Personnel Aspects of the Investigation:
A Polite Letter - Kabuki with Loaded Guns
Albon O. Head Jr.
301 Commerce Street, Suite 2400
Fort Worth, Texas 76102
(817) 334-7230
(817) 334-7290 (fax)
ahead@jw.com
Jeffrey M. Sone
901 Main Street, Suite 6000
Dallas, Texas 75202
(214) 953-6107
(214) 953-5822 (fax)
jsone@jw.com
November 13, 1852
GREAT AND GOOD FRIEND:
I send you this public letter by Commodore
Matthew C. Perry, an officer of the highest
rank in the navy of the United States, and
commander of the squadron now visiting
Your imperial majesty's dominions.
November 13, 1852
These are the only objects for which I have sent
Commodore Perry, with a powerful squadron, to
pay a visit to your imperial majesty's renowned
city of Yedo: friendship, commerce, a supply of
coal and provisions, and protection for our
shipwrecked people.
...
Your good friend,
MILLARD FILLMORE
Why An Investigation?
•
SECTION 10A (b)
–
1.
If, in the course of conducting an audit
pursuant to this title to which subsection (a) of this
section applies, the registered public accounting
firm detects or otherwise becomes aware of
information indicating that an illegal act (whether or
not perceived to have a material effect on the
financial statements of the issuer) has or may have
occurred, the firm shall, in accordance with
generally accepted auditing standards, as may be
modified or supplemented from time to time by the
Commission--
A.
i.
determine whether it is likely that an illegal act
has occurred; and
ii.
if so, determine and consider the possible
effect of the illegal act on the financial statements of
the issuer, including any contingent monetary effects,
such as fines, penalties, and damages; and
B. as soon as practicable, inform the
appropriate level of the management of the
issuer and assure that the audit committee of the
issuer, or the board of directors of the issuer in
the absence of such a committee, is adequately
informed with respect to illegal acts that have
been detected or have otherwise come to the
attention of such firm in the course of the audit,
unless the illegal act is clearly inconsequential.
The Kabuki Begins
• Audit Committee retains Independent
Counsel
• Why Independent?
– Credibility
– Consider basic Conflict Rule – Rule 1.06
Rule 1.06
• a lawyer shall not represent a person if the
representation of that person:
• (1) involves a substantially related matter in
which that person's interests are materially and
directly adverse to the interests of another client
of the lawyer or the lawyer's firm; or
• (2) reasonably appears to be or become
adversely limited by the lawyer's or law firm's
responsibilities to another client or to a third
person or by the lawyer's or laws firm's own
interests.
What do they want from you?
• Electronic Media
• Physical Media
• Interviews of employees, officers
Ethical Context – Rule 1.12
(a) A lawyer employed or retained by an
organization represents the entity.
Legal Context
• Sarbanes
– Section 303 – Improper Influence on Auditors
– Section 307 – Up the Ladder Reporting
– Section 802 – Criminal Penalties for
Document Destruction
Legal Context – cont.
– Section 806 – Whistleblower protection
– Section 1102 – Criminal Penalties for
Impeding Investigation
– Section 1107 – Criminal Penalties for
Retaliation
Whistleblowers
Section 806
Protects employees of companies with
registered securities or who file reports under
the securities laws who lawfully provide
evidence or assist in the investigation of conduct
that the employee “reasonably believes
constitutes” federal mail, wire, bank or securities
fraud laws, the regulations of the SEC or any
other federal law relating to fraud against
shareholders.
• Employers, officers, employees,
contractors, subcontractors, and agents
may not “discharge, demote, suspend,
threaten,harass or in any other manner
discriminate”
• Against any employee engaged in a
“protected activity”
• A “protective activity” is defined as
providing information concerning a
protected subject matter to:
1)a federal law enforcement or regulatory agency
2)a committee or member of Congress
3)a person with supervisory authority over a subject
employee or such other person retained by the
employer who is authorized “to investigate, discover
or terminate [for] misconduct.”
Impeding an Investigation
Section 1102
• "(c) Whoever corruptly —
• "(1) alters, destroys, mutilates, or conceals a
record, document, or other object, or attempts to
do so, with the intent to impair the object’s integrity
or availability for use in an official proceeding; or
• "(2) otherwise obstructs, influences, or impedes
any official proceeding, or attempts to do so, shall
be fined under this title or imprisoned not more
than 20 years, or both.".
Retaliation
Section 1107
• e) Whoever knowingly, with the intent to
retaliate, takes any action harmful to any
person, including interference with the lawful
employment or livelihood of any person, for
providing to a law enforcement officer any
truthful information relating to the commission
or possible commission of any Federal
offense, shall be fined under this title or
imprisoned not more than 10 years, or both.
What do they want from you,
again?
• Electronic Media
• Physical Media
• Interviews of employees, officers
They also want
• Coordination
• Cooperation
• No leakage
Document Preservation
• Remember Section 1102 – no destruction
• Document Preservation Memo to All
Employees
• Best Advice – keep it all, until the end
Electronic Media
• Company Servers/shared drives
• Laptops – Check Policy Manual
– Personal Information
– Information about competitors
Physical Media
• Access to Accounting Records
• Access to Personnel
Employee Interviews
• Critical source of information
• Issues for Company
– Privilege
– Sections 806 and 1107 – No Retaliation
– Morale
– Confidentiality
Employee Interviews - Politics
• Leakage – Management
• Leakage – Employees
• Leakage – External
Prepare the employee
• Pre Interview Meeting
• Why?
– Sections 303, 806, 1107
– Terms of Employment
– Morale – set the tone
– Message to the government, third parties
What to say
• Talk to Regular Counsel – not investigation
• Follow the Script
• Keep your records
• No debriefing!!!
Admonition
You will be meeting in a few minutes with
attorneys for the Audit Committee of our Board
of Directors. They have been asked to inquire
into revenue recognition issues that gave rise to
the restatement of our first quarter results. They
have been asked by the Audit Committee to
gather information and to develop the legal
advice that the Audit Committee has sought and
to prepare for possible governmental
investigations or litigation involving this matter.
These attorneys do not represent you. They
only represent the Audit Committee and the
corporation. We ask that you be completely
truthful with them. They will use the information
that you give them as they see appropriate. The
report that they make may be shared, in part,
with our auditors. The law provides penalties for
persons who provide false or misleading
information to auditors. You are being asked to
meet with these attorneys because you may
have information that they need to advise the
Audit Committee.
Please do not hesitate to provide information to
the attorneys, especially if you believe it may
related to any wrongdoing by anyone. If you
yourself have done anything wrong, you should
consider speaking about that matter with your
own counsel. Remember, the attorneys you are
meeting with do not represent you and can not
give you advice. Please let me know if you
would like to postpone the interview until you
have spoken to your own counsel.
You will not be punished, nor will your job status
be affected, because you reveal any
wrongdoing, or evidence of possible
wrongdoing, by anyone to the attorneys in your
interview or afterward. The law encourages you,
and we encourage you, to be truthful,
particularly under circumstance such as these.
It is very important to the future of this company
that complete, truthful information be obtained.
If you believe that anyone is trying to pressure
you to be untruthful, or has or ever does retaliate
against you for being truthful in these interviews
or providing any evidence of wrongdoing, please
contact me or ________________ immediately.
This is very important. We will not tolerate any
retaliation or other negative consequences for
truthfulness or for providing evidence of
wrongdoing in these interviews or otherwise.
The law provides penalties for retaliation against
persons who provide evidence or wrongdoing.
Do you have any questions before you
speak to the attorneys?
These are the only objects for which I have sent
Commodore Perry, with a powerful squadron, to
pay a visit to your imperial majesty's renowned
city of Yedo: friendship, commerce, a supply of
coal and provisions, and protection for our
shipwrecked people.
...
Your good friend,
MILLARD FILLMORE
Recap – what is achieved?
•
•
•
•
What is going on?
Upjohn
Truthfulness is a condition of employment
Truthfulness is required by the law – 303,
1102
• Fair warning to retain personal counsel
• Auditors will rely on information given – 303,
1102
• We will not tolerate retaliation – 806, 1107