Counsel to Counsel - January 2008 - (Page 9) PATTON BOGGS LLP Applying Game Theory to Internal Investigations Typically, a client entangled in a complicated, far-reaching government investigation will ask, “How do we resolve this matter?” The better question is: “How do we resolve this and any other potential or collateral matters?” Legal must employ a risk management methodology that not only addresses the initial charge, but also eliminates or lessens the potential for a subsequent investigation, litigation or criminal charges. situation implementation steps • Determine the scope of the regulators’ inquiry or government investigation. • List all potential information points within the company. • Make a strategic assessment of potential issues, parties and future legal exposure. • Re-evaluate investigative protocol and risk assessment. • Conduct a post-mortem: How did we get here and what have we learned? How can we avoid this problem in the future? Inside counsel must consider the universe of issues and parties that may impact the investigation and, ultimately, the company’s defense. While particular regulators may focus on the nature of a company’s public representations about its financial condition, other issues, ranging from sales and marketing activities to executive compensation, also must be examined. Be conscious that your field of potential regulators may expand to include state attorneys general, other investigative agencies and shareholder or class action litigants. in-house counsel challenge document subpoena. Could this be questioned as being criminally obstructive? Are there other facts that when taken together bring the conduct of the lawyers and the client into question? Mismanaging corporate employee and executive interviews may also result in obstruction charges. Recent cases demonstrate that employees who lie to lawyers conducting internal investigations may be committing an obstruction of justice. Recognizing that a regulator’s potential reaction to a factual inconsistency may lead to an indictment is part of a strategic evaluation of next steps. Counsel for both the company and for individuals must be extremely well prepared, reviewing documents and examining emails before such interviews. Finally, evaluate and re-evaluate the internal investigation protocol along with the findings and initial conclusions. Continue anticipating whether you have examined the right issues, engaged the right protocol and engaged in a course to help resolve this matter and potential or collateral matters before regulators and others raise them. Apply a form of “game theory” to your investigation by strategically studying the relationships between issues and parties. Cast a wide net, at least initially. List the inquiry’s potential impact points, potential reactions to those points and the range of issues that could come into play, both today and later. approach adopted For example, could regulators, benefiting from hindsight, question the tactics employed by a subprime lender’s sales force? Did the company reject an internal assessment of a likely market downturn that led to an overvaluation of its securities? Did senior executives obtain stock-based compensation based on information that wasn’t publicly shared or was inconsistent with public statements? The key tenet of a successful game theory model applicable to internal investigations is similar to the basic precept taught to medical students: “First, do no harm.” Ensure that each strategic move resolves the current matter without doing harm or creating additional risk. For example, corporations may be asked to waive privilege in order to assist in resolving a current regulatory inquiry. This may seem appropriate, but what if there is subsequent related investigation or litigation? Think about it from your opponent’s—a regulatory body’s or civil litigant’s— viewpoint. He may argue that this “isolated” waiver constitutes complete waiver in collateral matters. Yesterday’s waiver may effectuate a subject-matter waiver tomorrow. Make future legal exposure(s) an integral part of your strategic game theory analysis. Consider a prosecutor’s viewpoint on obstruction—a strategic analysis of a corporate counsel’s aggressive approach in responding to a In most government investigations, the initial problem is rarely the only problem. Applying a game theory strategy will resolve the issue at the outset by uncovering and extinguishing the potential for future criminal, regulatory and civil liability charges. measuring success DeMaurice F. Smith is a trial lawyer and litigation partner at Patton Boggs who concentrates in white collar criminal defense and “bet the company” tort liability trials. DeMaurice is Peer Review Rated and can be reached at dfsmith@pattonboggs.com. martindale.com/c2c JANUARY 2008 best practices 09 http://www.martindale.com/c2c
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