The fear of criminal prosecution is present for every in-house counsel. It may be just a flicker of caution that informs the most routine day-to-day advice in-house lawyers provide. Or it may be a sense of dread that kicks up when scanning headlines of corporate executives in trouble. The simple fact is that in today's environment of greater personal accountability and popular presumption of guilt, getting sucked into a criminal investigation is possible for just about everyone.
General counsel are not typically primary targets for prosecutors--CEOs, CFOs and board members carry brighter bull's-eyes. But when the GC does fall under suspicion, it can be particularly thorny.
Because general counsel have a hand in all aspects of the corporation, compartmentalizing the damage is difficult. Complex privilege issues make defending the indicted GC daunting. And the personal consequences for general counsel, even if they are exonerated, are dire.
"In-house counsel are making big decisions all the time, and some of those decisions carry terrific consequences. There's always the chance that you will step on a land mine," says Patricia Hamill, a litigation partner at Conrad O'Brien Gellman & Rohn.
On the Street
From the moment a GC is implicated in an investigation, it becomes almost impossible for him to function in his full role.
"Let's not forget, there's a presumption of innocence, and I would not adopt the view that in every case the general counsel should be thrown out on their ear," says Donald Stern, a partner at Cooley Godward Kronish and a former Massachusetts U.S. Attorney. He adds that the default response, for good reason, is administrative leave, suspension or termination.
"At the very least you need to cordon off the general counsel from all matters related to the investigation, and that creates real practical problems," he says. "Then, let's face it, there's the shareholder perception and the public perception."
In other words, even if the general counsel is innocent, the formal implication of wrongdoing is so toxic the company can rarely allow the lawyer to stay on. The focus quickly shifts to what degree the company will participate in the tarnished counsel's defense.
The extent to which the company will be involved is largely driven by state laws governing indemnification or the bylaws of the company itself. In most cases, it is practically, if not explicitly, required that the employer foot the bill for the individual's defense.
Since the controversial U.S. v. Stein (KPMG) and the ensuing adjustment to prosecution guidelines under the Department of Justice's Filip memo (see "Convictions ... Finally," p. 18), questions surrounding companies' advancement of legal fees to executives have been largely resolved. But that's just the tip of the iceberg when the executive in question is a lawyer.
"General counsel have unique circumstances," Hamill says. "Often, issues related to their advice are key to the investigation. The corporation has the privilege, and the counsel may be hamstrung in his or her defense depending on whether the corporation will waive privilege."
The dynamic is always case specific. Sometimes general counsel want to waive privilege to vindicate themselves, sometimes they want to keep the skeletons in the closet. There's no telling if the counsel's interests align with the corporation's.
"You may have situations where you have a real conflict of interest--the company wants to waive privilege and open the floodgates," she says. "The general counsel may say, 'no,' but it's not his or her privilege to waive. Ultimately the privilege belongs to the corporation."
Of course, if the lawyer is actively engaged in the furtherance of a crime, the crime fraud exception kicks in, and privilege ceases to exist. But even that can get blurry in some situations.
"There are times when the lawyer doesn't know whether a crime has been committed, so he doesn't know if he can waive privilege," says Al DeCotiis, a partner in DeCotiis, FitzPatrick, Cole & Wisler. "But privilege is not discharged on mere speculation. The lawyer is a pain to represent because of these issues."
Because the web is so easily tangled, companies and individual executives often enter joint defense agreements. The biggest challenge for all involved, at least initially, is finding facts. That's a lot harder when the parties work at cross purposes.
There may be safety in numbers, but there is a trade-off. Any information gained from fellow defendants and their counsel is privileged and can't be used if the GC opts to leave the group.
"I can't use that information to go to a prosecutor, but I can use it for my own calculations," DeCotiis says. "If I find that the other guys have committed humongous crimes, and my client has assisted, but in a less significant way, I can then say, 'Gentlemen, I am withdrawing from the joint defense group.' Everybody understands that nobody signs on for life. Circumstances change and our positions change."
It's a subtle dance. The white-collar defense bar is a cozy fraternity, and joint defense relies heavily on relationships and personal trust. In every region there's a small group of former federal prosecutors who knows how the U.S. Attorney's Office works, knows each other and understands the delicate balance between representing the client and advancing the interests of the entire group.
"I'm involved in a matter right now where we're in a six-person joint defense group," says Patrick Collins, a partner at Perkins Coie. "I know every one of these guys from the U.S. Attorney's Office. Everybody's zealously defending their client's interests, but we understand that there's a mutuality as well. It's important to know the people in the group. If there's an outsider in there you're not sure you can trust them."
DeCotiis says it's best to at least start in a cooperative mode, with several lawyers working together to help everybody walk away. The consequences when solidarity fails can be grave.
"If one guy gets convicted," DeCotiis says, "he's more likely to roll over and testify against the rest."