Senator Specter introduced the Attorney-Client Privilege Protection Act of 2006 (ACPPA) in the Senate yesterday.  Thus, the so-called “culture of waiver” created by the Justice Department’s Thompson Memo and the SEC’s Seaboard Releases – both of which in practice have forced corporate privilege waivers and denied employees of fundamental rights – could be about to end.   

 As noted in this space on November 21, the draft text of that bill includes provisions that effectively rewrite key provisions of the Justice Department’s Thompson Memo and the SEC’s Seaboard Release on the waiver of the attorney-client privilege and other key rights in the name of cooperation.  Specifically, the draft bill would preclude federal investigators in either a civil or criminal matter from in any manner requesting a waiver of the attorney-client privilege or work product doctrine. 

In addition, the proposed legislation directs that federal investigators not “condition a civil or criminal charging decision relating to a organization, or person affiliated with that organization, on, or use as a factor in . . .” assessing cooperation any valid assertion of privilege, the payment of legal fees for employees, the sharing of information under joint defense agreements or otherwise or the failure to terminate employees for the assertion of constitutional rights.  The bill would not preclude a voluntary waiver of privilege.  

 This proposed legislation seems to echo the comments of Senator Specter at the September Senate hearings on this issue.  During those hearings, Senator Specter reportedly told the Justice Department that he would introduce legislation on to preserve these privileges and rights unless the Thompson Memo was redrafted. Deputy Attorney General Paul McNulty, who testified at those hearings, reportedly told senators that the Department would revisit the Memo, although no representation was made that the provisions the private bar finds troubling and claim create the “culture of waiver” would be eliminated.  

To date the Justice Department has not amended or redrafted the Thompson Memo.  Recent press reports, however, suggest that the Department is reconsidering the Thompson Memo and that changes will be forth coming.  Those reports follow a recent speech by Larry Thompson, author of the Memo, noting that it was not intended to be applied in the manner which many claim has created a “culture of waiver.”  Similarly, the SEC has not taken any steps to amend the Seaboard Report.  SEC Commissioner Paul Atkins did state in a September 2006 speech that waiver should not be considered in assessing cooperation. See Remarks before the Federalist Society, September 21, 2006.
http://www.sec.gov/news/speech/2006/spch092106psa.htm Linda Thomson, SEC Enforcement Director, noted in a recent conversation at the ABA Business Section meetings that waiver is the exception and not typically sought, echoing earlier staff comments.  Similar claims by the Justice Department were rejected as not credible by Judge Kaplan in U.S. v. Stein. 

In any event, introducing a bill is a long way from having it signed into law.   We will just have to wait and see whether the “culture of waiver” is about to end because the bill is pushed through Congress or if the Justice Department and the SEC will finally amend their respective directives, or if the stalemate continues.

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Last week on the heels of the issuance of the Paulson Committee Report, senior SEC enforcement staff met with ABA Business Section members for their annual tête-à-tête.

After an hour and a half of dialogue little new information about the enforcement program was revealed. The staff did state that the enforcement program is alive and well, hardly a surprising claim. In this regard, Enforcement Chief Linda Thomson pointing out that the SEC brought less enforcement cases last year than in prior years is of no moment. Ms. Thomson said that she went back and reviewed several years worth of statistics on the number of cases brought each year. Her examination demonstrated that the number of cases tends to fluctuate over the years, which led her to reassure all that the program was as robust as ever. At one point the staff noted that it had prevailed in its last fifteen straight cases in federal district court. This contention seems to refute the recommendation of the U.S. Chamber of Commerce in its report earlier this year stating that “the Commission should closely evaluate the number of recent losses in litigated enforcement actions, the various reasons for those losses, and the criticisms of both factual assertions and legal theories that are contained in the decisions.”During the discussion, the staff reviewed its progress to date on the options backdating cases. While the staff declined to specifically identify the number of companies under investigation, it did note that there are over 100, as has been widely Reported in the press. As in the past the staff noted that we can expect more cases – not much of a surprise. In response to a specific question about spring loaded option cases, the staff noted that “its client” – i.e. the SEC – had not made a decision on this controversial issue. As many will recall, this practice was the subject of an October 6, 2006 New York Times article urging that these cases be brought, although the article did note that the legal basis for bringing such cases is questionable.

Finally, the staff declined to comment on the recommendations and proposals of the Paulson Committee, noting that they had not had time to analyze the Report. Reportedly, it will be some time before the final Report is prepared.

The Report contained few surprises – much like the discussion with the SEC Enforcement staff. Regardless of the merits or demerits of the various proposals – and there are press articles taking virtually any position you would like to adopt – one has to wonder what many of the proposals have to do with the overall competitiveness of the U.S. Capital markets. Take for example, the issues flagged in this blog last week regarding litigation reforms. Uncertainties about the precise interpretation of elements of Rule 10b-5 liability because of a split in the circuits may be an interesting question but hardly new and does not seem to be one that has global significance. Likewise, whether payments under Fair Funds are credited against securities class action settlements is not a new or surprising idea and also seems to lack global appeal. On the other hand, reducing criminal liability for organizations might be of more interest to an organization considering where to market its securities. Overall however, many of the issues regarding litigation discussed in the Report seem to have the same qualities as the discussion with the SEC Enforcement staff – not much new here. In addition, many seem to have little to do with the key topic of the Report – the competitiveness of U.S. Capital markets. Perhaps in the final Report the Committee will spend more time discussing how its concerns relate specifically to that issue.

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