Question 1

What should I do if my company receives a government subpoena?

Accepted Answer

Receiving a government subpoena requires immediate attention. Preserve all potentially relevant documents and issue a litigation hold preventing destruction of evidence. Identify the issuing authority and nature of the investigation. Engage experienced counsel before responding or communicating with investigators. Review the subpoena's scope carefully—it may be overly broad or seek privileged materials. Consider the timeline and any extensions needed. Determine what employees know and coordinate their response. Evaluate whether voluntary cooperation beyond the subpoena's requirements is strategically beneficial. Document your compliance efforts. Obstruction concerns make careful handling essential.

Question 2

When should a company conduct an internal investigation?

Accepted Answer

Internal investigations may be warranted when credible allegations of wrongdoing emerge through whistleblowers, audits, or other means, when unusual transactions or patterns suggest problems, when the company receives government inquiries suggesting an investigation, when litigation raises questions about company practices, or when due diligence for transactions reveals concerns. Investigations should be conducted by counsel to protect privilege, follow the facts wherever they lead, document findings carefully, and result in appropriate remediation. Properly conducted investigations can identify problems before regulators, allow voluntary disclosure, and demonstrate good corporate citizenship that may mitigate penalties.

Question 3

What is the difference between civil and criminal regulatory enforcement?

Accepted Answer

Civil enforcement seeks remedies like fines, disgorgement, injunctions, and industry bars. The burden of proof is preponderance of the evidence. Criminal enforcement seeks imprisonment and criminal fines, requiring proof beyond a reasonable doubt. Prosecutors must show criminal intent (though some regulatory violations are strict liability). Many regulatory violations can be pursued either civilly or criminally, and parallel proceedings are common. Constitutional protections including the Fifth Amendment right against self-incrimination apply more robustly in criminal proceedings. The same conduct may result in both civil regulatory action and criminal prosecution, though double jeopardy limits multiple criminal prosecutions.

Question 4

How can cooperation with regulators benefit my company?

Accepted Answer

Meaningful cooperation can significantly reduce penalties and adverse consequences. Cooperation credit factors include promptly reporting violations, conducting thorough internal investigations, sharing investigation findings with regulators, implementing remediation and compliance improvements, disciplining wrongdoers, and providing ongoing assistance. The SEC, DOJ, and other agencies have formal cooperation policies providing substantial credit for self-reporting and cooperation. However, cooperation must be balanced against Fifth Amendment rights, potential civil liability exposure, and business relationship concerns. Cooperation strategy should be developed with counsel who understands the specific enforcement context and the company's overall interests.

Question 5

What protections exist when employees are interviewed during investigations?

Accepted Answer

Employee rights during investigations depend on whether the investigation is governmental or internal. In government interviews, employees have Fifth Amendment rights against self-incrimination, though asserting these rights may have consequences. The right to counsel exists but may not be provided by the company if interests conflict. In internal investigations, employees typically must cooperate with reasonable employer requests but should receive 'Upjohn warnings' that the company's lawyers represent the company, not the employee, that communications are privileged but the company controls the privilege, and that the company may disclose interview information to the government. Employees should consider obtaining personal counsel when their interests may diverge from the company's.

Question 6

What are the potential consequences of regulatory enforcement actions?

Accepted Answer

Consequences can be severe and multifaceted. Civil penalties may reach millions of dollars per violation. Disgorgement requires return of ill-gotten gains. Injunctions mandate compliance and may impose ongoing reporting requirements. Industry bars can end careers in regulated industries. Criminal convictions carry imprisonment, fines, and collateral consequences. Beyond formal sanctions, regulatory actions often trigger shareholder litigation, damage business relationships, impair access to capital, and harm reputation. Individuals may face personal liability separate from the company. Collateral consequences can exceed direct penalties, making early engagement and strategic defense essential.

Question 7

How should companies approach compliance programs to prevent enforcement issues?

Accepted Answer

Effective compliance programs include several elements: clear policies and procedures addressing regulatory requirements, tone from the top emphasizing compliance culture, risk assessment identifying areas of greatest concern, training ensuring employees understand requirements, monitoring and auditing to detect problems, reporting mechanisms including anonymous hotlines, prompt investigation and response to compliance concerns, and regular program evaluation and improvement. Regulators evaluate compliance programs when deciding whether to bring enforcement actions and in assessing penalties. A robust program may prevent violations from occurring and, if they do, provide significant mitigation when enforcement is considered.

Regulatory Enforcement (SEC, DFI, etc.) and Internal Investigations

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