Following up on a recent Public Chatter blog in a series about internal investigations, note that Federal Rule of Evidence 502(g) states:

(1) “Attorney-client privilege” means the protection that applicable law provides for confidential attorney-client communications; and

(2) “Work-product protection” means the protection that applicable law provides for tangible material (or its intangible equivalent) prepared in anticipation of litigation or for trial.

The work-product privilege is more comprehensive than attorney-client privilege. Whereas the attorney-client privilege includes only communications between an attorney and the client, work product includes materials prepared or collected by persons other than the attorney or someone working for them with an eye towards the realistic possibility of impending litigation.

To read the full article on the Public Chatter blog, click here.

Background on the Guidelines and FOIA

On March 15, 2022, the United States Department of Justice (“DOJ”) released new guidelines favoring the disclosure of federal agency records under the Freedom of Information Act (“FOIA”). Signed into law by President Lyndon B. Johnson in 1967, FOIA established a statutory right of public access to executive branch records. At a high-level, FOIA provides that any person has a legally enforceable right to obtain federal agency records subject to the Act to the extent that such records are not protected from public disclosure by one of FOIA’s nine exemptions. The Supreme Court has explained that “the basic purpose of FOIA is to ensure an informed citizenry,” which is “needed to check against corruption and hold the governors accountable to the governed.”

The DOJ’s new guidelines direct federal departments and agencies to apply a presumption of openness in administering FOIA and explicitly state that the DOJ will not defend nondisclosure decisions that fail to do so. Under the new guidelines, the executive branch should not withhold requested information that might fall within one of FOIA’s exemptions unless the relevant agency can identify a foreseeable harm or legal bar to disclosure. The guidelines also remind federal agencies that FOIA requires the proactive disclosure of records and emphasize that such agencies should make records more readily accessible without requiring individuals to file FOIA requests. As an example, the guidelines note that the DOJ’s Executive Office for Immigration Review will no longer require individuals to file FOIA requests to obtain copies of their own records of immigration court proceedings.

Continue Reading New DOJ Guidelines Regarding FOIA Create Presumption of Openness

In remarks to the ABA Institute on White Collar Crime, U.S. Attorney General Merrick Garland and U.S. Assistant Attorney General Kenneth Polite Jr. delivered a wakeup call: enforcement activity by the U.S. Department of Justice (DOJ) “will only accelerate as we come out of the pandemic,” and federal prosecutors will focus more on white-collar criminal cases. The DOJ’s priority in these cases, AG Garland explained, is to hold accountable those individuals who commit and profit from corporate crime. And AAG Polite emphasized that the DOJ is committed to vindicating the rights of victims in white-collar cases who are too-often overlooked.

Continue Reading DOJ Foreshadows Increased Prosecutions of Corporate Crime

Recent briefing in SEC v. Team Resources, Inc., a long-running case challenging a U.S. Securities and Exchange Commission (“SEC”) disgorgement award, is a reminder of both the significance of the Supreme Court’s 2020 decision in Liu v. SEC and the open questions that remain regarding the SEC’s disgorgement remedy.

Continue Reading SEC v. Team Resources, Inc.: Exploring SEC Disgorgement Post-Liu

In its recent decision in United States ex. rel. Schutte v. SuperValu Inc., the Seventh Circuit joined four other circuits in holding that the Supreme Court’s objective scienter standard articulated in the Fair Credit Reporting Act (FCRA) case Safeco Insurance Company of America v. Burr applies to the False Claims Act (FCA). Under the objective scienter standard, a defendant who acts under an incorrect interpretation of a statute does not do so with reckless disregard—and therefore scienter, a required element of a FCA violation—if (i) the interpretation was objectively reasonable, and (ii) no authoritative guidance cautioned the defendant against it.

Notably for companies that contract with the federal government, this decision narrows the scope of their liability under the FCA. It also highlights the importance of such companies identifying and acting in accordance with authoritative guidance—a term of art whose precise contours remain undefined. Continue Reading Seventh Circuit Holds Objective Scienter Standard Applies to FCA

On January 20, 2022, the U.S. Supreme Court held in an 8-1 opinion in Hemphill v. New York that Darrell Hemphill did not “open the door” to the admission of out-of-court third-party testimony by making it “arguably relevant to his theory of defense.” The Court further held that the admission of such testimony violated Hemphill’s rights under the Sixth Amendment’s Confrontation Clause. The opinion will have practical significance for defense attorneys and prosecutors preparing for trial.  See Supreme Court to Weigh Protections Under Confrontation Clause.

Continue Reading U.S. Supreme Court Rejects Argument That Defendant “Opened the Door” to Evidence That Violated Confrontation Clause

Fiscal Year (FY) 2021 was a record-breaking year for the U.S. Securities and Exchange Commission’s (SEC’s) Office of the Whistleblower. Between October 1, 2020 and September 30, 2021, the SEC issued awards to more whistleblowers, and distributed more money in whistleblower funds, than in all prior years of the program combined. Now, just a few months into FY 2022 and two weeks into calendar year 2022, all signs point to a continued robust whistleblower program.

Continue Reading SEC Awards Over $17 Million to Whistleblowers in the First Two Weeks of 2022

The Federal Trade Commission (FTC) recently issued a new policy statement expanding its criminal referral policy. While the FTC’s authority is limited to civil enforcement, the agency aims to enhance its efforts to address misconduct the FTC uncovers that may trigger criminal sanctions for companies and individuals and make referrals to law enforcement when appropriate. The agency aims to deter potential criminal activity in both its consumer protection and competition arms.

In announcing its new policy statement, the FTC pointed to its existing efforts regarding criminal referrals, including 36 referrals this year to prosecutors from the FTC’s Criminal Liaison Unit and 840 formal requests for cooperation from criminal law enforcement partners over the past five years. The FTC reported that prosecutors relied on FTC information and support to charge 228 new defendants and obtained 283 new pleas or convictions over a five-year period.

On a going forward basis, the FTC has signaled that it will continue to prioritize the referral of potential criminal conduct and take steps to facilitate uptake of those cases by appropriate authorities. Specifically, the FTC pointed to four practices to forward the goals of the new policy statement:

  • Developing guidelines to ensure criminal law violations — particularly by major corporations and their executives — are identified by staff and promptly referred to criminal law enforcement agencies;
  • Convening regular meetings with federal, state, and local criminal authorities to facilitate coordination with FTC and law enforcement;
  • Offering further trainings for all law enforcement regarding the FTC’s Consumer Sentinel database system, which offers access to, and analysis of, millions of consumer complaints and fraud allegations submitted to the FTC; and
  • Publicly reporting the agency’s criminal referral efforts at regular intervals to highlight criminal prosecutions. The FTC will begin issuing regular public reports on its work detailing the number of referrals, the general nature of the alleged conduct involved, and, when appropriate, more detailed information concerning criminal enforcement actions that stem from Commission actions and investigations.

Continue Reading FTC Issues Policy Statement Aimed at Increasing Criminal Referrals for Corporations & Executives

In Audet v. Fraser, an unusual case where federal jurors in a class action lawsuit considered whether digital assets known as “Hashlets” constitute securities, the District of Connecticut jury found that the Hashlets were not securities, and therefore the defendant was not liable for securities fraud. Notably, the SEC took a contrary position on Hashlets in 2015, when it sued GAW Miners, LLC, its founder Homero Joshua Garza, and another company founded by Garza for securities fraud, alleging that Hashlets were, in fact, securities. Both companies were permanently enjoined from violating securities laws and ordered to disgorge more than $10 million, and each was ordered to pay a $1 million civil penalty. Garza was later sentenced to 21 months imprisonment in a related criminal case.

The jury’s verdict comes as the SEC has expressed increased interest in regulating digital assets as securities. For example, in November, SEC Chair Gary Gensler noted that his staff’s enforcement mission includes bringing “novel” and “high-impact” cases involving crypto. And in September, Gensler called for greater regulation of crypto assets, likening the environment in crypto finance, issuance, trading, and lending to “the Wild West.” While increased enforcement in crypto markets may be on the horizon, the jury’s decision in Audet highlights some of the uncertainties that currently pertain to the regulation of digital assets, such as “Hashlets.”

Continue Reading Co-Founder of Crypto Mining Firm Prevails in Jury Verdict Based on Interpretation of Unique Securities Fraud Instruction

Through a series of recent public comments, top leadership from the Consumer Financial Protection Board (“CFPB”) is warning that the agency is poised to play an increasingly affirmative role in the oversight of new payments systems, including the technologies and technology companies involved. First, CFPB Director Rohit Chopra told federal lawmakers that “the desire of Big Tech to gain greater control over the flow of money in the economy raises a number of questions.” Director Chopra’s comments make clear that his agency is stepping up its regulatory scrutiny of large technology firms as well as more traditional participants in the consumer finance industry, such as banks and mortgage companies. Just days later, Director Chopra issued a statement reiterating his concerns about the role of large technology companies in consumer finance and further declaring that the CFPB is “actively monitoring” and preparing for a broader consumer adoption of cryptocurrencies. Commenting specifically on the Report on Stablecoins issued by the President’s Working Group on Financial Markets, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, Director Chopra stated that the use cases for stablecoins in retail payments, consumer deposits, stored value instruments, and others “trigger obligations under federal consumer financial protection laws,” including the prohibition of unfair, deceptive, or abusive acts or practices. These comments and others by the CFPB lead many to conclude that a more aggressive enforcement approach across industries is likely to follow.

As a starting point, Director Chopra indicated that the CFPB is examining the following questions regarding tech firms’ role in real-time consumer payments:

  • How will these firms harvest and monetize data they collect on consumer transactions?
  • What criteria will the firms use to decide who is removed from the platform?
  • How will they ensure that payment systems adhere to consumer protections?
  • Will Big Tech giants have an incentive to impede the entry of new firms seeking to offer competitive products and services?

Continue Reading Consumer Protection Regulator Signals Increased Scrutiny of Payments Systems and Tech Companies