the yates memo one year later: how has it impacted ... · the yates memo one year later: how has it...

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The Yates Memo One Year Later:How has it impacted internal investigations?

SCCE Regional Compliance and

Ethics Conference

November 4, 2016

Jason Varnado, HoustonDavid Woodcock, Dallas

Presenters

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Jason S. VarnadoPartner (Houston)

[email protected]

+1.832.239.3694

David WoodcockPartner (Dallas)

[email protected]

+1.214.969.3681

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- Senator Elizabeth Warren, 2015

“When small banks break the law, their

regulators do not hesitate to shut down the

banks, toss their executives in jail, and put

their employees out of work.

But not so for the biggest financial

institutions. The DOJ and SEC sit by while

the same giant financial institutions keep

breaking the law – and time after time, the

government just says, ‘please don’t do it

again.’ It’s time to stop recidivism in

financial crimes and to end the “slap on

the wrist” culture that exists at the

Justice Department and the SEC.”

- Senator Elizabeth Warren, 2015

DOJ’s Corporate Crime Prosecution Policies

• History of DOJ Memos

• Holder Memo (1999)

• Thompson Memo (2003)

• McNulty Memo (2006)

• Filip Memo (2008)

• Yates Memo (2015)

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DOJ’s Corporate Crime Prosecution Policies

• United States Attorneys’ Manual (USAM)

• USAM §9-28 –Principles of Federal Prosecution of Business Organizations

• USAM §4-3-100 –Pursuit of Claims Against Individuals

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SEC’s Corporate Resolution Guidance

• SEC Seaboard Report –2002

• Enforcement Manual § 6 –Cooperation Program - 2009

• Analytical Framework, Securities Exchange Act Release No. 61340 – 2010

• Arthrocare C&D – 2011

• Ralph Lauren NPA – 2013

• Reverse Proffers – 2013

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Yates Memo: How Did We Get Here?

• 2008 Financial Crisis

• Financial Fraud Enforcement Task Force

• Financial Institutions Divided Up –No Indictments

• RMBS Working Group in 2012

• FIRREA Civil Settlements

– JP Morgan: $13 billion on 1/15/14

– B of A: $16.65 billion on 8/20/14

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• DOJ Speeches Tout Individual Accountability and “No InstitutionToo Big To Prosecute”

• Holder NYU Speech on 9/17/14:

– “[W]hen it comes to financial fraud, the department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them.”

• Holder Announces Resignation on 9/25/14 and Departs DOJ on 4/25/15

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• Yates Memo Issued on 9/9/15

• Yates’ NYU Speech on 9/10/15:

– “Fundamentally, these new policies ensure that all department attorneys, from main justice to the 93 U.S. Attorney’s Offices across the country are consistent in using our best efforts to hold individual wrongdoers accountable.”

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What the Yates Memo Does NOT Do

• Create any new federal criminal or civil statutes

• Modify the Federal Rules of Evidence or Federal Rules of Criminal or Civil Procedure

• Lower the burden of proof to secure a criminal conviction or a civil judgment

• Direct DOJ attorneys to target anyone other than those involved in the alleged misconduct

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Six Points of the Yates Memo

1. To be eligible for any cooperation credit, corporations must provide DOJ with all relevant facts about individuals involved

2. Criminal and civil investigations should focus on individuals from the inception of the investigation

3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another

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Six Points of the Yates Memo

4. Absent extraordinary circumstances, corporate resolutions with DOJ will not provide protection from criminal or civil liability for any individuals

5. DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve individual cases

6. Civil attorneys should evaluate the merits of bringing suit against an individual beyond the individual’s ability to pay

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FCPA Enforcement Pilot Program

• Announced on April 5, 2016

• Designed to encourage voluntary self-disclosure, cooperation, and remediation

• Incentivizes companies to voluntarily self-disclose foreign corruption-related misconduct that might otherwise go undetected by law enforcement

• In exchange, DOJ offers the possibility of a declination of prosecution, up to a 50 percent reduction in criminal fines, and the avoidance of an appointed compliance monitor

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FCPA Pilot Program

• Must first satisfy the threshold standards for cooperation in the USSG and the Yates Memo

• Pilot Program requires disclosure of all relevant facts regarding individuals involved in the misconduct, including the company’s former and current officers, employees, and agents

• They must then satisfy these additional requirements:

• Voluntary self-disclosure

• Timely and appropriate remediation

• Disgorgement of profits

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SEC View on Self-reporting

• Companies that don’t self-report misconduct take the chance that the SEC will learn of this misconduct through other means.

• Carrot: Benefits range from reduced charges and penalties, to DPAs or NPAs – in instances of outstanding cooperation, or in certain instances when the violations are minimal, no charges

• Stick: If SEC finds the violations through its own investigation or from a whistleblower, the consequences to the company will likely be worse and the opportunity to earn additional cooperation credit may well be lost.

• Stick: A company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case

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SEC’s Whistleblower Program

• 33 whistleblowers paid more than $107 million since the agency launched the program in 2011

• Proactive efforts to protect whistleblowing:

• KBR

• BlueLinx Holdings

• Health Net Inc.

• “Company employees are in unique positions behind-the-scenes to unravel complex or deeply buried wrongdoing. Without this whistleblower’s courage, information, and assistance, it would have been extremely difficult for law enforcement to discover this securities fraud on its own.”

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All or Nothing Cooperation

• What does this mean?

• Company must identify all individuals involved in the wrongdoing, regardless of their position

• Company must reveal all relevant facts about the individuals’ misconduct

• Company cannot plead ignorance, but must investigate and identify the responsible parties

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• What does this mean?

• Subsequent remarks provide additional guidance:

– Admission that responsibility in companies is diffuse and it can be difficult to identify culpable individuals

– Recognition that the government has a host of investigative tools unavailable to companies

– Acknowledgement that a company cannot provide what it does not have

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• How is it different?

• No more “sliding scale” or “partial credit”

– “It’s all or nothing. . . . The

rules

have just changed.”

– But, already risky to withhold pertinent information

• Criminal AND Civil

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• Practical Implications for Internal Investigations:

• Enhanced Upjohn warnings likely necessary

• Fewer employees may elect to cooperate

• Corporate counsel may have obligation to recommend separate individual counsel

• “State actor” concerns

• Investigations may take more time and resources

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• Practical Implications for Self-Disclosure:

• Now a separate factor under USAM§9-28.900

• Difficult to obtain DPA/NPA without self-disclosure (compare to SEC)

• Essentially must make self-disclosure and cooperation decisions simultaneously

* A word on whistleblowers

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• Practical Implications Post-Disclosure:

• Continued cooperation obligations

– “A company’s failure to continue cooperating against

individuals will be considered a material breach.”

– So far, companies “are making real and tangible efforts to adhere to our requirement that they identify facts about individual conduct, right down to providing what I’m told are called ‘Yates Binders’ . . . that contain relevant emails of individuals being interviewed by the government.” DAG Yates, May 10, 2016

• Non-Contradiction clauses

• Derivative Suits and Class Actions

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• Practical Implications for Attorney-Client Privilege:

• Yates Memo claims to seek only non-privileged information

– “Facts are not privileged”

• Can a company prove it was unable to identify any individual wrongdoers without waiving the privilege?

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• Practical Implications for Civil Cases:

• Same principle applies in civil matters

– Impacts how cases charged

– Required for reduced damages in FCA cases

• Raises stakes for cooperating employees

• D & O policies should be examined

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Focus on Individuals From Inception

• Criminal Cases:

• Should always be focus of criminal investigation

• Civil Cases:

• May change nature of discovery

• May result in longer investigations to pinpoint individual responsibility

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Routine Communication

• Reinforces existing internal DOJ policy

• Civil and criminal DOJ attorneys already talking within FRCrP 6(e) limitations

• Encourages increased communication between DOJ and SEC in parallel proceedings

• Becoming the rule as opposed to an exception

• Focus on individuals by DOJ could slow down global resolutions

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No Individual Protection in Corporate Resolutions

• Criminal Cases:

• Rarely given in criminal corporate resolutions

• Civil Cases:

• Previously routinely given in civil settlements

• Culpable individuals are more likely to be pursued

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Plan for Individuals Required at Time of Corporate Resolution

• Aim is to have individual charges and corporate resolution announced simultaneously

• If corporate resolution to proceed first:

• Plan for dealing with individuals memorialized

• Declinations for individuals require approval

• End result could be delayed closure for companies, but too early to tell

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Civil Attorneys Must Consider Factors Beyond Ability to Pay

• Major policy shift

• “While we may not be able to satisfy the entire judgment withan individual’s resources . . . [t]hese individual civil judgments will become part of corporate wrongdoers’ resumes that will follow them throughout their careers.”

• Lower burden of proof

• Some statutes have lower scienter element

• We’re seeing this in practice: e.g., False Claims Act, Antitrust

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Five Steps to Minimizing Risk of the Yates Memo

• Implement a compliance program that the DOJ and the SEC will view as effective

• Learn how compliance, self-disclosure and cooperation are treated under the federal Sentencing Guidelines

• Plan for the inevitable compliance failure and have an internal investigation plan in place

• Prepare to make self-disclosure and cooperation decisions simultaneously

• Examine existing D & O policy coverage

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The Yates Memo One Year Later:How has it impacted internal

investigations?

Questions?

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Any presentation by a Jones Day lawyer or employee should not be considered or construed

as legal advice on any individual matter or circumstance. The contents of this document are

intended for general information purposes only and may not be quoted or referred to in any

other presentation, publication or proceeding without the prior written consent of Jones Day,

which may be given or withheld at Jones Day's discretion. The distribution of this

presentation or its content is not intended to create, and receipt of it does not constitute, an

attorney-client relationship. The views set forth herein are the personal views of the authors

and do not necessarily reflect those of Jones Day.

the yates memo one year later: how has it impacted ... · the yates memo one year later: how has it...

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