September 21, 2007

Senate Judiciary Committee Hears Testimony on Attorney-Client Privilege

On Tuesday, the Senate Judiciary Committee held a hearing about approaches to corporate fraud prosecutions, and in particular the state of attorney-client privilege under the McNulty Memorandum. The Senate is still considering the Attorney-Client Privilege Protection Act of 2007 (S. 196), which was introduced by Senator Arlen Specter (R-PA) earlier this year. The bill would prohibit the government from demanding, requesting, or conditioning treatment on the disclosure of any communication protected by the attorney-client privilege or any attorney work product. In addition, the bill would prohibit the government from making charging decisions or determining the level of cooperation based on such things as a valid assertion of attorney-client privilege or attorney work product, the provision of counsel or legal fees to employees, the entry of joint defense and other agreements with employees, information sharing or the failure to terminate or sanction an employee. The bill would also prohibit the government from demanding that an organization not take any of these sorts of actions.

Among the witnesses at Tuesday’s hearing was Andrew Weissmann, former Director of the Justice Department’s Enron Task Force and now a partner at Jenner & Block. In his written testimony, Weissmann summed up the concerns of many with the statement: “In light of the Draconian consequences of an indictment and the fact that the federal common law criminal standard can be so easily triggered – despite a company’s best efforts to thwart criminal conduct – prosecutors have enormous leverage. To avoid indictment, corporations will go to great lengths to be deemed “cooperative” with a government investigation. KPMG is a prime example, and one that has been spotlighted in the decisions by Judge Kaplan in the United States v. Stein case. In those decisions, the Court essentially equated the actions of the firm to those of the government, because the disproportionate power of the government was deemed to have turned the company into a mere amanuensis of the prosecution. The Bristol Myers prosecution is another notable example illustrating the effects of such disproportionate power: the company there acceded to a request by the lead prosecutor to endow a chair at the prosecutor’s alma mater in order to resolve the investigation short of indictment.” Weissmann went on to note that lack of oversight of corporate charging decisions at DOJ, the problems with penalizing assertions of an employee’s Fifth Amendment rights and the McNulty Memorandum’s continued infringement of the attorney-client privilege all support passage of the Attorney-Client Privilege Protection Act of 2007.

As discussed in Edith Orenstein’s FEI Financial Reporting Blog, former Chief Justice of the Delaware Supreme Court E. Norman Veasey submitted a report to the Committee outlining anecdotal evidence of prosecutorial abuses occurring both before and after publication of the McNulty Memorandum. Based on information obtained from members of the Association of Corporate Counsel and the National Association of Criminal Defense Lawyers, Veasey reported (as a “neutral”) on twelve instances of “inappropriately coercive behavior” on the part of the government. These accounts include prosecutors requesting that a company turn over all privileged material in a corporate fraud case after the release of the McNulty Memorandum, requests from the government for information as to whether the company was paying for lawyers to represent fact witnesses in an FCPA case, and – in a pre-McNulty environmental case – pressure from the government to fire employees who received target letters.

With the upcoming confirmation hearings for Attorney-General, there is no doubt that this issue will remain hot. For more information, check out our “Attorney-Client Privilege” Practice Area.

Over Two Trillion Served!

An SEC press release issued yesterday about XBRL reminded me of those signs outside of McDonald’s restaurants touting the number of customers served. When Woody Allen woke up in the year 2173 in the movie Sleeper, the McDonald’s sign said that over 795 sexdecillion (that’s 51 zeros) had been served.

The SEC said that the combined market capitalization of companies submitting interactive data financial reports has surpassed $2 trillion. That $2 trillion in market cap is made up of over 40 large companies participating in the SEC’s voluntary XBRL program.

The SEC also put out an XBRL “teaser,” with a statement that Chairman Cox expects to make a separate announcement next week about another major milestone on the interactive financial reporting front.

XBRL is clearly on an expedited path to realization at the SEC. At last month’s inaugural meeting of the Advisory Committee to Improve Financial Reporting (CIFR), Corp Fin Director John White said that the SEC is moving forward with future XBRL rulemaking, and will be doing stuff before next August when CIFR is supposed to deliver its report. Pretty soon those XBRL market cap numbers could be a lot higher…

Back in the Saddle – The Sarbanes-Oxley Report

Just when you thought (or hoped) it was over, Billy Broc and Dave “the Animal” are back in this latest edition of The Sarbanes-Oxley Report. Billy Broc talks about what he is looking forward to at the “15th Annual NASPP Conference” in just two weeks.

Don’t forget to take advantage of the free “Chicago” concert on Tuesday, October 9th. You must register in advance to attend this event – and space is limited. Register now to ensure that you get your tickets – don’t wait until the last minute for this one. Keep in mind that the concert is offered to NASPP Conference session attendees only (also the NASPP cannot accommodate guests for the concert). Thanks again to Fidelity Investments for co-sponsoring this event with the NASPP!

– Dave Lynn