If you find yourself in the situation where you are about to be interviewed in connection with a company investigation you need to ask yourself two questions. Do I need a lawyer? Who pays? If you truly played no role in what the company is investigating you don’t need a lawyer. However, if you are a key insider who has information that will shed important details on what transpired you certainly would want to retain your own lawyer. There are many reasons why and I will address them below.

First, consider that earlier this year the Department of Justice set forth a Memorandum that identified that it would go after the individuals responsible for corporate wrongdoing and work its way inward towards the corporate hub. In addition, Justice conditioned any corporate cooperation credit that a corporation could hope to receive would be conditioned upon the disclosure of all corporate wrongdoings and all of the individuals that performed them. Think about this for a second. If the company you are working for is the subject of an investigation and wants in effect what is leniency in its “corporate sentence,” it must turn you over to Justice.

Second, before any interview begins, you must understand that the lawyer is NOT YOUR LAWYER. The lawyer is the company lawyer and therefore there is no guarantee that what you say will remain confidential. To avoid an employee raising an allegation that the interviewing attorney has a conflict of interest because the employee believed that the attorney was also representing him, all interviews begin with the Upjohn Warning.

The Upjohn Warning originated from a case before the United States Supreme Court. The Court found that while there is an attorney client privilege covering communications between counsel and the employee, the privilege belongs to the employer and not the employee. Therefore, the employees or key insiders always run the risk that the company will waive the privilege and share the results of the interview with government investigators and/or prosecutors. In fact, based upon the recent DOJ Memo discussed above, you can almost be certain that what you say will be turned over to the appropriate authorities.

In 2009 the ABA White Collar Crime Committee produced a sample Upjohn Warning. It reads as follows:

I am a lawyer for or from Corporation A. I represent only Corporation A, and I do not represent you personally.

I am conducting this interview to gather facts in order to provide legal advice for Corporation A. This interview is part of an investigation to determine the facts and circumstances of X in order to advise Corporation A how best to proceed.

Your communications with me are protected by the attorney-client privilege. But the attorney–client privilege belongs solely to Corporation A, not you. That means that Corporation A alone may elect to waive the attorney-client privilege and reveal our discussion to third parties. Corporation A alone may decide to waive the privilege and disclose this discussion to such third parties as federal or state agencies, at its sole discretion, and without notifying you.

In order for this discussion to be subject to the privilege, it must be kept in confidence. In other words, with the exception of your own attorney, you may not disclose the substance of this interview to any third party, including other employees or anyone outside of the company. You may discuss the facts of what happened but you may not discuss this discussion.

Do you have any questions?

Are you willing to proceed?

Now, very simply put, if you are a key employee and receive this warning placed in front of you and are asked to sign it, don’t you think you might want your own attorney present during this interview?

Obviously retaining your own independent lawyer can be expensive. However, in certain instances the company may or even be required to advance you the attorneys’ fees you incur. For instance, the company by-laws might require the advancement of your legal fees if you are an officer or director subject to repayment if it is found that you committed fraud. Other times such advancement of legal fees might be required under your employment agreement. Understandably it is certainly better to have an advancement of legal fees subject to repayment rather than a reimbursement of legal fees after a determination that you did not commit fraud. Whether or not you have one outcome or the other may very well depend on if you had competent counsel assisting you at the times these documents were created.

There are countless more issues to consider that are beyond the scope of this short article. If you should find yourself in the situation where you are going to be interviewed in connection with a company investigation, please feel free to call us at Danziger Shapiro, P.C. We would be happy to discuss your situation and develop a plan to minimize your exposure.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

FIRST – To be eligible for any cooperation credit, corporations must identify all relevant facts and individuals responsible for the misconduct.

If a company wants to receive any cooperation credit, it must now disclose all relevant facts and actors. A corporation can no longer pick and choose to hide those individuals responsible based upon, position, status, or seniority. To receive cooperation credit, the company must learn all relevant information and turn this over to Justice otherwise cooperation will not be considered as a mitigating factor under USAM 9-28 et seq. Stated another way, the company must now be an active participant in its own internal investigation and must learn and discover the extent of its wrongdoings. This self-reporting is only the minimum threshold. The extent of any cooperation credit is awarded by Justice, it will still be based on the same factors that have traditionally been applied in making this determination – timeliness of cooperation, thoroughness, diligence, speed of internal investigation and whether the cooperation was proactive or not.

SECOND – Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.

Justice has identified three benefits of making a concerted effort to go after individuals at the beginning of its investigation. First, corporations only act by individuals so by building its case against these individuals Justice believes that this will ferret out the full extent of corporate misconduct. Second, by focusing on lower level individuals at the inception, Justice this will increase the likelihood that individuals with inside knowledge of the wrongdoing will cooperate with the investigation and turn over useful information against the individuals higher up the corporate hierarchy. Third and finally, Justice hopes this approach will maximize the likelihood that any outcome will include charges not only against the corporation but also the responsible individuals as well.

THIRD – Both civil and criminal corporate investigations should be in routine communication with one another.

While this may appear obvious, it has not always been the case that both the civil and criminal sides of Justice work together and communicate. When there is a criminal and civil investigation ongoing at the same time, this is known as a parallel investigation. While both sides may be investigating the same transactions or events, one may learn facts that may be helpful to the other in its investigation. With different burdens of proof and charges, what may not be enough for a criminal charge may satisfy a civil charge and likewise a civil investigation may reveal facts that would be helpful to a criminal charge. By having a directive that both sides need to cooperate and share information in a meaningful manner, Justice hopes that this will lead to more successful conclusions to both civil and criminal matters.

FOURTH – No corporate resolution will provide protection from civil or criminal liability for any individuals absent extraordinary circumstances.

Individuals must be held accountable for their actions and therefore Justice may not agree to any settlement with the corporation that includes an agreement to dismiss charges or grants immunity to an individual. This is self-explanatory and just highlights once again that individuals are the main thrust of any investigation going forward.

FIFTH – Corporate cases should not be resolved without a clear plan to resolve related individual cases.

Once again, individuals are the main thrust of any investigation going forward. Going forward, if a corporate case is going to be resolved, the corporate authorization or prosecution memorandum must also include a discussion of potentially liable individuals. If the decision at the end of the investigation is not to bring an action against the individuals responsible for the misconduct, those reasons must be memorialized and approved by the US Attorney or Assistant US Attorney who handled the investigation of the case.

SIXTH – Considerations to bring suit against the individual must not be made solely on the ability to pay.

Unfortunately, it is now an edict of Justice that determinations to go forward against individuals will not be governed by the ability to pay. Factors that have always been considered are the seriousness of the misconduct, quality of evidence obtained, ability to obtain a judgment, past misconduct and federal resources and priorities. Justice stated that by holding the individual accountable in view of the above factors will minimize fraud and in the long run minimize losses to the public through fiscal fraud.

What is the take away here? Individual employees need to understand that if they do not take efforts to protect themselves they can be squarely in the cross-hairs for corporate fraud. It may not be enough to merely report the fraud to your superior, especially if your superior is part of the fraud to begin with. Justice has shifted the paradigm and it is now in the interest of the Corporation to come forward and complete its own internal investigation. As an employee, your future may not align with your employer during this investigation, especially if it was your information that triggered the investigation. It will be interesting to see how the Justice Department implements these new directives against the backdrop of the VW fraud emission scandal.

The attorneys at Danziger Shapiro have represented many individuals before the SEC, FINRA, federal forfeiture proceedings and other investigative bodies and can provide sound tactical guidance if you find yourself in these uncharted waters. Please feel free to contact us at Danziger Shapiro for insight into this and other issues that concern you.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

If you are company that is under investigation by the SEC, or an officer or director of a company that is under investigation by the SEC, and want to obtain a better understanding of the investigative process, please feel free to contact us at Danziger Shapiro, P.C.. We can walk you through the investigative framework and assist you in navigating a complicated and difficult situation.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

The Suitability Obligation

Investors go to their stockbrokers not only to get advice as to which stocks are likely to offer good returns. They also are seeking input on which investments are suitable for their specific circumstance. The suitability rule is intended to provide the investor with peace of mind that his/her broker has reasonably believes the broker’s investment recommendations are appropriate at the time the investment is made. Unfortunately, we have seen far too many situations where the proposed investment makes more sense for the broker than for the investor.

Rule 2111 requires that brokers:

“have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile”

FINRA Rule 2111(a) essentially takes existing case law and codifies it into three specific suitability claims. (1) reasonable-basis suitability; (2) customer-specific suitability; and (3) quantitative suitability.

1. Reasonable-Basis Suitability Reasonable-basis suitability means that a broker must perform reasonable diligence to understand the investment products and strategies that the broker recommends to her customer. The broker must also be able to demonstrate that she actually understands the product that she is recommending to her client.

2. Customer-Specific Suitability Customer-specific suitability means that a broker must have a reasonable basis to believe that her recommendations are suitable for a customer based on the customer’s “investment profile.” The broker must be able to establish that she understands who her client really is, what their needs are, and how this recommendation fits into what they are trying to accomplish.

3. Quantitative Suitability Quantitative suitability means that a broker who has control over a customer’s account must have a reasonable basis to believe that a series of recommended securities transactions is not excessive (often called a churning analysis). The broker’s must be able to establish that her overall trading record comports with the client’s goals.

New Requirements Imposed Upon Brokers

FINRA is clearly trying to send a message to brokers in this new economic climate and that message is “You will be responsible to your clients.” They are also expanding the potential definition of “clients” to include those who only had an informal relationship with the broker or prospective customers who may never have opened an account with the firm. Even recommended strategies, such a “hold” recommendation, may come under the purview of new FINAR Rule 2111. There is no requirement that the advice resulted in a commission before Rule 2111 comes into play. Simply put, brokers are now responsible for all customer recommendations.
While this is not an exhaustive discussion of the impact the new FINRA Rule will have upon brokers and their customers, it is clear FINRA is trying to chart a new course with an emphasis on protecting the individual customer from abuse. FINRA arbitration is relatively cheap and quick, especially in comparison to litigation a case in court. In fact, there is an expedited process for the elderly wherein you can file your complaint and have your case heard in less than 9 months.

The attorneys to Danziger Shapiro, P.C. have a long-established record of representing investor claims before FINRA. If you would like more information about the FINRA arbitration process or if you would like to discuss investment concerns regarding your situation generally; please call our office to set up a consultation today.