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Chief Executive Legal Guide Chief Executive Legal Guide 1 Sound Shore Drive, Suite 100, Greenwich, CT 06830 Telephone: (203) 930-2700 • Fax: (203) 930-2701 www.chiefexecutive.net/research Marshall Cooper: Chief Executive Officer Wayne Cooper: Chairman David Beck: Senior Vice President Michael Bamberger: Vice President of Research Chris Horner: Editor Elayne Demby: Editor Paula Santonocito: Editor Monique Nijhout: Desktop Editor © 2012 Chief Executive Group. No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, electronic or mechanical, without prior written permission of the Chief Executive Group, Greenwich, CT USA. CHAPTER 1 WHITE COLLAR CRIMINAL LAW Gibson, Dunn & Crutcher LLP Criminal Investigation & Liability Marcellus A. McRae, Partner Tzung-Lin Fu, Associate Personal Criminal Liability of CEOs Marcellus A. McRae, Partner Daniel L. Weiss, Associate Securities Fraud George H. Brown, Partner Foreign Corrupt Practices Act Jim Walden, Partner Daniel J. Chirlin, Associate Stephenie Gosnell Handler, Associate Kacie A. Lally, Associate Data Privacy Debra Wong Yang, Partner Justin S. Liu, Associate Meredith A. Smith, Associate Susannah Stroud Wright, Associate This chapter is for general information purposes only. Readers should not act upon any information in this publication without consulting counsel. INTRODUCTION The stakes are high in white collar criminal matters. Your company can be subject to severe penalties such as fines, disgorgement, and onerous remedial and compliance requirements. Moreover, employees and officers can be held personally liable and possibly face prison sentences. As the CEO, you may be personally prosecuted for not only your own actions, but also the actions of other employees even if you did not know about or participate in the criminal activity. Even if the criminal allegations are not ultimately substantiated, the mere fact that your company or you have come under criminal investigation can lead to regulatory enforcement actions and shareholder lawsuits, and hurt the company’s reputation and bottom line. Criminal liability may arise from failure to comply with various federal and state laws. For example, misleading or inaccurate financial statements can evolve into a securities fraud prosecution. Willful violations of securities laws can create criminal exposure for both the company and its officers. If your company has overseas transactions, it may also be at risk of violating the Foreign Corrupt Practices Act. The Act creates civil and criminal liabil- ity for giving anything of value to foreign officials to obtain or retain business, failing to keep accurate books and records, and failing to develop and maintain reasonable internal controls. A criminal issue may arise from a government investigation brought by federal or state pros- ecutors, but it may also come to your attention before the government becomes involved. Either way, it is important to conduct a swift and thorough investigation so the company can understand the facts and take appropriate actions to mitigate its potential criminal exposure. The investigation may be complicated by foreign and domestic data privacy laws imposing restrictions on the collection, transfer, or processing of data. Experienced counsel can help you navigate these complex data privacy issues. Counsel can also help you assess your company’s exposure and determine the best response to the situation. If the government has not yet become involved, counsel can help you decide whether to voluntarily disclose the issue to the government. If a government investigation is already under way, experienced criminal counsel can help persuade the government not to formally prosecute the company or its employees, reach a favorable settlement or plea deal, or mitigate the company’s exposure in other ways. Chief Executive Research 1-3 Chief Executive Legal Guide www.chiefexecutive.net/research Don’t forget that a strong compliance program can be your best insurance against criminal liability. A good day-to-day compliance program can help prevent criminal misconduct from happening and allow the company to detect any potential problems quickly. If your company comes under government scrutiny, the government may view a robust compliance program as a mitigating factor in considering whether to prosecute. 1-4 Chief Executive Research www.chiefexecutive.net/research 1. White Collar Criminal Law PART I. CRIMINAL INVESTIGATION & PROSECUTION A. WHAT IS AT STAKE A company under criminal investigation or prosecution faces not only possible fines, disgorge- ment, onerous remedial and compliance requirements, monitors, and jail time for responsible officers and employees, but also collateral consequences such as civil and administrative en- forcement actions brought by government regulators, and civil suits brought by shareholders. Moreover, the mere fact that the company is under criminal investigation may cause substan- tial loss of stock value, reputation, and good will, even if no criminal liability is ultimately substantiated. This chapter will give you a brief description of the criminal process and the various theories under which a CEO can be held criminally liable in his or her personal capacity. It will then discuss two areas of law that have seen active prosecution in recent years: securities fraud and the Foreign Corrupt Practices Act. And finally, it will provide you with an overview of domestic and foreign data privacy laws that you may encounter in criminal investigations, government enforcement actions, and even civil litigations and day-to-day operations of your company. B. ANATOMY OF A WHITE COLLAR CRIMINAL PROSECUTION Internal Investigation. Sometimes, wrongdoing inside your company may come to your at- tention before any prosecutor ever learns of it. The issue may surface from a routine financial audit, an internal whistleblower report, or a tip from your supplier. Whatever the source, con- sider yourself lucky for hearing about the problem first, and take immediate action to conduct a swift, thorough, honest, and well-documented internal investigation. It is a good idea to engage an experienced outside counsel to lead the investigation, or at least to advise on the risk exposure for the company and its officers, and whether any further steps should be taken. For example, if the investigation reveals that serious criminal misconduct in fact took place, and that the government is likely to independently learn of the misconduct, your company may wish to voluntarily disclose the problem to the government, in the hope of receiving lenient treatment for being cooperative. A good outside counsel can also advise you on what remedial measures may be needed to prevent future misconduct of a similar kind, or whether the problem is significant enough to require disclosure in your company’s regulatory filings. Government Investigation. Sometimes, a government investigation catches you by surprise. Perhaps some FBI agents just showed up at one of your company’s facilities to execute a search warrant, to talk to your employees, or to look through your company’s files. Maybe the Department of Justice just sent your company a voluntary request for documents. Or perhaps Chief Executive Research 1-5 Chief Executive Legal Guide www.chiefexecutive.net/research someone in your company has received a subpoena to testify before a grand jury. Any of the above would likely suggest that a federal or state prosecutor has already been investigating your company for weeks or months. Once you have confirmed the existence of the investigation, you will want counsel to immedi- ately determine your company’s investigation status in the government’s eyes. For instance, your company may be a “target” of the investigation—a putative criminal defendant who is linked to the commission of a crime with substantial evidence. Or, your company could be a “subject” whose conduct is within the scope of the investigation. Alternatively, the government may view your company as a mere “witness” to certain facts. These status determinations may have tremendous significance in terms of your company’s potential liability exposure, financial disclosure responsibilities, and ability to operate without significant disruption. In addition to assisting the company in determining its status, expe- rienced counsel at this critical juncture can help the company try to determine the focus and goals of the government’s investigation. If your company is the target of a government investigation, it is wise to quickly get a handle on the facts internally, and simultaneously start engaging the prosecutor through your criminal counsel to maximize the opportunity to: (i) present the company in the best possible light, and (ii) avoid criminal prosecution. Charging Decision. If your company has been investigated, the government will ultimately decide whether or not to charge your company with any crimes. The decision may be based on a number of factors, including: • How much evidence the prosecutor has against your company; • How likely the prosecutor is to secure a conviction at trial; • How well a criminal conviction may serve to deter your company and others from committing the same crime; • The nature and seriousness of the offense; • How pervasive the misconduct is within your company; • Your company’s history of similar misconduct; • Your company’s voluntary disclosure of the misconduct and cooperation in the investigation; • The existence and effectiveness of your company’s pre-existing compliance
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