A former U.S. Attorney told us a few years ago: “The Justice Department has found a way to subcontract out its FCPA investigations. Now the company lawyers are taking the statements and doing the document work. It’s great for the government but really bad for the employees.”
The government’s practice is now at the center of two securities-related prosecutions. As the Law Blog reported here, Los Angeles federal district court judge Cormac Carney has suppressed most of the government’s evidence against the former CFO of Broadcom, William Ruehle. The company waived the privilege and released his statements, even though he thought the lawyers representing Broadcom were also representing him.
In suppressing Ruehle’s statements to Irell & Manella, the judge couldn’t have been clearer. He said:
The Government now argues that it can use Mr. Ruehle’s statements to the Irell lawyers against him at the trial in this criminal case. The Government is mistaken. Mr. Ruehle’s statements to the Irell lawyers are privileged attorney-client communications. Mr. Ruehle reasonably believed that the Irell lawyers were meeting with him as his personal lawyers, not just Broadcom’s lawyers. Mr. Ruehle had a legitimate expectation that whatever he said to the Irell lawyers would be maintained in confidence. He was never told, nor did he ever contemplate, that his statements to the Irell lawyers would be disclosed to third parties, especially not the Government in connection with criminal charges against him. Irell had no right to disclose Mr. Ruehle’s statements, and Irell breached its duty of loyalty when it did so. Accordingly, the Court must suppress all evidence reflecting Mr. Ruehle’s statements to the Irell lawyers regarding stock option granting practices at Broadcom.
The judge then went further, saying:
The Court must also ensure the fair administration of justice and promote the public’s confidence in the legal profession. By failing to comply with its duties under the Rules of Professional Conduct, Irell compromised these important principles. The Court simply cannot overlook Irell’s ethical misconduct in this regard and must refer Irell to the State Bar for appropriate discipline.
The LawBlog said a spokesman for Irell & Manella, Charles Sipkins, called the judge’s ruling an “error” and said all of the law firm’s disclosures were proper. The government, the Law Blog said, is planning to appeal.
A similar issue has surfaced in the government’s prosecution for obstruction of justice of Allen Stanford’s chief investment officer, Laura Pendergest-Holt. The evidence includes statements she made in sworn testimony to the SEC. During that testimony, a lawyer from Proskauer Rose, Thomas Sjoblom, was present. He said he represented Stanford and officers and directors of his affiliated companies. But Pendergest-Holt says she believed he represented her personally. Now she’s suing Sjoblom for malpractice, negligence and breach of fiduciary duty. The Law Blog’s report is here. No doubt she’ll raise the same issues at her criminal trial.
In a typical FCPA investigation, those giving statements to the company’s lawyers probably don’t know all the relevant facts — the investigation is ongoing, after all. They can’t possibly understand the implications of their words, have no idea their statements might end up outside the company, don’t receive help from lawyers representing them, and probably don’t even know they should have their own counsel.
And it gets worse. According to the 33 former U.S. Attorneys who wrote to Senator Patrick Leahy last year, some recent cases show that employees “can be prosecuted for making false statements to the government, even though the statements were made only to company counsel.”
When threats of indictment are used to force corporations to become part of the prosecution, individual employees don’t stand a chance. This aspect of the government’s win-at-all-costs approach to white collar prosecutions isn’t justice, and it has nothing to do with corporate compliance.
Download the trial court’s April 1, 2009 Order Suppressing Privileged Communications in US v. Henry T. Nicholas III and William J. Ruehle et al here