SEC Commissioner Calls for Reform of DOJ and SEC Cooperation Standards

For months the standards for evaluating cooperation used by the Department of Justice in the Thompson memo and those of the SEC in the Seaboard Report have been under fire for creating a “culture of waiver” which has eroded the attorney client privilege and the work product doctrine and unduly interfered with the rights of corporations and their employees. The ABA has passed resolutions decrying the impact of the standards used by DOJ and the SEC. Organizations such as the U.S. Chamber of Commerce have issued reports heavily criticizing what it called the increasing harshness of SEC enforcement efforts. The court in U.S. v. Stein, held portions of the Thompson memo unconstitutional. Congress followed up on this with hearings in which virtually every witness, including former high ranking justice department officials, criticized DOJ and SEC cooperation policies.

Through all of this DOJ and the SEC have stood largely mute, at least implying that they stood by their policies. It was refreshing to see SEC Commissioner Paul S. Atkins address this important issue in his recent speech and suggest a review of Commission policies while noting that he would be very critical of any requests from the staff for privilege waivers. Specifically, Commissioner Atkins stated that “I strongly believe that the Commission should not view a company’s waiver of privilege as a factor that will afford cooperation credit. . . . Maybe it is time for the Commission to revisit this issue in a formal way and to clarify that waiver . . . [of] fundamental rights and protection will not result in lesser allegations and/or remedies.” The Commissioner went on to note that while waivers may make it easier for the staff — a point specifically discussed in the Thompson memo — this does not justify seeking the waiver of fundamental rights. Indeed, Commissioner Atkins noted that if internal investigations are not privileged it may undermine their effectiveness. Remarks before the Federalist Society, September 21, 2006.

Commissioner Atkin’s comments are a welcome relief from the cold silence of DOJ and the SEC on this important topic. As has been previously noted in this blog, there is no need for DOJ or the SEC to seek waivers in most cases. What the government needs when making a prosecutorial decision — which is what the Thompson memo and the Seaboard Report are suppose to be about — is the facts. A self reporting company can furnish the facts without privilege waivers. What DOJ and the SEC should be looking for as indicia of cooperation is self reporting, a full presentation of the facts to the extent known by the company including facts about persons who may be involved in the wrongful conduct being reported and the adoption of reasonable procedures which will prevent a reoccurrence in the future. If DOJ and the SEC focused on these points they should be able to assess cooperation. If DOJ and the SEC focus on encouraging cooperation rather than stripping persons of their rights they may find that their law enforcement policies are more effective. The remarks of SEC Commissioner Atkins are a welcome first step in reforming cooperation standards to do what they should be: standards which encourage cooperation and aid law enforcement in a manner which conforms with the law.