Investigating the Insider

By Michael J. Missal and Andrew H. Feller

Interviews. Interviews are typically the most valuable source of information in an internal investigation. Initial interviews should be conducted as early as possible in the investigation, with two goals: the first is to obtain from each witness his or her version of events before it may be influenced by other factors; the second is to get an overview of relevant events.

The preliminary interviews may be conducted before a significant amount of documents are gathered and analyzed. The investigator can conduct follow-up interviews as needed after obtaining a fuller picture of the situation.

Care should be taken not to be adversarial in interviews. If interviews become contentious, it can cause an allegation of lack of objectivity and weaken the credibility of the findings. The goal in interviews should be to obtain as much information as possible. The investigator can later test the accuracy of what the interviewee said against documents, other testimony, and any additional information obtained.

If a verbatim record of an interview is needed, then the interview should be recorded. A verbatim record may be required if the company has decided that it will provide the government with the record of all interviews, for example. Absent this requirement, it is generally better not to record the interviews, because doing so may inhibit or chill a witness. Therefore, in such situations, detailed notes of the interview should be taken so that there is a comprehensive and accurate record of the interview.

Notes of interviews may be protected by the attorney-work-product doctrine if they contain the mental impressions of an attorney. An interview may be privileged even if the person conducting it is not an attorney so long as the overall investigation is the responsibility of an attorney and the person is conducting the interview at the direction of an attorney.

Under most circumstances, it is best to have two members of the investigative team present for each interview so that one can focus on asking questions and formulating follow-ups, while the other focuses on taking notes. The presence of two interviewers will also lessen the chances of the interviewee later challenging the accuracy of the interview notes.

Employee rights. In the context of an internal investigation, an employee has no legal right to have a lawyer present. (Union employees may have the right to a union representative.) Even so, an employee should be allowed to have a lawyer present at an interview if requested.

The lawyer for the witness should not impede the questioning at the interview. The lawyer for the witness may, however,  be given an opportunity to ask questions of the witness at the end of the interview. Given that the goal of an internal investigation is to gather the facts as thoroughly and accurately as possible, this additional questioning is important.

Whether the company indemnifies the cost of a lawyer for the employee typically depends on the past practices at the company, the by-laws, the seniority of the employee, the rights to indemnity under state law, and the types of allegations being investigated. In most cases involving senior officers, the company will pay for a lawyer.

Government regulators have strongly implied that they would not look favorably on the company’s decision to indemnify employees who were targets or subjects of investigations. But a U.S. district court overseeing the case against several former executives of KPMG who were under investigation for selling fraudulent tax shelters found that it was unconstitutional for the government to exert such influence (U.S. v. Stein, U.S. District Court for the Southern District of New York, 2006).

Under pressure to repudiate this approach, the DOJ, as another part of the McNulty memo, suggested that it would now only seek to limit the payment of attorney’s fees for employees in “extremely rare cases,” where the payment of such fees is “intended to impede a criminal investigation.”

Investigators may also want to offer employees the opportunity to submit other information that they believe is relevant. This offer is usually made near the end of the investigation when the issues and facts are more focused.

Issuing a report. Whether a written report should be prepared can be one of the more difficult questions to resolve in any internal investigation. Though it seems counterintuitive, it may not make sense to produce a written report in some situations. We have been involved in major investigations concerning significant issues where we decided to give only an oral report to the board of directors.

One of the risks in preparing a written report is that it will give a blueprint to plaintiff’s attorneys, thus increasing the chances for a lawsuit. A written report can make an internal investigation more credible, however. We have conducted investigations in which we gave an oral report first, and then prepared a written report after a regulator asked for one and after it was determined that the litigation risks were low.

On one hand, a written report provides tangible evidence that the company has sanctioned a thorough and complete examination of the company’s problems. Companies frequently provide written reports of internal investigations to regulators or law enforcement to demonstrate cooperation. Also, companies frequently use written reports of investigations to refute charges of wrongdoing in litigation.

Unless there is a clear reason at the outset to prepare a written report, it may make sense to defer that decision until the investigation is completed and the outcome and consequences of the investigation are better understood. Even if the company intends to keep the report’s findings confidential, maintaining the confidentiality of the written report can be exceedingly difficult.

In addition, while the written version of the report may be useful in dealing with regulators or law enforcement, it will, as noted, also provide a roadmap for them to conduct their investigations. A written report provides a similar roadmap to civil litigants, who otherwise might not have become aware of the situation under investigation.

In some cases, an oral report by counsel or an outside investigative team to the client will be sufficient to apprise the client of counsel’s findings. The contents of an oral report will generally be protected by the attorney-client privilege if given by a law firm, making it easier to keep confidential.

When the circumstances call for a written report, it should not be reviewed by anyone before it is finalized so as to preserve its integrity and independence. However, in certain situations, especially when the issues are of a highly technical nature, it may be beneficial to let someone who is not implicated by the internal investigation to review the factual portion of a final draft to ensure the accuracy of the report. In that case, the reviewer should agree to maintain the strict confidentiality of the information until it is released to avoid the inadvertent waiver of the attorney-client privilege or work-product protection.

Companies are facing an increasing number of circumstances that may lead them to consider initiating an internal investigation. These investigations can entail considerable expense and inconvenience, and they should not be entered into lightly. However, in many situations an investigation is necessary for a company to salvage its reputation. A credible, well-run investigation is one of the most effective means of coping with a corporate crisis.

Michael J. Missal is a partner in the Washington office of the law firm of Kirkpatrick & Lockhart Preston Gates Ellis LLP, where he has led a variety of major internal investigations, including acting as the examiner in the New Century Financial Corporation bankruptcy proceeding and as lead counsel to the Independent Review Panel investigating the 60 Minutes segment on President George W. Bush’s Texas Air National Guard service. Andrew H. Feller is a former associate in the firm’s Washington office.




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