It is common in many internal investigations to give the so-called Upjohn warnings. Those warnings, based on the Supreme Court’s decision in UpJhohn Co. v. United States, 449 U.S. 383 (1981), typically are given to an employee in an internal investigation and state that investigating counsel: 1) represents the company and not the employee; 2) that information learned during the interview is privileged to the company and that only the company will determine whether to provide such information to the government and the employee will not be consulted; 3) information discussed at the interview is to be kept confidential to preserve the company’s privilege; and 4) the employee should state that he or she understands the warnings. The dangers of not giving the warnings are illustrated by the recent decision in In Re: Grand Jury Subpoena: Under Seal, 415 F. 3d 333 (4th Cir. 2005), cert. denied, 2006 U.S. LEXIS 229 (Jan. 9, 2006). There investigating counsel conducting an internal inquiry of AOL told employees that they represented the company and that the privilege and the right to waive it belonged to the company. Investigating counsel also told employees that they “can” represent them and advised one employee that they did not recommend retaining separate counsel in response to a question. When information from the interviews was subpoenaed in a grand jury inquiry the employees moved to intervene claiming that they had an attorney client relationship with investigating counsel based in part on the statements that such counsel “can” represent the employees. The court rejected the claim, drawing a distinction between “can” and “do.” The court was careful however to note that its holding was not an endorsement for watering down the Upjohn warnings. Indeed, while in many instances it may be convenient to “water down” the full warnings, this case illustrates the potential pitfalls with that approach.
Judge Stanley Sporkin posed this question in his opinion 25 years ago in Lincoln Savings & Loan Ass’n v. Wall, 743 F. Supp. 901 (D.D.C. 1990). At the time Judge Sporkin, a former SEC Enforcement Chief, questioned the role of professionals as gate keepers. It’s well known that few corporate transactions are completed without the assistance of lawyers and accountants. In this sense, professionals are the “gatekeepers” without whom many deals would not be completed. The SEC has long sought to enlist the aid of these gatekeepers in uncovering and halting fraud as evidenced by the Ninth Circuit’s 1979 opinion in SEC v. Arthur Young & Co., 590 F.2d 785 (9th Cir. 1979) rejecting those efforts and the proposed, but never enacted, version of the “up the ladder” SOX rules. See, SEC Proposed Rule: Implementation of Standards of Professional Conduct for Attorneys, Rel. No. 33-8150 (Nov. 21, 2002), 67 Fed. Reg. 71669 (Dec. 2, 2002) (http://www.sec.gov/rules/proposed/3308150.htm). Cf. 17 C.F.R. Part 205 (2005) (final version) (http://www.sec.gov/rules/final/33-8185.htm).
Now, however, the question of where were the lawyers and accounts might well be posed in a slightly different manner. On Sunday, November 20, 2005, the New York Times ran a story about the conviction of Daniel H. Bayly, former head of investment banking for Merrill Lynch. His conviction is based on an Enron related deal which, according to the government, had no economic substance but boosted the revenue of the now failed giant – essentially a sham transaction. Undoubtedly, the complex deal was vetted by Merrill’s counsel and accounting experts along with a host of others. If the deal passed legal muster and was approved by the accounts, Mr. Bayly might well rephrase Judge Sporkin’s famous question and ask why he is serving a prison sentence for a deal the lawyers approved as lawful and the accountants passed as being in compliance with the dictates of their profession. To be sure this is not an “advise of counsel and accountant” defense but simply a restatement of the question “where were the professionals” if the deal was so bad that it was in fact a criminal violation of the law. Perhaps these days the answer to Judge Sporkin’s questions is that it does not matter where the lawyers and the accountants were.