In May of this year, Chief Judge Colleen McMahon in the United States District Court for Southern District of New York issued a highly anticipated opinion and order in U.S. v. Connolly, finding that the government improperly “outsourced” its criminal investigation to Deutsche Bank and its outside counsel. The decision could significantly impact how companies and outside counsel cooperate with government and enforcement investigations in the future. While Judge McMahon’s opinion was primarily an admonition to the government, companies facing investigations need to be aware of potential conflicts that could arise when interviewing employees regarding potential wrongdoing.
Background of the case
In the years immediately following the 2008 financial crisis, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) commenced investigations into alleged LIBOR manipulations by various banks, including Deutsche Bank. The bank hired outside counsel to respond to the government inquiries and conduct an internal investigation. During the investigation, the bank cooperated extensively with the government, kept the government aware of the developments in the case, and took “considerable direction . . . about what to do and how to do it” including instructions on how to conduct employee interviews and the information sought.
Gavin Black was an employee and, as part of its investigation, the bank's counsel conducted a total of four interviews with him over the course of two years. Black was required by Deutsche Bank’s policy to cooperate and sit for the interviews, and if he refused could have faced termination. For three of the interviews Black was without counsel and did not have an opportunity to prepare. Summaries provided by the bank’s counsel of the first two interviews were forwarded from the CFTC to the Department of Justice. After outside counsel conducted his interviews, they shared an exhaustive summary or “download” of his statements and a road map of what the government could expect when they interviewed him. Although the Court did not know all of the details of the government investigation, the government appears to have waited to receive outside counsel’s witness interview “downloads” before it began its own interviews. Moreover, before interviewing him for a fourth time, the CFTC directed outside counsel to conduct the interview “as if he were a prosecutor.”
The DOJ eventually indicted Black in 2016 for conspiracy and nine counts of wire fraud. He was convicted on two counts at trial in 2018. During the trial, to avoid a likely adverse ruling, the government opted not to offer as evidence Black’s statements to outside counsel. Black moved to vacate his conviction and dismiss his case, arguing that the government's evidence was tainted through exposure to Black's compelled statements to the bank.
The Court’s Decision
Based on these and other facts, the Court found that the government “outsourced its [criminal] investigation to Deutsche Bank and its lawyers.” Instead of conducting a parallel internal investigation, the Court found that the government simply gave directions to Deutsche Bank and its counsel, who complied and did the government’s work, instead of conducting their own investigation for the benefit and at the directive of the company.
The Court found that the government thereby violated Black’s Fifth Amendment rights because his interview statements were “compelled” for Fifth Amendment purposes since he would have been terminated had he not participated in the interviews. Because the government’s directives to Deutsche Bank’s counsel included an instruction “to interview Gavin Black” and Black was “compelled” for Fifth Amendment purposes, outside counsel’s interviews of Black were “fairly attributable to the Government.”
Judge McMahon relied on many factors to find that the Deutsche Bank’s counsel’s actions in investigating Black were “fairly attributable” to the government, including that:
1) The CFTC, in a letter to the bank, specifically directed it to cooperate by retaining outside counsel to do a full review and report results on an on-going basis of that review to the CFTC. and this “request” was not one that could have been refused by the bank;
2) The bank’s interest in cooperating was aligned with the government’s interest in letting the bank lead the investigation so it could obtain information;
3) The government provided outside counsel direction to interview certain employees, including Black, and gave the bank’s counsel “marching orders” during regular meetings to which counsel agreed;
4) The bank’s counsel regularly shared information with the government, , provided the government with “downloads” from Black’s interviews, and frequently discussed Black during meetings with the government; and
5) The government conducted its first interview of Black years after the internal investigation began, did so only after receiving summaries from the bank’s counsel, and used an interview road map provided by outside counsel.
Deutsche Bank, through its external counsel, essentially did “everything that the Government could, should, and would have done had the Government been doing its own work . . .” The Court concluded that “rather than conduct its own investigation, the Government outsourced the important developmental stage of its investigation to Deutsche Bank [and its outside counsel]. . . and then built its own ‘investigation’ into specific employees, such as Gavin Black, on a very firm foundation constructed for it by the Bank and its lawyers.”
Ultimately, however, the Court found that even though Black’s Fifth Amendment rights had been violated, he was not entitled to relief because the government did not use the statements he gave to the bank’s counsel at trial, and the government identified alternative sources of evidence.
Takeaways and Implications
As Judge McMahon noted, the Court’s opinion regarding Black could have much broader implications for internal investigations that have substantially operated the same way for many years.
Different government bodies and regulatory agencies all have set out, in varying degrees, credit for companies that cooperate with investigations as incentives to root out wrongdoing (usually by employees, directors, or officers) and self-report wrongdoing. Companies, undeniably, also have an incentive to do so to escape prosecution themselves and attempt to stay ahead or minimize any harmful business side effects that a government or regulatory investigation brings. However, as Judge McMahon has illustrated, there is a line that may be crossed with the level of cooperation companies are providing to the government. Although Judge McMahon’s opinion was a reprimand of the government, outside counsel hired to conduct investigations by companies should still take precautionary measures and exercise best practices. Company counsel should be aware of, and evaluate when, potential conflicts could arise when interviewing company employees that necessitate providing employees with their own counsel.
Internal investigations can still serve the same beneficial purpose for both companies and government agencies in the civil and criminal context. Counsel need to be aware of the balancing act between cooperating with the investigation and conducting its own, separate, investigation that furthers the company’s objectives, not the government’s. Cooperating with the government is still possible and may be in the best interests of a company, but it must be careful not to simply follow investigator directives. Moreover, for companies, it is important to hire experienced counsel that knows how to traverse the line between protecting the company’s interests, and when to be aware that it could face a potential conflict during any investigation with its own employees. Similarly, when a conflict does arise, company counsel should hire independent counsel to represent employees to alleviate any constitutional irregularities that could arise during internal investigations. Counsel should also carefully consider whether cooperating, and to which level, is in the best interest of the company, and internally document any decision to do so.
Contact your counsel at Atkinson, Andelson, Loya Ruud & Romo for help and guidance in these complex areas. Our Investigations, White Collar and Regulatory Enforcement team includes former prosecutors and experienced attorneys who understand the complexities of government investigations and regulatory enforcement actions, and use their experience to design strategy to the achieve the best resolution as quickly, and quietly, as possible.
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