Question 1

An Employee May Have Violated the Law

Accepted Answer

Preserve Information Does the company have an internal investigative function? Is there a process to engage with in-house legal and conduct a privileged investigation? Does the company have a process for collecting and preserving emails, electronic data, and other information? Should the company institute a legal hold to notify holders of relevant information to preserve it? Should the company immediately suspend the normal deletion of emails and other data for custodians with potentially relevant knowledge? Investigate Whether it's clear that something illegal has taken place or not, the company will want to make sure it has all the facts. Figure out what happened and why. In doing so, the company needs to plan for the potential that at some point, the government may come knocking and will want to review how the company handled the issue when it learned of it. It's not too early to think about whether outside counsel should assist. Notify Once the company knows the outlines of what happened, who needs to be informed? What format should that notification take? How does the company determine whether or not the event constitutes something that would be "material" under the securities laws? Should the company disclose what it has learned to the government? To investors? Who is going to make that decision? All of these questions should be answered with the assistance of competent counsel. Engaging Counsel If the SEC or DOJ (or, not infrequently, both agencies) begin an investigation, the lawyers and firms who usually handle a company’s legal affairs may or may not be who should handle such an investigation. Find out more about engaging counsel.

Question 2

So you&#8217;ve received a subpoena or civil investigative demand

Accepted Answer

Now that the government has served a subpoena on you, what does it mean and what should you or your company do in response? We'll speak in the context of an SEC subpoena, but any subpoena issued by the government--whether by the SEC, DOJ, CFTC, or some other agency--will have similar considerations and parallel processes Before a Subpoena is Issued Often (although by no means always) the first indication of the existence of an SEC investigation is a telephone call from SEC staff to the company's legal department. It is not unusual for the SEC to initially obtain information from a company voluntarily, before the staff has fully developed its focus. If the investigation continues, the staff will almost invariably issue a subpoena to ensure that documents and data (whether already obtained or still to be provided) relevant to the investigation are safeguarded and available. How do I know that what I received is an SEC subpoena? When the SEC sends a subpoena, it will usually comprise a relatively thick packet of material at least 12 pages in length. The components include: a two- to three-page cover letter; a single page which is the actual “subpoena,” in that it informs the recipient of the date, time, and location at which they are required to produce documents and/or appear and testify; an often lengthy list of definitions, instructions, and document requests attached to the subpoena; a few pages on how and in what format to produce electronically stored data; and Form 1662, which is an SEC document that explains the ways in which the SEC routinely uses the information provided. What can the subpoena tell me? To an experienced SEC enforcement attorney, the subpoena will provide insights into what issues the SEC is investigating, the nature of the violations the SEC suspects have taken place, the persons likely to have knowledge of the issues the SEC is interested in, and more. What is a subpoena anyway? A legal document, called a writ, which is created to command you to be present (or described documents to be produced) at the location it lists on the date and at the time it states. A court or one of many governmental agencies, either a federal agency or a state agency, can complete and send you a subpoena. An “administrative subpoena” is a subpoena that an administrative agency (federal or state), not a court, creates. SEC subpoenas are administrative subpoenas. What happens if I ignore a subpoena sent by the SEC? You may ultimately be subjected to a penalty. The word “subpoena” literally means “under” (sub) “penalty” (poena). This is never a recommended response. However, if you do ignore an SEC subpoena the SEC will have to undertake what is called a “subpoena enforcement action,” in which it immediately files a lawsuit in U.S. District Court with jurisdiction over you or your company, and requests the federal court to order compliance with the subpoena. Ignoring the federal court order can result in a contempt finding, which could land you, or the person responsible for blocking compliance with the court’s order, in jail and subject to monetary sanctions. The statutory authority for doing this can be found in Section 21(c) of the Exchange Act, 15 U.S.C. § 78u(c). What should I do if get a subpoena from the SEC? There are two things that you should not do: (1) ignore the subpoena (see above) or (2) destroy or delete any documents or data that the subpoena seeks to be produced. You should consider retaining counsel to assist you in negotiating the parameters of the subpoena with the SEC staff and begin the process of organizing a defense strategy. If the subpoena is directed to your company, you need to immediately put employees who may have responsive documents or data on notice not to destroy any such information. You should immediately notify your IT department to suspend the regular deletion of electronic data until you can isolate responsive documents; also, they should take steps to ensure that individual custodians of relevant data cannot delete responsive data.

Question 3

You have noticed something potentially illegal.

Accepted Answer

First steps Before you report anything, you need to assess whether what you have observed is actually unlawful. Sometimes, someone may have done something that appears to be illegal or unethical but, upon investigation, it is not in fact a legal violation. You should engage with someone who is an expert in assessing such issues to help you understand whether this is a real issue and, if so, what to do about it. Basically, you should talk to a lawyer. Where do I start? You can contact one of us, of course. Another option would be to contact an organization such as Ethic Alliance (here's a link to the Ethic Alliance website). In either event, you should speak to a lawyer immediately so that they can analyze the issues, tell you about how to obtain and preserve information and assist you in getting the proper authorities involved, as appropriate. Why talk to a lawyer? In our experience, people in your situation are just trying to do the right thing. And often they are interested in making their employer or organization do the right thing, too. Unfortunately, such employees are often viewed as troublemakers or as disloyal to the organization. When that happens, the employer (or even fellow employees) can turn on the employee and seek to discredit them or negatively affect their employment status. A lawyer can help address this reaction. Learn more about our Whistleblower practice here.

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