United States: DOJ Targets Executives And Individuals In Corporate Investigations

Vince Farhat and Linda Auerbach Allderdice are Partners and Robert Barton is an Associate in our Los Angeles office and Thomas H. Bentz Jr. is a Partner in our Washington, D.C. office.


  • Deputy Attorney General Sally Yates has issued a new guidance memorandum establishing six new steps for federal prosecutors to follow when investigating corporate misconduct in civil and criminal enforcement matters ("Yates Memorandum").
  • The Yates Memorandum could have a significant impact on whether companies receive cooperation credit in government investigations and represents a shift in how settlement negotiations will be conducted.
  • The Yates Memorandum specifically urges prosecutors to "vigorously review any information provided" to ensure "that the information provided is indeed complete and does not seek to minimize the behavior or role of any individual or group of individuals."

Responding to criticism stemming from a lack of individual prosecutions as a result of the financial crisis, Deputy Attorney General Sally Yates has issued a new guidance memorandum establishing six new steps for federal prosecutors to follow when investigating corporate misconduct in civil and criminal enforcement matters ("Yates Memorandum").

The Yates Memorandum preceded a Sept. 10, 2015, speech by Deputy Attorney General Yates in which she explained that the new policy is designed to maximize the Justice Department's (DOJ) efforts in building the strongest possible case against individuals in corporate cases. The Yates Memorandum could have a significant impact on whether companies receive cooperation credit in government investigations and represents a shift in how settlement negotiations will be conducted.

Corporate Fraud: A Top Priority for DOJ

Identifying "corporate fraud" as a "top priority of the Department of Justice," the Yates Memorandum requires prosecutors to:

1) Extend cooperation credit only to companies who provide "all relevant facts" relating to the individuals responsible for the misconduct.

2) Focus corporate investigations on individuals from the inception of the investigation.

3) Communicate with their counterparts conducting criminal and corporate investigations.

4) Not release culpable individuals from liability when settling a matter with a company, absent extraordinary circumstances or departmental policy.

5) Resolve corporate cases only when a plan for individual cases have been established, including the memorialization of any declinations as to any individuals in those cases.

6) Base the decision of whether to bring a suit against an individual on considerations beyond "ability to pay."

New Approach to Cooperation Credit

While individual accountability is not new and the Yates Memorandum largely expands on existing practice as set out in the Aug. 28, 2008, Filip Memorandum and the Principles Of Federal Prosecution Of Business Organizations contained in the United States Attorneys' Manual (USAM), the DOJ's new emphasis on individual accountability for corporate wrongdoing is significant.

Under the Yates Memorandum, in both criminal and civil enforcement matters, "[i]n order for a company to receive any consideration for cooperation ... the company must completely disclose to the Department all relevant facts about individual misconduct."

This includes the identification of "all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and [to] provide to the Department all facts relating to that misconduct."

In short, and as the Yates Memorandum explicitly notes, "companies cannot pick and choose what facts to disclose."

Whether this represents a departure from the Filip Memorandum, which permits companies to withhold privileged materials from federal prosecutors, is unclear. However, the Yates Memorandum further directs the updating of the USAM consistent with the guidance contained in the memorandum. As a result, further clarification on this issue may be given in the near future.

The Yates Memorandum specifically urges prosecutors to "vigorously review any information provided" to ensure "that the information provided is indeed complete and does not seek to minimize the behavior or role of any individual or group of individuals."

In addition, prosecutors are urged to include in plea or settlement agreements "a provision that requires the company to provide information about all culpable individuals and that is explicit enough so that a failure to provide the information results in specific consequences, such as stipulated penalties and/or a material breach."

The factors that previously extended to the extent of cooperation credit will continue to apply.

Investigations to Emphasize Greater Focus on Individuals

The Yates Memorandum strongly emphasizes an increased focus on individuals in the investigation and prosecution of corporate misconduct.

For instance, citing the goals of maximization of ferreting out corporate wrongdoing, increasing the likelihood of cooperation, and ensuring that civil and criminal charges are brought against corporations and individuals, the Yates Memorandum urges prosecutors to "focus on individual wrongdoing from the very beginning of any investigation."

In addition, the Yates Memorandum makes clear that civil actions should not be governed solely by whether an individual has an ability to pay.

The Justice Department often touts the "return on investment" for taxpayers when announcing major settlements under the civil False Claims Act (FCA). But the Yates Memorandum makes clear that federal prosecutors seeking individual accountability for corporate wrongdoing should not focus just on potential monetary recoveries for the government. Instead, prosecutors should focus on achieving a goal of "significant long-term deterrence." The Yates Memorandum advises prosecutors to consider whether "the person's misconduct was serious, whether it is actionable, whether the admissible evidence will probably be sufficient to obtain and sustain a judgment, and whether pursuing the action reflects an important federal interest."

Settlement Negotiations Are Likely to Change

The Yates Memorandum is also likely to change the complexion of settlement negotiations.

For instance, under the Yates Memorandum, absent extraordinary circumstances, corporate resolution of criminal or civil liability cannot be achieved where that agreement includes "an agreement to dismiss charges against, or provide immunity for, individual officers or employees."

In addition, the Yates Memorandum discourages prosecutors from resolving corporate cases without a plan to continue their investigation as to liable individuals. Where civil claims or criminal charges are not brought against an individual who committed wrongdoing, the United States Attorney is now required to approve the determination.

Also, as noted above, prosecutors have been urged to include a provision requiring ongoing cooperation in investigations – even post-settlement.

Other Important Takeaways

Review Corporate Bylaw Protections and D&O Insurance Coverage

The Yates Memorandum makes corporate bylaw protections and D&O insurance more important than ever. Many companies have failed to update their corporate bylaws to reflect the new focus on individual liability now facing directors and officers. For example, few bylaws allow a director or officer to exercise his or her Fifth Amendment right to remain silent without penalty. This can have a devastating impact on directors and officers under the new guidelines.

Similarly, companies need to make sure that their D&O insurance policies will waive the applicable retention/deductible in the event that the company fails or refuses to indemnify a director or officer. Without this important enhancement, individuals may have to satisfy a retention on their own before they can access the policy.

In short, if an individual corporate executive is targeted by prosecutors, or is unable to avoid criminal or civil liability even after the case against the company has resolved, the corporate bylaw protections and the D&O insurance may represent the executive'slast line of defense. As a result, if your company has not reviewed its bylaws or D&O insurance coverage recently, this is a good time to do so.

The Yates Memorandum Signals Greater Cooperation Between Criminal and Civil Investigating Agencies

The Yates Memorandum encourages consultation between DOJ and agency attorneys, and reiterates the importance of so-called "parallel proceedings." Notably, the Yates Memorandum encourages criminal attorneys who have decided not to pursue a criminal action against an individual to confer with their civil counterparts so that they can assess individual liability under applicable civil statutes, consistent with the memorandum.

Corporate Compliance and Ethics Programs

The Yates Memorandum underscores the importance for corporations to review compliance and ethics programs to ensure that they are in a position to conduct robust internal investigations when informed of potential misconduct. Now, more than ever, companies must be vigilant and ensure that they are ready to respond proactively to civil and criminal 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.

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