Internal Investigations

Creating a circuit split that will likely be headed for resolution by the U.S. Supreme Court, the Second Circuit’s recent decision in Berman v. Neo@Ogilvy LLC expanded the Dodd-Frank Act’s anti-retaliation protections to include employees who were terminated by their companies after internally reporting to their employers concerns about potential violations of the federal securities laws.  The Fifth Circuit reached the opposite conclusion two years ago, in Asadi v. G.E. Energy (USA), L.L.C., holding that Dodd-Frank unambiguously defines “whistleblower” as someone who reports to the SEC.

Continue Reading Second Circuit: Dodd-Frank “Anti-Retaliation” Applies Even When Whistleblower-Employees Have Not Reported to the SEC

The U.S. Department of Justice—widely criticized for the perceived lack of cases brought against corporate executives—issued a new directive yesterday to all U.S. Attorneys designed to hold more individuals accountable for illegal corporate conduct.   The memorandum, written by Deputy Attorney General Sally Quillian Yates, first acknowledges the challenges involved in pursuing individuals for corporate crimes, noting the difficulties in determining the culpability of high-level corporate executives who tend to be “insulated from the day-to-day activity in which the misconduct occurs.”  Yates then goes on to outline guidance designed to help prosecutors better address these challenges.
Continue Reading DOJ Memo to Prosecutors Calls for More Aggressive Pursuit of Corporate Executives

Late last week, Judge Engelmayer in the Southern District of New York accepted a voluntary dismissal of a securities class action, but the dismissal was anything but routine. Instead, it was accompanied by a twenty-five page opinion & order which serves as an important warning to plaintiffs’ counsel in securities class action cases regarding the investigation process that often precedes securities class action complaints.

In In re Millennial Media, Inc. Securities Litigation, the plaintiffs alleged that executives of Millennial Media, Inc. engaged in securities fraud by releasing false and misleading information that artificially inflated the stock price. In an effort to satisfy the heightened pleading requirements under federal securities law, the complaint relied upon information and direct quotes from eleven “Confidential Witnesses” or “CWs.” However, the vast majority of these witnesses never spoke with plaintiffs’ counsel before the complaint was filed, though ten of the CWs had been interviewed by an investigator employed by plaintiffs’ counsel. After filing the complaint, plaintiffs’ counsel sent a copy of it to each CW, at which point one of them promptly requested that all attributions to him be removed. This request led to further inquiry from the Court as to the accuracy of the statements in the complaint, and revealed additional facts that the court found to be “unsettling.”
Continue Reading Judge Cautions Plaintiffs’ Counsel to Exercise Proper Diligence in Drafting Securities Class Action Complaints

On April 1, 2015, the Securities and Exchange Commission announced its first enforcement action against a company for using improperly restrictive language in confidentiality agreements allegedly aimed at stifling potential whistleblowers.

The SEC charged KBR Inc. with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act, which prohibits companies from “imped[ing] an individual

On June 27, 2014, the D.C. Circuit vacated the U.S. District Court for the District of Columbia’s hotly-debated opinion in United States ex rel. Barko v. Halliburton Co., making it clear that internal investigation communications are privileged “if one of the significant purposes of the internal investigation was to obtain or provide legal advice.”  The Circuit court noted that the privilege applies even if the internal investigation is conducted pursuant to a company compliance program required by statute or regulation, or is otherwise conducted pursuant to company policy.
Continue Reading D.C. Circuit Vacates Barko Ruling on Scope of Privilege in Internal Investigations

Whether documents prepared in connection with an internal investigation are protected from disclosure by the attorney-client privilege or work-product doctrine is a topic of continuing interest and current debate.  On March 6, 2014, the U.S. District Court for the District of Columbia filed a much-publicized opinion in United States ex rel. Barko v. Halliburton Co., No. 1:05-cv-1276, that held that internal investigation materials were not protected from disclosure by the attorney-client privilege or work-product doctrine because the investigation was not conducted in anticipation of litigation or to obtain legal advice.  As colleagues in Perkins Coie’s government contracts practice aptly cautioned, the Barko decision erodes critical protections against such disclosure offered by the attorney-client privilege and work-product doctrine. Fresh on the heels of Barko, just this week, the family of Joe Paterno argued in a Pennsylvania court that documents generated by former FBI director Louis Freeh’s law firm in its investigation into the Jerry Sandusky sex abuse scandal were not protected by the attorney-client privilege.  At the same time, New Jersey lawmakers are seeking to compel disclosure of outside counsel’s materials from the internal investigation regarding the New Jersey Governor’s involvement in the “Bridgegate” scandal.  Barko will likely embolden even greater numbers of litigants, as well as the government, to compel the production of sensitive information regardless of attorney-client and work-product protections.
Continue Reading Cause for Alarm? Protecting Internal Investigations from Disclosure after Barko