[PPT] - Presenting a live 90-minute webinar with interactive Q&A PowerPoint Presentation

SLIDE 1

Navigating Parallel Agency Investigations and Civil Litigation: Discovery and Disclosure Challenges

Cooperating With Investigations While Protecting Corporate Interests in Parallel and Potential Civil Suits Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

WEDNESDAY, NOVEMBER 19, 2014

Presenting a live 90-minute webinar with interactive Q&A Michael M. Farhang, Partner, Gibson Dunn & Crutcher, Los Angeles Douglas Fuchs, Partner, Gibson Dunn & Crutcher, Los Angeles Matthew Hoffman, Partner, Gibson Dunn & Crutcher, Los Angeles

SLIDE 2

Tips for Optimal Quality

Sound Quality If you are listening via your computer speakers, please note that the quality

f your sound will vary depending on the speed and quality of your internet

connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-869-6667 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

FOR LIVE EVENT ONLY

SLIDE 3

Continuing Education Credits

For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps:

In the chat box, type (1) your company name and (2) the number of

attendees at your location

Click the SEND button beside the box

If you have purchased Strafford CLE processing services, you must confirm your participation by completing and submitting an Official Record of Attendance (CLE Form). You may obtain your CLE form by going to the program page and selecting the appropriate form in the PROGRAM MATERIALS box at the top right corner. If you'd like to purchase CLE credit processing, it is available for a fee. For additional information about CLE credit processing, go to our website or call us at 1-800-926-7926 ext. 35.

FOR LIVE EVENT ONLY

SLIDE 4

Program Materials

If you have not printed the conference materials for this program, please complete the following steps:

Click on the ^ symbol next to “Conference Materials” in the middle of the left-

hand column on your screen.

Click on the tab labeled “Handouts” that appears, and there you will see a

PDF of the slides for today's program.

Double click on the PDF and a separate page will open.
Print the slides by clicking on the printer icon.

FOR LIVE EVENT ONLY

SLIDE 5

Navigating Parallel Agency Investigations and Civil Litigation

November 19, 2014 Strafford Publications Webcast

SLIDE 6

6

Introduction

This presentation addresses some of the procedural and

substantive effects of parallel proceedings Government investigations are often linked to related civil suits, including shareholder derivative and class action lawsuits

SLIDE 7

7

The self-reporting decision
Disclosure of government investigations
Factors to consider while cooperating with government

investigations

Privilege and work product considerations
E-discovery issues
Considerations in staying civil litigation
The role of the Board of Directors
5th Amendment issues

Agenda

SLIDE 8

8

There is no general obligation to disclose any and all wrongdoing to the government

However, the government provides incentives for companies to self-report

“[C]ompanies that self-disclose conduct are in a much better position

than those that don’t. They are much more likely to be given deference by us than those that are receiving a phone call from us telling them about the conduct.” Former DOJ Fraud Chief Jeffrey Knox (interview with Just Anti-Corruption)

The Self-Reporting Decision

In the end, a company must make the decision on a case-by-case basis, weighing many important factors

SLIDE 9

9

Cooperation can affect whether and how the government makes a decision to bring a criminal or civil charge against a company

DOJ: The DOJ emphasizes “timely and thorough“

cooperation as a significant factor in its charging decisions

SEC: The SEC has demonstrated that proactive self-

examination and self-reporting by companies can potentially carry significant benefits

The Self-Reporting Decision

SLIDE 10

10

Layne Christensen (2014)

Layne Christensen, a water management and oil drilling company,

self-reported an internal investigation regarding payments go African government officials.

DOJ declined to prosecute.
Total fine of $5.1 million to SEC was less than half of what Company
riginally expected to pay.
The SEC cited Layne’s self-reporting of the violations, remedial measures,

investigation, and public disclosure in agreeing to the settlement offer. Ralph Lauren Company (2013)

Ralph Lauren entered into NPAs with the DOJ and SEC after self-reporting

violations identified by an internal investigation into bribery conduct.

Both the DOJ and SEC cited Ralph Lauren’s cooperation in self-reporting in

their charging determination.

The Self-Reporting Decision Examples of Self-Reporting Credit

SLIDE 11

11

The self-reporting decision has an impact on both a potential government investigation and possible civil litigation

Factors that impact on government investigation

Companies may not and often do not completely avoid any penalty

when they self-report.

What is the likelihood that government becomes aware of allegations in

absence of self-reporting?

Potential whistleblowers
Common practices in industry (government industry sweeps)
Business partners with perceived grievances
Personality disputes
Competitors
The press

The Self-Reporting Decision

SLIDE 12

12

The self-reporting decision has an impact on both a potential government investigation and possible civil litigation

Factors that impact on government investigation (cont’d)

How egregious was the violation?
Smaller violations may not need to be disclosed.
Violations that trigger additional disclosure obligations will have to

be reported

Does the company have a good story to tell?
Was the issue discovered through company’s internal controls?
Did the company quickly respond to and remediate the conduct?
Were wrongdoers disciplined?
Was the conduct confined (rather than systemic)?
Does the company have an otherwise strong compliance record?

The Self-Reporting Decision

SLIDE 13

13

The self-reporting decision has an impact on both a potential government investigation and possible civil litigation

Factors that impact on government investigation (cont’d)

Do individuals have exposure?
If yes, might deflect from a large company
If yes, might cripple a smaller company

Regardless, the company should do a thorough review, investigation, and risk assessment, and remediate compliance weaknesses

The Self-Reporting Decision

SLIDE 14

14

The self-reporting decision has an impact on both a potential government investigation and possible civil litigation

Factors that impact on possible civil litigation

Will government investigation bring about civil litigation that might
therwise not happen?
Public disclosures of investigation and/or settlement could make others

aware of issue

If the government finds out without self-disclosure, potential larger fine

could provide fodder for plaintiffs’ lawyers

Creation of additional documents that could be discoverable
More on that later!
Facts laid out in eventual charging and/or settlement documents
Document productions to government will be the subject of a civil

discovery request

The Self-Reporting Decision

SLIDE 15

15

Civil litigation may result from disclosure

In 2010, for example, after Parker Drilling Company, a global contract drilling and drilling services company, disclosed in its 2009 annual report that it was under investigation by both the DOJ and SEC for potential violations of the Foreign Corrupt Practices Act, four different plaintiffs filed derivative suits in federal and state courts based upon allegations derived from the government investigations

Disclosures of Government Investigations

SLIDE 16

16

1. Responses to the market or general public about the investigation or underlying allegations:

Material misstatements or omissions in public

disclosures

Strong public statements denying wrongdoing before

all facts are known 2. Disclosures required by the government as part of a criminal or civil resolution:

Public statements in an NPA or DPA

Disclosures of Government Investigations

SLIDE 17

17

While there is no general obligation to disclose wrongdoing to the government, there may be an obligation to report a government investigation to the public

Counsel must keep in mind when next periodic filing is due
Counsel must determine whether the fact of the investigation or

anything that has been learned in the course of the investigation is material

Materiality is a flexible standard: information that a reasonable

investor would view as significantly altering the total mix of public information

The company may not have enough information to make the

assessment

Consult with disclosure counsel
Qualitative and quantitative aspects

Disclosures of Government Investigations

SLIDE 18

18

While there is no general obligation to disclose wrongdoing to the government, there may be an obligation to report a government investigation to the public

Counsel must determine whether the fact of the investigation or

anything that has been learned in the course of the investigation is material (cont’d)

Impact on company’s financial statements
Accounting fraud more likely to necessitate disclosure than

insider trading

Individuals involved in possible wrongdoing
Senior management v. lower level employees
Ability to conduct certain business in future
Government contracts

Disclosures of Government Investigations

SLIDE 19

19

While there is no general obligation to disclose wrongdoing to the government, there may be an obligation to report a government investigation to the public

Reputational effects (e.g. for safety) that could impact future sales
There may be certain SEC or stock exchange rules that require disclosure
f certain events related to an investigation
Resignation of key officer or director
Resignation of auditor
Errors in (or corrections needed to) previously issued financial

statements

Disclosures of Government Investigations

SLIDE 20

20

Disclosure of an investigation that results in no criminal penalty can still bring about damaging civil litigation

In 2013, for example, Groeb Farms, one of the country’s largest suppliers
f honey, averted criminal liability for its role in illegally buying Chinese-
rigin honey by reaching a settlement agreement with the DOJ in

February 2013.

However, by July 2013, two class actions were filed against the company

that quoted extensively from facts to which Groeb Farms admitted in its settlement agreement with the DOJ.

By October 2013, the company was forced to file for bankruptcy due at

least in part to the threat of treble damages liability in the subsequent litigation.

Disclosures of Government Investigations

SLIDE 21

21

Reports of Investigation
Used to be typical
Can be disfavored because could serve as a road map in litigation
They can serve important purpose in certain circumstances, usually

when matter is public and public faith/reputation must be restored

Freeh Report on Penn State

Factors to Consider While Cooperating

Communications

SLIDE 22

22

Presentations
When to provide presentation materials (PowerPoint slide decks)
Allowing government to keep presentation materials
The government cannot produce to a civil litigant a document it

does not have

Documents
Use only documents created in real-time
Avoid production to government of other work product or parts of

investigation

Factors to Consider While Cooperating

Communications (cont’d)

SLIDE 23

23

Witness interview memos
Handwritten notes
Typed interview memos
In either case, make sure they reflect mental impressions and are

not verbatim transcriptions

Factors to Consider While Cooperating

Communications (cont’d)

SLIDE 24

24

Overall Considerations

Attorney-client privilege and attorney work-product waivers
Both statements to the government as well as statements regarding the

government investigation are relevant

Benefits of disclosure and potential prosecutorial leniency and effects on

defense of civil suits

Attorney-Client Privilege and Work-Product Protection

SLIDE 25

25

Attorney-Client Privilege

The privilege will usually be deemed waived where a corporation

produces privileged materials to the government during an

investigation. Most courts do not recognize the concept of “selective

waiver,” even if there is a confidentiality agreement with the government regulators. But see Diversified Industries (8th Cir).

Risk of subject-matter waiver under FRE 502(a)
Protections in the form of court orders

under FRE 502(d)

Disclosure responsibilities to other third parties,

such as outside auditors and lenders

Attorney-Client Privilege and Work-Product Protection

SLIDE 26

26

Work-product protection is waived when the

work is disclosed in a way that “substantially increases the opportunity for a potential adversary to obtain the information”

Production to government in cooperation with an

investigation

External auditors and waiver issues

Attorney-Client Privilege and Work-Product Protection Work-Product Protection

SLIDE 27

27

What you say to them verbally is not protected
Materials given to the government, including PowerPoint presentations,

reports of investigation, and interview memoranda, are not protected – FOIA confidentiality requests for SEC presentations

Remember, there is no selective waiver
Risks of subject matter waiver
Production of privileged documents waives the privilege
Many underlying documents in productions to government regulators are

contemporaneous business documents drafted by non-lawyers regarding the topics under investigation, and may not be protected by the attorney work-product protection or attorney-client privilege

Attorney-Client Privilege and Work-Product Protection Presentations to DOJ and SEC

SLIDE 28

28

Be proactive

– Try to dictate the terms of the preservation, collection and production

f data
The company will be given more leeway to conduct all aspects of e-

discovery with minimal interference if: – Investigators and plaintiffs sense that the company, or its outside counsel, is more knowledgeable – The company and outside counsel have empirical evidence to support the assertions – The company and counsel are transparent about what steps are being taken to identify, preserve, collect and produce such information

E-Discovery: Best Practices for Managing ESI in Multiple Related Investigations and Litigations

SLIDE 29

29

Duty to preserve electronically stored information (ESI) arises when a

government investigation is contemplated, threatened, pending or can be reasonably anticipated

Potential triggers

– Subpoena – Document preservation letter – Cooperation/self-reporting – Industry wide investigation?

BUT, a government investigation need not have commenced and subpoena

need not have been issued for duty to preserve to arise – 18 U.S.C. 1519 (punishing document destruction in “contemplation” of federal investigation)

E-Discovery: The Duty to Preserve ESI

SLIDE 30

30

Consequences of failing to preserve ESI in criminal investigations

– Influence views of prosecutors at outset of case – Shape judgments about culpability and cooperation, which may in turn impact charging decisions and plea negotiations – Increase culpability score under Sentencing Guidelines

Preservation failure can also expose defendant to additional investigation

for obstruction of justice

Government also has duty to preserve ESI

E-Discovery: Failure to Preserve ESI

SLIDE 31

31

Develop a realistic ESI plan to present to the investigators

– Subject matter of the investigation should define the ESI that needs to be searched

Determine early on what information will be shared with which regulators

and government agencies – Assume state and federal agencies will share key documents with other investigating agencies – Be prepared for a request by plaintiffs to produce any documents that have been produced in any government investigations

Collections done by custodians can be dangerous

E-Discovery: Developing a Plan

SLIDE 32

32

No formal requirement, but should immediately engage in dialogue with

investigators about steps the company is taking to preserve, collect and produce ESI

– Consider sharing and agreeing to search terms – Consider sharing key custodian list and speaking to prioritization of custodians – Raise any burdens or impediments as soon as possible, if for no other reason than to demonstrate that the company intends to cooperate – Discuss deadlines, accessibility of ESI sources, and costs

Handling disagreements with investigators

– Respectfully push back and explain your client’s position – Go up the chain to supervisor if necessary – Move to quash subpoena as last resort

E-Discovery: Meet and Confer with Investigators

SLIDE 33

33

Key decision is whether to track the scope of the

productions to investigators – Unlike investigation, court supervision in civil litigation may help limit costs and burdens

May be important reasons why certain documents

produced in an investigation should not be produced to plaintiffs – Privileged documents (but remember, generally no selective waiver) – Documents with data subject to privacy laws – Documents outside parameters of a case (e.g., different subsidiaries outside jurisdiction of court, time periods due to statute of limitations, etc.)

E-Discovery: Meet and Confer with Plaintiffs

SLIDE 34

34

Many regulators have specific guidelines for productions

– Read carefully to make sure requirements can be met – Challenges to production guidelines should be raised during meet and confer – Attempt to make guidelines consistent from one investigating agency to the next

Leverage production guidelines with plaintiffs so that productions can be

consistent across litigations

E-Discovery: Production

SLIDE 35

35

Regulators often have staffing or budgetary limitations,

as well as time constraints, that impact their ability to review large amounts of ESI

Counsel should attempt to limit scope of production to

the most relevant ESI – Prioritize custodians – Limit time period – Offer to broaden scope if data not found in the more narrow search

Generate empirical evidence to support any assertions

as to ESI burdens and costs

E-Discovery: Managing Costs

SLIDE 36

36

The government may request a stay of the civil litigation while a criminal or

regulatory action is pending

Factors in deciding whether to oppose, agree, or remain neutral

– Fighting only one front at a time vs. dragging out total timeline – Civil litigants might receive the benefit of all results of a government investigation, including document productions and findings in plea agreement / government press releases – Distraction / attention of company personnel and resources – Risks of loss of institutional knowledge

Considerations in Staying Civil Litigation

SLIDE 37

37

Factors in deciding whether to oppose, agree, or remain neutral (cont’d)

– Final resolution of government investigation could have positive or negative impact on civil litigation, depending on result – Possible ability to use civil discovery to company’s benefit in government investigation – Government access to civil discovery, including depositions of management, directors, and other key individuals

Considerations in Staying Civil Litigation

SLIDE 38

38

Who leads and oversees the corporation’s internal investigation can be critical: 1. Management 2. Independent Directors or Committees of the Board

The Role of the Board of Directors Overview

SLIDE 39

39

Board leadership:

1. Indication that company is taking investigation seriously 2. Dealing with allegations of lack of independence or self-interest

Examples:
Putnam Fiduciary Trust Company (2006):

SEC declined to bring an action because of company’s extensive cooperation, including independent internal investigation

Computer Associates International, Inc. (2004):

DOJ entered DPA in part because company empowered its audit committee to conduct wide- ranging investigation

The Role of the Board of Directors

The Board’s Role in a Government Investigation

SLIDE 40

40

The Role of the Board of Directors

Waiver issues in independent board- or committee-led investigations:

Ryan v. Gifford, 2007 WL 4259557 (Del. Ch. Nov. 30, 2007) -

participation by potentially implicated directors in a special committee’s privileged communications about investigation resulted in waiver of attorney-client privilege

The Board’s Role in a Government Investigation

SLIDE 41

41

Independence and disinterestedness of board of directors as a

threshold inquiry

Failure-of-oversight pleadings in derivative suits
Use of special litigation committee investigations into whether board

should bring suit on behalf of corporation

The Board’s Role in a Derivative Suit The Role of the Board of Directors

SLIDE 42

42

Materially false statements to the market before,

during, and after a government investigation

Key inquiry will be whether board or individual director

is in fact a “maker” of the statements at issue

Procedural hurdles:

1. Heightened pleading standards under PSLRA 2. Discovery stay in private actions brought under federal securities law where motion to dismiss filed

The Role of the Board of Directors The Board’s Role in a Securities Class Action

SLIDE 43

43

5th Amendment Issues

Corporations do not have a 5th Amendment privilege
Individuals can assert 5th Amendment privilege in response to

document requests where the act of production could be incriminating

Individuals can also assert 5th Amendment privilege in connection with

both government investigations and civil litigation

Invocation could have negative repercussions in press
Invocation can also have negative impact in civil proceedings where a

fact-finder is allowed to draw negative inference

SLIDE 44

44

1. Mutual impact between government investigations and related private civil suits 2. Effects of actions taken in response to investigation on corporation’s privileges or civil liability 3. Leadership by disinterested outside directors in addressing and remediating corporate misconduct 4. Potential effects of civil litigation strategies on the outcome of government investigations, including government perception of the corporation’s acceptance of responsibility

Conclusions

SLIDE 45

45 45

Michael Farhang

Partner Los Angeles Office Tel: 213.229.7005 Fax: 213.229.6005 mfarhang@gibsondunn.com Partner Los Angeles Office Tel: 213.229.7605 Fax: 213.229.6605 dfuchs@gibsondunn.com Partner Los Angeles Office Tel: 213.229.7584 Fax: 213.229.6584 mhoffman@gibsondunn.com

Doug Fuchs Matthew Hoffman

SLIDE 46

46 46

Our Offices

Beijing Unit 1301, Tower 1, China Central Place

No. 81 Jianguo Road,

Chaoyang District Beijing 100025 People’s Republic of China Brussels Avenue Louise 480 1050 Brussels Belgium +32 (0)2 554 70 00 Century City 2029 Century Park East Los Angeles, CA 90067- 3026 +1 310.552.8500 Dallas 2100 McKinney Avenue Suite 1100 Dallas, TX 75201-6912 +1 214.698.3100 Denver 1801 California Street Suite 4200 Denver, CO 80202-2642 +1 303.298.5700 Dubai The Exchange Building 5, Level 4 Dubai International Finance Centre P.O. Box 506654 Dubai, United Arab Emirates +971 (0)4 370 0311 Hong Kong Suite 2001, 20/F One International Finance Centre 1 Harbour View Street, Central Hong Kong +852 3669 8150 London Telephone House 2-4 Temple Avenue London EC4Y 0HB England +44 (0)20 7071 4000 Los Angeles 333 South Grand Avenue Los Angeles, CA 90071-3197 +1 213.229.7000 Munich Widenmayerstraße 10 D-80538 München Germany +49 89 189 33-0 New York 200 Park Avenue New York, NY 10166-0193 +1 212.351.4000 Orange County 3161 Michelson Drive Irvine, CA 92612-4412 +1 949.451.3800 Palo Alto 1881 Page Mill Road Palo Alto, CA 94304-1125 +1 650.849.5300 Paris 166, rue du faubourg Saint Honoré 75008 Paris France +33 (0)1 56 43 13 00 São Paulo Rua Funchal, 418, 35° andar Sao Paulo 04551-060 Brazil +55 (11)3521.7160 San Francisco 555 Mission Street San Francisco, CA 94105- 2933 +1 415.393.8200 Singapore One Raffles Quay Level #37-01, North Tower Singapore 048583 +65.6507.3600 Washington, D.C. 1050 Connecticut Avenue,

N. W.

Washington, D.C. 20036- 5306 +1 202.955.8500