in mind up front and keeping them in mind throughout, even though it can get complicated, will help protect the privilege going forward.

Schmidt

Your answer sort of underscores that, you know, if doing one of these investigations in the U.S. is chess, once you cross borders, it becomes 3D chess, or…

Laporte

Yes.

Schmidt

…maybe I should say doing an investigation in the U.S. is checkers by comparison to 3D chess, because now we’ve got all sorts of choice of law issues and different rules relating to privilege, and, you know, also just dealing with different cultures in terms of how they are accepting of invasive and exacting investigation.  Let’s turn to a question that I’ve had in some of the internal investigations I’ve done and relates to strategy, and that is whether you start at the top in senior management and sort of work your way down the organizational chart to the rank-and-file employees.  Or do you start with the rank-and-file employees and sort of work your way up to the top, if you’re going to start doing these witness interviews?  You have a rule of thumb or is that question too broad and too generalized to answer in isolation?

Laporte

So, I have preferences and there are always exceptions.  When I think about witness interviews, I think of them as information gathering exercises.  And so, I want to go into every interview with as much background as I possibly can.  And so, I start with what I call background interviews.  Those could be people that help me understand where the documents are, how they stored in IT, for example in the accounting function, how those functions might work.  How does a company’s systems work?  How does the business work?  And then I typically would move to the lower tier of employees who might also be able to give me more information.  Now it depends on who the subject of the investigation is.  Typically, I would put the subject and more senior management at the end, because by the time I am interviewing them, I want to have all the documents available that I have access to.  I want to understand how the company works.  I want to understand all of the available facts.  Now, there have been plenty of times where that plan does not work out because, for example, the allegations concern the Chair of the Board of Directors, and the Chair is up for reelection, and we need to get to the bottom of things involving the Chair before reelection.  Or the employee is up for promotion.  Or any number of reasons why for client reasons, the investigation gets out of order.  Is it ideal?  No, but is it part of client management and what we do in serving the client?  Yes, absolutely.

Schmidt

Can you talk a little bit about what you do when a interviewee says, hey, I think I might need a lawyer.  I think I might need personal counsel and/or goes ahead and makes a decision like says, yeah, I’ll be there next Wednesday as expected, but I’m bringing my lawyer with me.  And perhaps sometimes that’s an unexpected reaction.  How do you handle that?

Laporte

So, first I think about my obligation and my duties as outside counsel.  The first is that I need to identify if I think an employee might need outside counsel and typically, just as a matter of course, that is the CEO, the CFO, certain members of senior management typically would have their own outside counsel that are typically covered by DNO policies.  The second is that when I go into a witness interview, I give what’s called an Upjohn warning, and part of that warning is to inform employees that I am not their lawyer.  And that means that if they do not have their own counsel, they are unrepresented.  It could be that I don’t see that they need their own counsel, because I have a particular view of the facts and they feel that they would like to retain their own counsel, even if it’s not covered by a DNO policy.  In that case, if they ask me, my obligation is to tell them that I am not their lawyer, and so I cannot advise them either way on whether or not they should retain counsel.  If we are sitting at that moment in a witness interview, I will typically walk them through the topics that we are going to cover that day and ask them if they’re comfortable proceeding and I advise them that if at any point they are become uncomfortable, we can stop the interview or take a break.  And typically, employees move forward at that point.  If they would like a lawyer, of course, they have the ability to retain their own counsel and that all, I should caveat, depends on the local labor laws of wherever I am interviewing that person.  And so, having had a conversation with local counsel, if we’re in foreign jurisdictions ahead of time to understand the local labor laws that might apply is also really important.

Schmidt

Is there a reference to the fact that under some labor laws, if counsel is prudent or necessary, or if the case meets certain criteria for having personal counsel for the employee, the employer has to pay for that counsel?

Laporte

Yes.  And there’s any number of more protective labor laws as to when counsel may be advisable abroad than in the U.S.

Schmidt

Okay.  Certainly, a major part of the skill set that you bring to internal investigation is judging the credibility of the witnesses that you are interviewing.  I would imagine you have a number of experiences on the sliding scale of, yes, very credible witness telling us everything, to this witness is perhaps part of the cover up and lacks credibility.  Without giving away store and your own trade secrets of your practice, what are some things that you can tell us about that part of the job of judging credibility of witnesses?

Laporte

Well, first is that it does come with time, but second is that that is what preparation ahead of the interview is for and making sure that we have the information available to be able to make that judgment.  And when we set up an interview, we start with questions that would give an interviewee the opportunity to establish their credibility, to establish their knowledge, and so we start with broad questions typically and then we may narrow down over time.  And so that allows us to establish a baseline for what the interviewee is telling us.  For example, I understood the anti-corruption policy and I understood that it involved XYZ, and you can compare that answer with their actual conduct later.  Well, sir, you said you understood that the policy did this, but you did this, can you explain it to us?  And it gives them an opportunity to explain because life is not always black and white.  But it also, I think having a plan and a strategy for how you’re going to go into each interview sets up scenarios that allow you to test their credibility over time and ultimately, you may just present them with the document that shows that they were entirely untruthful throughout their interview.  Or overtime you learn more information after their interview and you come back around and interview them a second time, having learned new information.  And so, it truly is an iterative process and ultimately part of our job is making a finding.  Was this allegation substantiated or was it not?  And part of that is the credibility of the employees.

Schmidt

I think the takeaway from that is this is as much an art as a science, or maybe more of an art than a science.

Laporte

Yes, absolutely.  And remembering that you’re facing people, right?

Schmidt

Right.

Laporte

The person in front of you is a person, and so…

Schmidt

Yeah.

Laporte

…I think the more that you can have a conversation, the better off you will be.

Schmidt

Now, speaking of credibility, do you have views on, in this age of video conferencing and Zoom, which makes it so easy to depose witnesses, meet clients, I would imagine, do these interviews, whether it’s important to be actually sitting in a conference room across the table from certain witness rather than just revert to the convenience of video conferences?

Laporte

Yes, I think for certain witnesses, it is absolutely critical.  For members of senior management, for the subjects of interviews, if it’s a very document heavy interview.  Sitting face to face with somebody, it cannot be replicated on the screen.  If there are foreign language barriers and translators.  Having done a number of global cross-border investigations during the pandemic where we were necessarily on the screen, I can say that translation via video and Zoom is incredibly hard.  And so, for all those reasons, there are a number of interviews that I think should be done in person.  That’s a conversation with the client, because of course there is a cost associated with it.  What Zoom has enabled us to do is to be able to do those background interviews, or maybe some of the more information gathering type interviews without such a large cost to the client and I think that’s a benefit too.

Schmidt

Well, that’s a good segue to the next question that I had for you, which is cost and the tension.  You know, all of this depending on the nature and scope of it can be very, very expensive.  Your travel, you’re involving local counsel, you’re involving third-party vendors such as E-Discovery Professionals, reviewing documents.  And in litigation, we’re often asked for litigation budgets.  How do you deal with the tension of the thoroughness and completeness of a interview, even though it’s going to be a protracted process?  And the company’s incentive to sort of truncate it?  Hey, we did our internal investigation, and it didn’t find anything.  You know, cost is a major consideration, but that also might overshadow the fact that the company perhaps wants to close the chapter on this as quickly as possible with a clean bill of health.  And the longer Margot is poking around the company offices, interviewing rank-and-file employees, the more likely it is it might lead to more evidence of wrongdoing that could go all the way up to management.  How do you handle that tension of thoroughness and staying within some budget but not having your investigation unreasonably truncated?

Laporte

So, I think that’s where understanding the purpose of the investigation is key.  Is this investigation to satisfy a company’s internal processes or are there external regulators involved that might want the company to do more if the company is going to get cooperation credit?  Is this a public company that is being audited by external auditors that are going to want a report of what the investigation process is and will want to have some input in that process?  So, there may be external factors outside the company that push towards a broader scope of the investigation as well, but certainly any outside counsel needs to understand that investigations are costly, not just in terms of the budget but in terms of time for employees.  In terms of moral.  It is a difficult process for a company to go through and, so as much as we may want to get to the bottom of absolutely every issue and interview everyone at the company, there needs to be an understanding of what really matters here and what matters less and what the stakeholders need to know and will be interested in, versus what may be nice to know.  And that’s an ongoing conversation with the client as well.  And so, I think those conversations need to happen, and understanding what the ultimate goal is of the investigation will help to avoid a really unreasonable scope creep.

Schmidt

Those are some great insights.  Let’s now turn to the conclusion of the investigation process.  The deliverables, self-reporting, and talk about metaphorically, how we land this plane.  We’ve been traveling a high altitude for a period of time and now we have to land this plane.  Most of your engagements result in a internal report and audit committee or someone else in management.  Is that pretty standard in your practice?

Laporte

Yes, that is.

Schmidt

What goes into that investigation report and why is it necessary and prudent to have that and also if you could touch on privilege.  I know I’m asking not just multipart questions, but you know five or six sub parts.

Laporte

I will refrain from objecting at this point.

Schmidt

When I’m not taking a deposition, I just enjoy being able to ask these very protracted and compound questions.

Laporte

And again, I think the form of the report is a conversation with the client and the form of the report can change over the course of the investigation, depending on what it identified.  If a thorough investigation was conducted and did not identify misconduct, perhaps a full investigation report is warranted, and if that report happens to be produced, great.  And I think anticipating the risk of production and what that report or output of the investigation would look like is also critical and that concerns not just the final output of the investigation, but the entire investigation file that counsel is maintaining.  And so, as I’m doing an investigation, I am constantly aware of if this e-mail or this file were produced, what would it look like?  Is this a defensive piece for the client?  And what am I putting into my clients’ files?  Am I putting advice in their files that may not be applicable in the future like, you absolutely should self-disclose.  Am I putting that in their files, even though in the future we may decide that self-disclosure is not warranted?  And so, thinking about the record that’s being created throughout, I think is just as important as thinking through the final report.  And the report can take any number of forms.  It can take a factual report form where the company in fact anticipates and wants it to be produced in some proceeding in the future.  It can be a privileged hybrid of facts and law.  It can be an oral report if I’m presenting to a board or audit committee, typically it’s a PowerPoint, and that’s a discussion with the client over time and typically is based on what the investigation finds.  Another point to talk about with the client is whether they want remediation recommendations following the investigation.  Many clients do.  Some want them more informally; some want them in a report that they can pass along to those in the company who can affect remediation.  So, it’s certainly a dialogue, but there are things that counsel should be thinking through as well.

Schmidt

And I can just add to that from a litigation standpoint, the value of having a comprehensive report that was done promptly at the time, was thorough, even if it has a few, hey, this is what happened, and you know, we need to tighten some controls here.  If it comes out in discovery, that can be very, very helpful because it shows the company acted in a responsible manner at the time and it can have a huge benefit.

Laporte

Yes, exactly.  And I think that, oftentimes the investigation process and remediation process are just as important as what the findings were that the company undertook a credible investigation and a real effort at remediation, based on the findings.  Documenting those two points can be extremely helpful for the client.

Schmidt

And I assume that you are often called to give your recommendation as determinations for individuals who have severely deviated from important policies.  Is that a significant part of that end conclusion as well?

Laporte

I’d say it depends.  And I say it’s a very lawyerly, it depends response.  Often times that is something that the company delegates to HR and we are happy to speak with HR.  I am not, by training, an employment lawyer and so, on the employment side, I typically would not be advising on that, but certainly if there is a public company and the company is dealing with the SEC or the DOJ as part of cooperation and remediation.  Those regulators would expect that the company would terminate employees involved in any misconduct.  And there’s a real focus on individual liability as well on the part of those regulators.  So, it factors into my advice and my suggestions on remediation.  There are some countries outside the U.S. where even if an employee is determined to have engaged in misconduct, it is extremely difficult, if not impossible, to terminate them.  So, that is often a conversation with local counsel.  How do we continue to employ somebody who engaged in a bribery scheme, and how do we ring fence them and make sure that they don’t have access to be able to do that again.  So, it’s often, it can seem like a very simple decision, terminate, not terminate, but there are a lot of factors, I think, that go into it.

Schmidt

You’ve mentioned in some of your answers a couple times the concept of self-disclosure and I know we could probably do an entire podcast episode on the self-disclosure discussion and broadly we’re speaking about, you know we discovered there’s been some malfeasance, maybe even criminal activity, do we go to the relevant authorities?  And can you just give us a 50,000-foot level overview of the fundamental question to disclose or not to disclose?

Laporte

As you said, it could be an entire hour on self-disclosure.  In the U.S., DOJ has tried to be increasingly clear about what benefits a company that self discloses potential misconduct could get.  And that could include a declination.  The SEC has been less clear.  Although still trying to promote self-disclosure, the SEC says that’s in some cases they will decline to bring an enforcement action if a company self discloses potential misconduct.  That does not mean that every time a company finds potential misconduct, it should run to the SEC or DOJ immediately, in my mind, it depends, though, on the misconduct, right?  Because what the SEC and DOJ have emphasized is timely and new.  And so, if they learn of the information before the company can self-disclose, and that can be through increasing whistleblower incentives through news reports, a company would not get self-disclosure credit.  So, all of this to say it depends on how senior are the individuals who may be involved.  How serious is the misconduct?  How long ago did the misconduct occur?  When did the company find out about?  Did they find out about it two years ago?  In which case, there isn’t a rush to run to the regulators.  And what is the U.S. Nexus?  Is there going to be an argument that maybe the U.S. doesn’t have jurisdiction here?  And what other regulators may be involved?  Because at this point, we understand that regulators speak with one another globally.  And so, if you self-report in the U.S., chances are that the company’s other regulators may be informed.  Or if you self-report overseas, chances are the U.S. may find out.  And so, you may want to self-report in the U.S. too.  So, there’s a lot of considerations there.  The other point I would make is that in the U.S. self-report is not the only kind of credit that a company can get, and so many companies do not get credit for self-reporting potential misconduct.  But then they proceed to cooperate during the investigation and receive credit for that as well.  So, it’s not the end all be all in order to receive credit, it is right for some companies and for others it does not make sense.

Schmidt

But a very, very significant decision…

Laporte

Yes.

Schmidt

…that has to be made at the conclusion of an investigation and, and the …

Laporte

Well, in fact, it’s, it’s probably before the - and I don’t mean to, to cut you off, but it’s probably before the conclusion of the investigation, which can certainly create a lot of angst.

Schmidt

Okay.  So, you’re saying that this self-disclosure decision is something that you’re making as the investigation continues, because the investigation may last for several months and if you wait until you know all the facts, then you lose the promptness requirement you were talking about earlier.

Laporte

Correct.  Yes.  And so there is a push by the regulators to self-disclose as early as possible.  And that means that the company and outside counsel likely will not have a handle on all of the facts before they run in and self-disclose if they really want that credit.

Schmidt

Okay.  That answer, I think, underscores why it is so important to have able and competent outside counsel guiding a company through the rocky waters of an internal investigation.  So many judgement calls from the very beginning to the very conclusion of the matter.  And also, just the perspective of problem solving throughout the whole thing.  You’re being called in as a firefighter to put out a very significant blaze and it requires a great deal of skill and experience in order to do that effectively and for the best interest of the company.  Now I just want to finish this discussion, turning from internal investigation, and go back to something that we talked about the very, very beginning and that’s the International Bar Association.  We’ll give a quick plug to that organization that you and I have both been a part of, I think you longer than me.  Tell me about, just in a few minutes that we have remaining, the IBA and how it’s a important part of your practice and your involvement in that organization, including the recent trip that we both took to Mexico City.

Laporte

Sure.  So, the International Bar Association is a private association of lawyers from around the globe.  Its annual conference draws upwards of 3,000 or more attorneys from across the world, and so in terms of meeting our counterparts and meeting lawyers that don’t do anything like what we do, it’s a great organization.  I’ve been a member, an officer of the Criminal Law Committee, for several years now, and so that committee focuses, as the name suggests, on these sorts of issues that touch our clients globally.  It’s a great opportunity to meet and to network and to hear what our counterparts across the globe are thinking about, what kinds of issues their clients are encountering.  As I’m sure you can tell, oftentimes local law issues do come up, and it’s nice to be able to have, at my fingertip, a list of lawyers across the globe that I can trust and rely on for employment law issues, or corruption issues or any of the other issues that may come up.  It’s also fun.  It’s nice to be able to enjoy a meal or drink or coffee with others that we wouldn’t have an opportunity to meet with otherwise.  And so, it’s been an important and one of the better parts of my practice to participate in the IBA.

Schmidt

Well, I echo that.  I think here in the U.S. we sometimes get very American centric and we, you know, such a huge market, a legal market and otherwise, and you can just sit and spend your entire career domestically, but being able to meet lawyers from outside the U.S., and also, just sort of change your thinking, change your focus and perspective about global issues and realizing that we’re all part of the same global community is a very fulfilling and worthwhile endeavor.  That’s about all the time we have for our discussion today.  Turning back to the topic of internal investigation, what is the one take away you’d like to leave with our SharkCast listeners?

Laporte

Companies contemplating an internal investigation and their outside counsel should bear in mind that any decision that is made, any record that is created, could be subject to production in the future.  To third parties, to regulators, even if the company and outside counsel believe that it is attorney-client privileged and subject to attorney work-product protections.  And so, building a defensive, investigative record and documenting decisions that are made along the way will be helpful in protecting the company in terms of future litigation risk, reputational risk, and enforcement.

Schmidt

With that, I’d like to thank you, Margot, for being here.  And to thank our listeners for tuning in to another episode of SharkCast.  As always, I’m indebted to the extraordinary team at Dorsey for making this podcast, and this episode, possible.  For more resources on this and other litigation risk, go to litigationrisk.com, where more information can be found, including a book on managing ligation risk, written by yours truly.  Until next time, my friends, this is yet another reminder that there are a lot of sharks swimming out there in those murky waters, so swim safely.

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