Imagine this scenario: you work as in-house corporate counsel at a private company. The U.S. Securities and Exchange Commission (SEC) initiates an investigation of the company. Who should you contact? What measures do you take to inform the company and its employees? What are the correct protocols in navigating and complying with the SEC's requests? And what ethical obligations should you be considering?
While formal government investigations typically precipitate a corporate client's retention of outside counsel specializing in government investigation defense, these situations nevertheless demand corporate counsel -- whether in-house or outside counsel -- to consider their roles and involvement in such inquiries.
For example, there can be additional risks for a corporate client and counsel when an agency with enforcement power makes an inquiry that is not yet a formal investigation. An agent may make an "informal" inquiry and begin asking corporate attorneys questions before white collar or criminal attorneys are involved. Or, an agency could begin asking retained counsel confidential questions about the corporation's business or financials, and in-house corporate counsel may need to advise accordingly from inside the business.
This establishes potential conflicts that corporate counsel should consciously consider when responding to such investigations. While in-house counsel may want to be helpful to the agency -- and indeed, it may even be favorable to the company to comply with such an inquiry -- there may be a conflicting duty to guard the confidences and secrets of a client, particularly where revealing that information would cause the client to face criminal liability or a government investigation.
Attorneys should make efforts to consider what duties they owe to their corporate client and how those duties overlay -- or potentially conflict -- with their ethical obligations. Additionally, there are risks that participation in government inquiries could raise questions of attorney misconduct, or the investigation itself could be in regard to corporate conduct that also seeks to implicate the corporation's attorneys on an individual basis.
The below identifies some tips for corporate counsel to consider when assessing their ethical obligations in the event of a government investigation of a corporate client.
Assessing client confidentiality
In the event of an investigation, in-house or outside corporate counsel should initially consider what their obligations are to their clients. A beneficial first step may be to contact other counsel specializing in this area. Whether it is immediately notifying others in the general counsel's office in-house or outside counsel notifying his or her law firm, there is no need for an attorney to handle such an investigation alone. This is particularly so given the potential exposure and risk to all involved.
Next, a corporate attorney may want to consider the duty of protecting a client's confidentiality. The type of work corporate counsel does for its clientele can be diverse. One of those tasks can be to act as a client representative and initially respond to any governmental agency or other inquiries -- and this task can raise questions probing potentially confidential client information. For instance, is the attorney allowed to provide to the agency certain business or financial information regarding the client? Is the attorney permitted to respond at all to such requests?
The California Rules of Professional Conduct require attorneys to strictly comply with protecting client confidentiality. California demands that attorneys shall "maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client" unless the client provides informed consent, although the attorney may consider disclosure to prevent certain criminal acts. See Rule 1.6(a)-(b) & Cmt. 1 (quoting Bus. & Prof. Code 6068(e)(1)). Since responding to a government inquiry with information about the client's business could risk revealing protected confidential information, attorneys may wish to seek the client's informed consent before proceeding to respond to a court-ordered subpoena or service of process.
As mentioned, an exception is that an attorney may (the exception is not mandatory) reveal confidential information if the lawyer reasonably believes it will prevent certain criminal acts. See Rule 1.6(b). Attorneys should keep in mind that the rule advises that such disclosure is allowable but only when done to prevent an act that the attorneys reasonably believe would likely result in death or substantial bodily harm.
Assessing potential conflicts
Attorneys should assess what ethical or fiduciary duties they may owe to employees, the inquiring agency, or even to themselves -- including determining whether their ethical obligations to their clients pose a potential conflict to duties owed to others.
Sometimes, a government inquiry can prompt an internal investigation for which corporate counsel is tasked with assisting. These internal inquiries may involve interviewing employees. It is integral that counsel make clear Upjohn warnings to employees that counsel represents the company, not the individual, in such investigations. While employees' communications with corporate counsel are generally privileged, that privilege typically belongs to the company, not the employee. As holder of the privilege, the company can choose to waive that privilege and share those communications with government investigators. Attorneys should take appropriate measures to ensure that cooperating employees are aware of their rights and the risks of potential disclosure.
Attorneys may also wish to consider Rule 1.2.1 of the California Rules of Professional Conduct. Under Rule 1.2.1, an attorney in California shall not assist a corporate client -- or any client -- in committing criminal or fraudulent conduct. Rule 1.2.1, Cmt. [1]. It may be that the Department of Justice is investigating whether the company committed certain crimes or frauds. If that is the case, attorneys may wish to consider Rule 1.2.1 alongside Rule 1.6 to determine whether divulging confidential information is warranted under the circumstances. It may very well be worth the time and effort for attorneys to seek the advice of other counsel. Attorneys can consider reaching out to a senior member of the general counsel's office or an independent lawyer specializing in these issues, who may be able to weigh in further given the unique facts and circumstances of the situation.
Assessing attorney culpability
Even with informed consent, an attorney answering government inquiries about potential client misconduct could raise some eyebrows and cause the government to consider whether the attorney has any personal culpability as well.
For instance, in the course of an investigation an attorney may reveal that he or she knew about the alleged corporate misconduct. An attorney who suggests to the government that the attorney had knowledge or awareness of the client's conduct could then face indictment or become a material witness. Further, if the client's conduct is under the government's lens, any advice provided by the attorney to the client in furtherance of that conduct could face similar scrutiny. In addition, even if the attorney is not specifically targeted, the unauthorized disclosure of confidential information could lead to a bar grievance or even a breach of fiduciary duty or legal malpractice claim.
By looking ahead when served with a subpoena or governmental inquiry, corporate counsel can make efforts to ensure that it is acting in a way that best serves the interests of the client and the attorney.