United States: When The Government Comes A’knockin: – What To Do In A White Collar Criminal Or Regulatory Investigation

Article by Jack Gruenstein Esq*

As the economy struggles to recover its footing, and as new costly, programs are created, the focus of the government, whether federal, state or local, increasingly has been to pursue both criminal and regulatory investigations with the goals of rooting out fraud and abuse, and generating revenue. While the goal of rooting out fraud and abuse is admirable, the government, often assisted by whistleblowers with a financial interest in an underlying investigation, has tools in its arsenal that permit it to send people to jail, as well as to obtain restitution, treble damages, and substantial regulatory and criminal fines. Businesses and professionals are forced to operate in this brave new world of enforcement, and deal with the trauma of an unannounced search of a plant or office by a team of agents armed with a search warrant.

The most common way for the government to obtain information in a criminal or regulatory investigation is by the use of a subpoena for documents or testimony and/or interviews of those with relevant information. Of course, the less used, but exponentially more intrusive mechanism is to issue a search warrant.

IF YOUR BUSINESS OR AN INDIVIDUAL IS SERVED WITH A SUBPOENA

A subpoena issued for documents in a civil case may be familiar to many, but a grand jury subpoena is less so. While it may be appropriate in the civil case for a company to object to a document subpoena, or simply refuse to turn over what has been requested, such a response to a Grand Jury subpoena may be considered by a prosecutor to be an obstruction of justice. Likewise, a decision by a company or an individual, to dispose of documents, rather than turn them over to the Grand Jury or hide them, will be viewed in the same way.

The receipt of a Grand Jury subpoena, however, is not, by itself, an accusation by the government of wrongdoing. Rather, many times it may be that the recipient is simply a witness with information or documents needed by the government as part of an investigation of someone else. However, before anything is turned over, it is recommended that it be reviewed by counsel for responsiveness to the subpoena and to ferret out the contours of the government's investigation. This process helps the recipient of the subpoena to better understand how it fits into the investigation and may identify problem areas, such as poor internal controls, or inappropriate actions by employees, that impact the client's business.

Where the Grand Jury subpoena seeks electronically stored data, working with the prosecutor or the agents will help to minimize the disruption to business that, unfortunately, occurs where the demand is for a large scale production of this type of information. Having counsel deal with a subpoena, rather than an unanticipated execution of a search warrant, permits the subject of the subpoena to control the production of information in a way that allows them to continue to operate their business unimpeded, but demonstrates cooperation and a forthcoming attitude in assisting the government with its investigation.

Where the subpoena requires a client to testify, the first thing that counsel should do is to contact the prosecutor to determine the client's status. If the prosecutor views the client simply as a witness with information relevant to the grand jury investigation, the decision is straightforward. Counsel should prepare the client to testify and accompany him or her to the Grand Jury.

However, many times the prosecutor has information suggesting the client is a person of interest to the investigation, commonly called a subject, or is a target, that is, someone who will be indicted by the Grand Jury. When it is learned from discussions with the prosecutor that the client is likely to be charged with a crime, the focus should be on protecting the client, and evaluating the need for the client to assert his or her privilege against self-incrimination and remain silent if called before the Grand Jury. Although there is no concomitant right against self-incrimination available to a corporation, it does have an attorney-client privilege, and an act of production privilege which sometimes may be invoked by the records custodian who appears before the Grand Jury in response to a demand to produce company documents.

SEARCH WARRANTS – YOU ARE THE LAST TO KNOW

Unlike a subpoena, the execution of a search warrant is always unannounced. For those present when it occurs, a search is a frightening and confusing event. For the company and counsel, a search is not something that can be controlled. Thus, the best response to a search is to know, in advance, what to expect and what to do. Companies need to explain to officers and employees at all levels, the fundamentals of the law of search and seizure, the constitutional rights of the company and the employees, and how to respond when a search warrant is executed at the business.

The agents conducting the search know that most people present when it occurs believe they must talk to them. The agents are trained to talk to anyone and everyone, and they know they may never again have such unfettered access to such a large pool of people with information about the case under investigation. What the agents also know, but usually do not mention, is that no one is obligated to talk with them.

SEARCH WARRANTS – UNDERSTANDING YOUR RIGHTS

It is for the employee, alone, to decide whether to talk with the agents, or refuse to do so. If the employee is willing to talk, he or she has the right to be represented by counsel during the interview. In educational sessions with officers and employees, it should be emphasized that these rights exist and that they belong to the employee, only. If the company agrees to provide representation to its employees, before they are interviewed, this information should be imparted to the employee during training. When an employee knows counsel is available at no cost, it is more likely he or she will consult with one before talking with the government agents.

A decision by an employee to invoke the right to counsel not only protects the employee but also may restrain the ability of the agents to gather information from frightened individuals at a time when they have just been traumatized by the specter of armed agents invading their place of employment. Of course, this kind of training and guidance can be done only in advance. Once a search begins, any instruction to an employee, or anyone else, not to talk with the searching agents, no matter how innocently conveyed, later may be viewed by a prosecutor as an obstruction of justice.

If a search warrant is executed, it is imperative that counsel be contacted so that they can speak with the search team leader and begin the process of information gathering. At times, the client may not be able to reach counsel immediately, and it is here that prior training and education comes into play.

Among the key points of which a client should be aware are:

By following these rules, the client can make the best of an otherwise troubling situation.

UNDERSTANDING YOUR RIGHTS – WORKING WITH COUNSEL

Although the execution of a search warrant is a matter requiring immediate attention by counsel, most companies will never undergo such an experience. However, if they do become enmeshed in a criminal or regulatory investigation, the primary goal of defense counsel always is to convince the government that the client has done nothing wrong and should not be prosecuted.

If the government is intent on moving forward, counsel should work with the client to identify deficiencies in its internal controls, or other practices, that are the root causes of the illegal conduct under investigation. It is then important to assist the client in devising a remedial plan to address those deficiencies and to deter similar conduct in the future. With this accomplished, counsel should work to persuade the government that the questionable business practices that caused the client to become the focus of the investigation no longer exist, and that neither an indictment nor any other penal sanction is required.

Ultimately, if prosecution cannot be avoided, counsel should assist the client in resolving any criminal charges in a manner that has the least amount of impact on the client and its business. For a company, this may mean a deferred prosecution agreement and monitoring, or probation, restitution and perhaps a fine. Where the client or the business is the recipient of federal health care or other program dollars, a key component of counsel's work is to ensure that the client is not debarred from future participation in these government programs. For the individual client, counsel should seek to mitigate potential punishment to the greatest extent permitted under any applicable sentencing guidelines, or sentencing statutes. If a non-trial resolution cannot be agreed upon with the government, defense counsel must be prepared for trial.

Sometimes a client may have the unfortunate distinction of being both a witness and a victim of the scheme under investigation. Indeed, this confluence of events has resulted in an emerging area of coverage being offered by several liability insurance carriers. Particularly with smaller companies, problems arise when internal financial, or other, controls are not subject to necessary checks and balances but, instead, are concentrated in the hands of one employee or a small cadre. Such a concentration of power, generally accompanied by little or no operational transparency, may enable a larcenous employee to conceal an ongoing embezzlement, the payment of invoices to fictitious vendors, or the receipt of kickbacks from an actual vendor.

Here, counsel should conduct an internal investigation to uncover the fraudulent scheme and document the extent of the economic loss. With the client's agreement, these findings should be brought to the attention of law enforcement, and counsel should work to assist law enforcement in developing a viable prosecution case. Upon a conviction of the responsible party, counsel should appear for the company at the time of sentencing and, as permitted under both federal and state laws, advocate for restitution. By moving so aggressively, counsel can help the client send a message to other employees and vendors that fraud will not be tolerated, and will be rooted out and dealt with to the fullest extent of the law.

*Jack L. Gruenstein, Esquire chairs the White Collar Crime Practice Group at the law firm of Marshall, Dennehey, Warner, Coleman & Goggin. Over approximately 35 years of practice, Jack has tried more than 50 criminal and civil jury trials to verdict, and has handled a substantial number of non-jury cases. He has done extensive work representing companies and individuals who are witnesses, subjects and targets of state and federal grand jury investigations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.