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Staying in or going out when the government comes a-knockin’

Revisiting the lessons learned from the United States of America v. Lauren Stevens case

More than one way...

They say there is more than one way to skin a cat, and regulators and law enforcement officials certainly know this. For example, of all the crimes Al Capone ever allegedly committed, his only big conviction was for tax evasion. However, that was enough to send him to prison for a significant period of time. Along those lines, remember the adage “the cover-up is worse than the crime”? Many have been investigated or convicted for obstruction of justice or impeding an investigation even when there is no conviction on the underlying allegation. As discussed in our previous article, regulators and prosecutors are targeting in-house counsel when they believe the entity or in-house counsel is covering something up.

In-house counsel represent a particularly susceptible target for investigators given the attorney’s unique status in the company. Many of the attorneys caught up in these probes are ethical and simply trying to navigate a difficult terrain. However, the toll of finding oneself being investigated, and especially charged, can be immense. In this article, we will explore what is perhaps a leading example of this very scenario. While this example is from the pharmaceutical industry, it is also instructive for bank in-house counsel because it shows how the engagement of outside counsel can help mitigate the risk to in-house counsel and the entity at large when dealing with a governmental inquiry.

An informal request for information

Lauren Stevens was an in-house counsel at GlaxoSmithKline. Her story begins with an all-to-common informal request for information from the Food and Drug Administration. The FDA request concerned the promotion of an off-label drug. The request was turned over to Stevens to respond. During the course of an internal investigation, potentially incriminating evidence was discovered. Stevens consulted with other in-house counsel and outside counsel to determine the appropriate course of action. In the end, she did not produce some of the evidence on the advice of both inside and outside counsel. However, she later certified that the company had provided a “final and complete production” before turning over the evidence.

Needless to say, the FDA and the Department of Justice were not amused. Stevens was later charged with obstruction of justice, among other charges. Prosecutors invoked the crime-fraud exception to the attorney-client privilege. As the trial court noted, the crime-fraud exception exists when:

  1. The client was engaged in or planning a criminal or fraudulent scheme when he sought the advice of counsel to further the scheme and
  2. The documents containing privileged materials bear a close relationship to the client’s existing or future scheme to commit a crime or fraud.

By invoking the crime-fraud exception, prosecutors were allowed to access confidential files to make their case that Stevens engaged in criminal conduct. (Note: The standard in some jurisdictions is relatively low for invoking the crime-fraud exception. See, for example,a 3rd Circuit ruling from 2012 that required a “reasonable basis to suspect that the privilege holder was committing or intending to commit a crime or fraud and that the attorney-client communications or attorney work product were used in furtherance of the alleged crime or fraud,” and a 5th Circuit ruling from 2005 requiring the excepting party to show “factual basis adequate to support a good faith belief by a reasonable person.”)

In the end, the court issued an order of acquittal on the defense’s motion after the prosecution rested its case because Stevens lacked the requisite intent to be guilty of the crimes charged. While the court acknowledged that “[t]he responses that were given by the defendant in this case may not have been perfect; they may not have satisfied the FDA,” the court noted that the privileged documents demonstrated that Stevens engaged in “a studied, thoughtful analysis of an extremely broad request from the [FDA] and an enormous effort to assemble information and respond on behalf of the client.” Furthermore, the documents were “sent to the FDA in the course of her bona fide legal representation of a client and in good faith reliance of both external and internal lawyers for GlaxoSmithKline” (emphasis added).

The Stevens case is notable for several important reasons. First, this case shows the relative ease with which regulators and prosecutors can go after an in-house counsel if they feel the counsel is not cooperating with the investigation. Second, the court noted that one reason why Ms. Stevens was acquitted was because she did engage outside counsel. Third, like other legal practices, responding to government inquiries requires skill and experience to ensure it is done correctly. Finally, by going after the in-house counsel, the regulator/prosecutor can access otherwise privileged records by employing the crime-fraud exception. This can impact the entity as a whole.

Role of outside counsel

The in-house counsel dodged a bullet because, as the court noted, she sought the assistance of both internal and outside counsel, and the crimes she was charged with were specific intent crimes. The regulatory environment for banks and other financial institutions at present is such that an informal inquiry by a regulator could easily turn criminal. Outside counsel can provide a removed and expert response to these inquiries, especially where the in-house counsel may not have an expertise on the subject. In-house counsel should not completely remove themselves from a government inquiry and should even be heavily involved in any response to the inquiry, as they know the bank. However, having outside counsel involved can go a long way to mitigating any thoughts by a regulator or prosecutor that the in-house counsel is abrogating his or her legal responsibilities in favor of trying to cover for the company.

Contributing Author

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Colleen M. Murphy

Colleen M. Murphy is a partner in the law firm of Goldberg Segalla. She has nearly 20 years of experience counseling and defending clients that include...

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Contributing Author

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Aaron J. Aisen

Aaron J. Aisen is an associate at Goldberg Segalla where he focuses on financial regulatory issues and litigation.  Prior to joining Goldberg Segalla, he was...

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