An internal investigation can be an important tool for a corporation to get ahead of regulatory problems, avoid becoming embroiled in litigation, or respond to whistleblower complaints. A well-planned and well-executed investigation can help a company understand the facts needed to determine how to respond to allegations of misconduct and to stay off the radar of government regulatory agencies.
But an investigation needs to be done right. A case in point involves Hewlett-Packard. A number of years ago, the company’s former general counsel hired a team to investigate board members to identify the source of an information leak. The investigating team recruited private investigators who posed as board members and journalists to obtain their phone records. After the tactics became public, the CEO and general counsel resigned in a cloud of scandal, the Congress held hearings, and criminal charges were filed. An annoyance for the company—leaks to reporters—became a major imbroglio due to the misguided investigation.
Benefits of Internal Investigations.
Many triggers may spark the need for an internal investigation, such as complaints from competitors or insiders, reports from compliance officials, allegations from whistleblowers, findings of auditors, notices from regulators, or public news stories.
There are numerous benefits to thoughtful internal investigations:
Helping decisionmakers understand the relevant facts of what happened, who was involved, and what the culpability is of participants.
Enabling management to appropriately respond to allegations of misconduct.
Showing regulators that the company is appropriately “self-regulating.” This can sometimes discourage government enforcement actions against the company.
Helping the company more effectively and proactively respond to government investigations or lawsuits.
Stopping behavior that is inconsistent with the company’s values.
Insulating the company from accusations it or its management has condoned or been complicit in misconduct by rogue employees.
Showing complainants that the company is taking the matter seriously. A complainant who believes the company is looking into a matter may give the company the opportunity to resolve the matter, rather than feel compelled to turn to the government, the media, or a private lawyer.
Privileged or Not?
If a company determines to undertake an internal investigation, one of the first decisions is to determine who should conduct it. Routine or preliminary investigations are often conducted by corporate accountants, human resources personnel, or corporate compliance officials. One drawback to this approach is that the investigative work is not protected by the attorney client privilege and work product doctrines, making the investigative materials discoverable by regulators and litigants. These officials also may not be schooled in the best techniques for executing an investigation.
Some internal investigations are conducted by in-house legal counsel, with or without the advice of outside counsel. This may be more comfortable for clients and witnesses, who are familiar with the lawyer. It is, however, not always the best approach. In-house counsel may be perceived by regulators to lack objectivity. This may undercut the opportunity to convince regulators that there is no need to pursue a government investigation when an “independent” investigation was already conducted. It can also be awkward for in-house counsel to investigate people they regularly advise, especially if a higher-level person within the company is accused of wrongdoing.
While an investigation by in-house counsel should ordinarily be subject to the attorney-client privilege, an investigation by outside counsel avoids arguments that the in-house counsel is acting as a business advisor, not a lawyer. This can be beneficial if the company does not want its investigative notes and findings to be discoverable.
Generally, the investigative record and documents created in an internal investigation conducted by legal counsel will be subject to the attorney client privilege or the attorney work product doctrine. The company may later choose to waive the privilege when, for example, dealing with regulators. Outside counsel may retain other experts, such as forensic accountants or IT professionals, to assist in the investigation. The work of these experts is also generally privileged if done at the request of the attorney who is overseeing the work.
To preserve and document the privileged relationship, an engagement letter for the investigation should identify who the client is and make clear that the investigation is being carried out at the client’s request to provide legal advice.
Regardless of who conducts the investigation, the client should remain nimble to react to investigative findings in “real time.” For example, if an investigation reveals significant regulatory or ethical lapses, a company should take prompt interim steps to stop further problems, even while a more fulsome investigation proceeds.
The law firm of Swanson Hatch, P.A. assists organizations in internal investigations and remedying regulatory lapses. As former Minnesota Attorneys General, government regulators, and private attorneys, Lori Swanson and Mike Hatch have overseen thousands of investigations. They collectively served as Attorney General of the State of Minnesota for 20 years. Mike Hatch was also the Minnesota Commissioner of Commerce for eight years, where he licensed and brought enforcement actions against the insurance, real estate, mortgage, and financial industries. Lori Swanson previously chaired the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C., where she made consumer protection recommendations to the Federal Reserve Board. Lori Swanson can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch can be reached at mhatch@swansonhatch.com, or at 612-315-3037. The firm’s website is www.swansonhatch.com.
Document Review.
An important first step in an internal investigation is for the investigator to obtain and review the relevant documents. This involves identifying the data custodians with relevant information and the sources of data and compiling the documents for review. The documents can be used to learn the “story” of the matter being investigated and used in witness interviews.
At the outset, the investigator should determine whether a preservation notice is needed to preserve documents.
Witness Interviews.
The next step is for the investigator to interview witnesses. An investigation should generally start with witnesses who can “set the table” with important contextual and background information, followed by witnesses who have the most knowledge of the particular matter, and then by those who are potentially culpable.
In a landmark case called United States v. Upjohn, 449 U.S. 383 (1991) and its progeny, the courts have held that legal counsel’s factfinding as part of an internal investigation is generally subject to attorney client privilege and attorney work product protections. To preserve these privileges, witnesses who are interviewed should be given an “Upjohn warning” and informed that: (1) the investigators represent the company, not the witness; (2) the investigators are gathering information to provide legal advice to the company; (3) the investigation is subject to the attorney-client privilege, (4) the privilege belongs to and may be waived by the company; and (5) the witness must keep the investigation confidential.
It is a good idea to have at least two people in witness interviews: the primary questioner and a second person who can take notes and serve as a witness as to what was said. It may be prudent not to record interviews if there is concern of the recording being discoverable. While an audio or video recording may not be privileged (since it is just a recording of what took place), an attorney’s notes of an interview—replete with mental impressions and thought processes—generally are privileged and not discoverable. Interview notes or memos should be marked “attorney client privileged” and “attorney work product.”
The interviewer should be prepared to address questions from witnesses during an interview. For example, witnesses may ask if they should hire a lawyer, if they can be fired, or if their answers are confidential.
The End Goal.
In some cases, the investigator and client may agree upon a written report as the end-product of the investigation. In other cases, they may agree on an oral report or limited scope written report. Even though a written report may supposedly be a privileged document, there is always a risk that a document can migrate and be seen outside the organization. An oral report may convey the same information as a written report, with less risk to the company.
The investigator also may be asked to make recommendations to the company based on the investigative findings. The recommendations may include such steps as:
Discipline of employees.
Operational reforms.
Internal control improvements.
Legal action.
Government reporting.
Remedies for customers.
Areas for additional inquiry.
Conclusion.
It has been said that the measurement of an organization is not whether it has adversity—most do—but how it responds to that adversity. A well-executed internal investigation can improve company morale, protect the brand, and lead to respect from regulators.
***
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
An internal investigation can be an important tool for a corporation to get ahead of regulatory problems, avoid becoming embroiled in litigation, or respond to whistleblower complaints. A well-planned and well-executed investigation can help a company understand the facts needed to determine how to respond to allegations of misconduct and to stay off the radar of government regulatory agencies.
But an investigation needs to be done right. A case in point involves Hewlett-Packard. A number of years ago, the company’s former general counsel hired a team to investigate board members to identify the source of an information leak. The investigating team recruited private investigators who posed as board members and journalists to obtain their phone records. After the tactics became public, the CEO and general counsel resigned in a cloud of scandal, the Congress held hearings, and criminal charges were filed. An annoyance for the company—leaks to reporters—became a major imbroglio due to the misguided investigation.
Benefits of Internal Investigations.
Many triggers may spark the need for an internal investigation, such as complaints from competitors or insiders, reports from compliance officials, allegations from whistleblowers, findings of auditors, notices from regulators, or public news stories.
There are numerous benefits to thoughtful internal investigations:
Privileged or Not?
If a company determines to undertake an internal investigation, one of the first decisions is to determine who should conduct it. Routine or preliminary investigations are often conducted by corporate accountants, human resources personnel, or corporate compliance officials. One drawback to this approach is that the investigative work is not protected by the attorney client privilege and work product doctrines, making the investigative materials discoverable by regulators and litigants. These officials also may not be schooled in the best techniques for executing an investigation.
Some internal investigations are conducted by in-house legal counsel, with or without the advice of outside counsel. This may be more comfortable for clients and witnesses, who are familiar with the lawyer. It is, however, not always the best approach. In-house counsel may be perceived by regulators to lack objectivity. This may undercut the opportunity to convince regulators that there is no need to pursue a government investigation when an “independent” investigation was already conducted. It can also be awkward for in-house counsel to investigate people they regularly advise, especially if a higher-level person within the company is accused of wrongdoing.
While an investigation by in-house counsel should ordinarily be subject to the attorney-client privilege, an investigation by outside counsel avoids arguments that the in-house counsel is acting as a business advisor, not a lawyer. This can be beneficial if the company does not want its investigative notes and findings to be discoverable.
Generally, the investigative record and documents created in an internal investigation conducted by legal counsel will be subject to the attorney client privilege or the attorney work product doctrine. The company may later choose to waive the privilege when, for example, dealing with regulators. Outside counsel may retain other experts, such as forensic accountants or IT professionals, to assist in the investigation. The work of these experts is also generally privileged if done at the request of the attorney who is overseeing the work.
To preserve and document the privileged relationship, an engagement letter for the investigation should identify who the client is and make clear that the investigation is being carried out at the client’s request to provide legal advice.
Regardless of who conducts the investigation, the client should remain nimble to react to investigative findings in “real time.” For example, if an investigation reveals significant regulatory or ethical lapses, a company should take prompt interim steps to stop further problems, even while a more fulsome investigation proceeds.
Document Review.
An important first step in an internal investigation is for the investigator to obtain and review the relevant documents. This involves identifying the data custodians with relevant information and the sources of data and compiling the documents for review. The documents can be used to learn the “story” of the matter being investigated and used in witness interviews.
At the outset, the investigator should determine whether a preservation notice is needed to preserve documents.
Witness Interviews.
The next step is for the investigator to interview witnesses. An investigation should generally start with witnesses who can “set the table” with important contextual and background information, followed by witnesses who have the most knowledge of the particular matter, and then by those who are potentially culpable.
In a landmark case called United States v. Upjohn, 449 U.S. 383 (1991) and its progeny, the courts have held that legal counsel’s factfinding as part of an internal investigation is generally subject to attorney client privilege and attorney work product protections. To preserve these privileges, witnesses who are interviewed should be given an “Upjohn warning” and informed that: (1) the investigators represent the company, not the witness; (2) the investigators are gathering information to provide legal advice to the company; (3) the investigation is subject to the attorney-client privilege, (4) the privilege belongs to and may be waived by the company; and (5) the witness must keep the investigation confidential.
It is a good idea to have at least two people in witness interviews: the primary questioner and a second person who can take notes and serve as a witness as to what was said. It may be prudent not to record interviews if there is concern of the recording being discoverable. While an audio or video recording may not be privileged (since it is just a recording of what took place), an attorney’s notes of an interview—replete with mental impressions and thought processes—generally are privileged and not discoverable. Interview notes or memos should be marked “attorney client privileged” and “attorney work product.”
The interviewer should be prepared to address questions from witnesses during an interview. For example, witnesses may ask if they should hire a lawyer, if they can be fired, or if their answers are confidential.
The End Goal.
In some cases, the investigator and client may agree upon a written report as the end-product of the investigation. In other cases, they may agree on an oral report or limited scope written report. Even though a written report may supposedly be a privileged document, there is always a risk that a document can migrate and be seen outside the organization. An oral report may convey the same information as a written report, with less risk to the company.
The investigator also may be asked to make recommendations to the company based on the investigative findings. The recommendations may include such steps as:
Conclusion.
It has been said that the measurement of an organization is not whether it has adversity—most do—but how it responds to that adversity. A well-executed internal investigation can improve company morale, protect the brand, and lead to respect from regulators.
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com