Corporations that find themselves subject of “government investigations”, perhaps related to litigation initiated by the SEC, FDA, or the IRS, face new and growing discovery challenges.  Applicable discovery requirements may even be broader than normally defined under Federal Rules of Civil Procedure.  Federal agency deadlines and subpoena rules of compliance may completely disregard burdensome document-production logistics.  However, proactive management of a corporation’s response, combined with the use of electronic discovery (e-discovery) tools, can minimize stresses normally associated with such situations.

Being Proactive Can Result in Longterm Rewards

In the face of a government investigation, successful firms will implement a proactive strategy immediately upon learning of a possible inquiry.  Jonathan N. Halpern, a partner in the New York office of Winston & Strawn L.L.P., and former chief of the Major Crimes Unit, U.S. Attorney's Office, southern district of New York, strongly advocated such a stance at "Strategies for Responding to Insurance Industry Investigations," a conference held in February, 2005. (1) Halpern stressed that law firms and their clients are at a disadvantage if consistently in reactive mode when dealing with the government.

Proactive firms commence informationgathering, and even the selection of an e-discovery partner, prior to the issuance of subpoenas, or Requests for Production. Firms may also recommend clients begin internal investigations, to assess the potential existence of irregularities, and to pinpoint areas of concern.  Halpern advocated that such internal investigations be augmented with outside counsel. 

Depending on the nature of the inquiry and its evidentiary scope, consultants, legal services providers, and e-discovery experts may be required to address areas of potential exposure. Once assembled, such a team could also possibly develop standard policies and procedures for responding to future information requests from government agencies.

Acknowledging Limitations in Corporate Information Recovery

A key to successful team endeavors is good communication between all players. This is especially true of communication between an e-discovery provider and a client.  Even a minor request by a client for modification of an in-process, e-discovery project, can have a sizable impact on the project’s duration, and on the client’s ability to meet deadlines.  The more specific such requests are, the less likely incorrect projections and assumptions will be made, and the more likely efficiencies and reduced redundancies will result.  A steady and coherent communication flow between client and other team members can work to the benefit of both the client and the e-discovery provider.

Many law firms lack the project management skills necessary for overseeing the myriad details involved in a document-productions involving terabytes, or even gigabytes of data. Litigation services providers and e-discovery experts are excellent resources for the type of disciplined project management that will achieve optimal results in an efficient and streamlined process.

Data Retention Polices as the First Line of Defense

Once a company learns of a potential investigation, an immediate, company-wide data-preservation policy should be issued. This will ensure document retention and avoid potential liability for non-compliance with federal corporate record-keeping regulations (e.g., Sarbanes-Oxley).  It is important to note, though, that the moment that a company first learns of a potential investigation should certainly not be the first time the company and its counsel discusses document-retention policies.  Readily accessible corporate information may prevent some investigations from progressing beyond the initial inquiry. On the other hand, failure to have such a policy can lead to further investigations, and charges of obstruction of justice, failure to cooperate, and failure to preserve evidence. (2)

Having such a policy in place, reviewing it periodically, and conducting internal investigations will allow companies to be more forthcoming with agencies. Audrey Samers, deputy Superintendent and general counsel at the New York State Insurance Department, explained at Insurance Industry Investigations conference, "A regulator expects that if there is something wrong, you are going to come forward with it.”(3) Establishing a good working relationship with agencies will pay off in subsequent investigations. Given the magnitude of evidentiary data required by many agencies, some delays and hurdles in producing information are inevitable.  However, companies which have a proven track record of compliance, and a standard data-retention policy, stand a better chance of avoiding theseroadblocks.

Early Involvement of E-discovery Providers Can Thwart Future Problems

Collecting and organizing relevant documents and data should not wait for a formal subpoena to be issued. Further, because most government inquiries involve documentary evidence, such as e-mails and internal memoranda, firms can probably expect that they will face a mountain of evidence to sift through. Your e-discovery partner can work with your firm to establish an efficient procedure to search for and produce the necessary information.

Experience shows that once subpoenas are received, a firm may have a very short window in which to produce numerous gigabytes, or even terabytes of electronic evidence. Further complicating matters, many companies are simply unaware of the variety of evidence they will have to produce, or the challenges presented by different formats. A company may have tapes and hard-drives spanning several operating-systems and multiple e-mail programs. Every additional level of complexity increases the time needed for production.

For example, the SEC recently issued a subpoena with a two-week deadline, but because the company and its counsel had been working with e-discovery providers to extract, manage and prepare over 20 terabytes of information for nearly five months, the request was anticipated and procedures were already in place to allow for prompt response.

E-discovery providers can alert firms to potential problems while they still have an opportunity to make corrections. If data is missing or corrupted, firms need to know this long before sanctions for noncompliance with subpoenas are imminent. It is not uncommon for clients to neglect to supply key media, especially when dealing with hundreds of backup tapes or hard drives. However, with adequate planning, such mistakes can be easily corrected, with little delay or interruption of the production process. Moreover, early availability of evidence enables counsel to make informed recommendations to the client regarding disclosure options.

Lawyers strive to manage disclosures in a manner that meets current obligations, without risking future liability. This is especially true in complex cases such as fraud investigations, where agency action and potential civil and criminal reprimand are intertwined.  Thus, beginning the e-discovery process early makes solid strategic sense.

Government investigations are rarely straightforward affairs, but with careful planning, quality team project management, and partnership with e-discovery providers, firms can effectively minimize such investigations’ impact on their clients.

 

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1. “Panel Shares Tips for Dealing with Investigations,” Industry Focus, March 2005, http://www.businessinsurance.com/cgi-bin/industryFocus.pl?articleId=16373&issueDate=2005-03-20
2. “Panel Shares Tips for Dealing with Investigations,” Industry Focus, March 2005, http://www.businessinsurance.com/cgi-bin/industryFocus.pl?articleId=16373&issueDate=2005-03-20, and “Responding to Government Investigations,” Association of Corporate Counsel, Sept. 2004, http://secure.acca.com/infopaks/govtinvest.html
3. “Panel Shares Tips for Dealing with Investigations,” Industry Focus, March 2005, http://www.businessinsurance.com/cgi-bin/industryFocus.pl?articleId=16373&issueDate=2005-03-20