United States: SDNY Judge Finds Attorney-Client Privilege Waived Based On Response To Regulatory Inquiry

In a recent decision, Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York held that J.P. Morgan Chase & Co.'s (JPMorgan) disclosure of information to FINRA in response to a routine chronology/name recognition inquiry constituted a waiver of privilege in a subsequent criminal insider trading case.[1] Although the privileged status of such communications has rarely been challenged, this decision opens the door for the government and private plaintiffs to pursue waiver arguments in future cases. As such, the ruling could have implications for counsel responding to regulatory inquiries who seek to avoid triggering a waiver of the privileges ordinarily attaching to the communications upon which such response is based. 


JPMorgan's healthcare investment banking group was engaged to advise clinical research organization Kendle International, Inc. (Kendle) in its acquisition by INC Research, LLC, which was announced in May 2011. Shortly after the announcement of the acquisition, FINRA initiated an inquiry into pre-announcement trading in Kendle and sent JPMorgan a routine request asking for, among other things, a chronology of the events which preceded the announcement and a list of persons who were knowledgeable about the acquisition before it became public. JPMorgan's response identified Sean Stewart, a JPMorgan investment banker, as an individual with potential knowledge of the deal. FINRA sent a follow-up request to JPMorgan, which attached a list of individuals and asked whether any of the individuals whom JPMorgan identified recognized any persons on that list. FINRA's list included the name of Stewart's father, among others, which JPMorgan forwarded to all relevant employees. 

Ryan Hickey, a JPMorgan in-house attorney, initially submitted a letter response stating that none of the employees reported recognizing the names on FINRA's list. A FINRA investigator noted the similarities in the names and addresses for Stewart and his father and independently confirmed that they were related. FINRA followed up with Hickey, who confirmed that JPMorgan's letter included a response from Stewart but decided to investigate the matter further. After meeting with Stewart, Hickey supplemented JPMorgan's response by phone and by letter, informing FINRA that Stewart had "overlooked his father's name when he first reviewed the enclosure." Hickey's letter further stated that Stewart "reported that he did not discuss the transaction at issue with his father, and does not know of any circumstances under which any knowledge of the company's business activities would have been gained by his father."[2] Each of JPMorgan's letters sent in response to the name recognition inquiry included explicit language stating that it did not intend to waive any applicable privileges or other rights, including the attorney-client privilege and work-product doctrine.

In 2015, the DOJ charged Stewart and his father with insider trading in Kendle and four other companies that Stewart allegedly gained nonpublic information about during his employment at JPMorgan and subsequently at Perella Weinberg Partners L.P. A close acquaintance of Stewart's father, Richard Cunniffe, was also charged as a co-conspirator; Cunniffe pled guilty and cooperated with the government. Stewart's father also pled guilty and was sentenced in May 2016 to four years of probation with one year of home confinement. The trial against Stewart is currently ongoing.[3]

The Government's Motion to Compel

In advance of trial, the government filed a motion to compel Hickey's testimony and for JPMorgan to produce documents concerning communications that Stewart had made to Hickey in connection with the Kendle FINRA inquiry. JPMorgan conceded that the factual information relayed to FINRA was not privileged and agreed to make Hickey (who had since left JPMorgan) available as a witness. JPMorgan indicated, however, that Hickey would testify only that Stewart's statements to her were "consistent" with her written and telephonic correspondence with FINRA. JPMorgan asserted that the underlying communications, including the interview and internal emails regarding the FINRA inquiries, were protected by its attorney-client privilege and the work-product doctrine.

Judge Swain disagreed with the bank, finding that JPMorgan waived attorney-client privilege to the extent that it "disclosed the contents of privileged communications" rather than non-privileged facts. In so finding, Judge Swain rejected JPMorgan's argument that privilege was not waived because its disclosure was mandatory under FINRA Rule 8210, and that it faced sanctions if it failed to comply with the rule.[4] Judge Swain reasoned that JPMorgan could have asserted its privilege and refused to disclose the communications, and that its disclosures were voluntary because FINRA "is a self-regulatory organization and J.P. Morgan's disclosures were not compelled by a court or other government order, nor was the information seized." Judge Swain did not address JPMorgan's arguments that a finding in favor of the government could have a chilling effect on the level and quality of cooperation with regulators, and that it had preserved the right to assert its privileges in the relevant correspondences with FINRA.

Judge Swain did find that the waiver was limited, however, in that it did not apply to the entire scope of JPMorgan's communications with Stewart regarding the Kendle deal or the FINRA inquiries. Specifically, the following communications were deemed waived: (1) Stewart's initial statement that he did not recognize any names on FINRA's list; (2) Stewart's subsequent explanation that he had overlooked his father's name when he first reviewed the list; and (3) Stewart's representation that he "did not discuss the transaction at issue with his father, and does not know of any circumstances under which knowledge of the company's business activities would have been gained by his father." Judge Swain directed Hickey to testify as to communications that were "quoted, described, or summarized" in her correspondence with FINRA, and for JPMorgan to produce documents that "embody, contain, or otherwise document" these communications.

Key Takeaways

This case is another example of how responses to routine regulatory inquiries, like chronology and name recognition requests, can play a prominent role in subsequent enforcement actions. Although Judge Swain's ruling may be limited to the specific statements at issue, it underscores that the disclosure to regulators of the contents of otherwise privileged communications with employees may constitute a privilege waiver in a future criminal trial or other proceeding. While the notion that attorney-client privilege is waived as to a statement made, or relayed, to a regulator is hardly new, the potential to trigger a broader privilege waiver is cause for concern. As noted above, JPMorgan was required to produce documents that "embody, contain or otherwise document" the communications at issue. Moreover, "cabining" Hickey's live testimony at trial may prove difficult, particularly where a criminal defendant's right to cross-examine the government's witnesses is implicated.

Perhaps more startling is the zeal with which the government pursued this waiver argument—even in the face of strong public policy against it. In light of this, those communicating with regulators should consider taking the following precautions to minimize the possibility of a finding of privilege waiver:

  • Provide only factual findings to regulators. Avoid relaying the contents of actual communications with employees and the use of direct quotations or paraphrasing. To the extent possible, if a number of interviews are conducted, make the response applicable across the board to all interviewees.
  • Keep emails and other written communications regarding internal investigations—especially communications with or about individual interviewees—at a high level and to a minimum. Expressly indicate that such communications are protected by attorney-client privilege and/or work-product doctrine.
  • Consider using outside counsel to communicate findings to regulators, where appropriate. Although theoretically this should not impact the privilege analysis from a legal standpoint, it may improve the optics and remove the relevant employee an extra step from the ultimate communication to the regulator.
  • Ensure that all communications with regulators that could arguably be deemed a privilege waiver are well-documented.
  • While unrelated to the privilege waiver issue, attorneys should consider whether and how to deliver Upjohn warnings in connection with these routine inquiries.
  • Non-FINRA regulated entities whose cooperation is requested on a voluntary basis should consider this ruling when deciding whether, and to what extent, such cooperation is warranted.

In line with the above recommendations, FINRA-regulated entities should revisit their standard responses to routine inquiries and consider whether any revisions are appropriate. More importantly, FINRA-regulated entities should at least be prepared that a waiver argument may arise in a subsequent action and keep this possibility in mind when communicating with both employees and regulators.

[1] United States v. Stewart, No. 15-CR-287-LTS (S.D.N.Y. July 22, 2016) (order granting in part and denying in part the government's motion to compel).

[2] This response partially tracked the language in FINRA's request, which asked for "[a] statement as to the circumstances under which any knowledge of the company's business activities may have been gained by the individual."

[3] Interestingly, Stewart moved to compel his father's testimony at trial, but his father invoked his Fifth Amendment privilege against self-incrimination. After conducting an in camera hearing, the court denied Stewart's motion. United States v. Stewart, No. 15-CR-287-LTS, (S.D.N.Y. entered July 28, 2016) (minute entry for status conference held on July 27, 2016).

[4] FINRA Rule 8210 requires members "to provide information orally, in writing, or electronically . . . with respect to any matter involved in the investigation, complaint, examination, or proceeding," and further states that "no member . . . shall fail to provide information or testimony . . . pursuant to this Rule." FINRA Proc. R. 8210.

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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