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April 04, 2012 Articles

The Risks and Benefits of Proffer Agreements in Parallel Proceedings

Granting "queen for a day" immunity can have significant collateral consequences.

By Kenneth C. Pickering

Limited-use immunity, sometimes called “queen for a day” agreements, present a host of practical and strategic issues. Considerations about whether an individual or corporation should make a proffer are particularly complex where parallel proceedings are involved. Each situation is unique, and the decision to make a proffer must be made after weighing the individual facts and circumstances of the particular case, as well as the potential collateral consequences.

Factors to Consider
Initial considerations about making a proffer are frequently complicated because the decision must usually be made at an early stage in the case. While the government’s investigation may be at an advanced stage, defense counsel will not likely have all the facts or documents available that prosecutors have at their disposal. And approaching the prosecutor early on is frequently critical, as prosecutors may not need your client’s cooperation later in the case. A few of the relevant considerations follow:

  • Likelihood of indictment. Does the government have sufficient evidence to indict and convict your client? At an early stage in an investigation, it is unlikely that you will know what evidence the government has, and its view of the case. Discussions with your client, as well as any other information you can gather about the circumstances being investigated, will inform your decision.
  • Strength of the defense. This is a factor that can point in either direction. If your client’s defense is something that may cause prosecutors to decide not to indict your client in the first place, you may want to consider speaking with the government.
  • Willingness to disclose the whole truth. Your client must be willing to share all aspects of his or her involvement with the facts under investigation. Your client must not just be willing to disclose facts about others, he or she must completely and truthfully describe the entirety of his or her involvement. If your client is unwilling to do so, he or she risks additional charges.
  • Timing. What stage is the investigation? Does your client have something to offer the government? Is he or she aware of others’ involvement and willing to testify against others? Have others already come forward? Is the government building a case against another, or is your client the primary target? It is critical to find out as much as possible as quickly as possible.
  • Financial ability. Does your client have the financial ability to defend himself or herself if indicted? Mounting a defense, especially when faced with complicated financial and factual allegations often involved in white-collar cases, can be daunting for all but the most wealthy individuals. If you are representing an individual, will the client’s employer or insurance cover the cost of defense? This can also be a consideration when representing a corporation, though typically a less significant one.
  • Effect of an indictment. Will an indictment irreparably harm your client to the point where it must be avoided at all cost? Will an indictment spell the end of the organization? This is true of many corporations, and only to a slightly lesser degree, individuals. There is always significant pressure to avoid an indictment and the negative publicity it will bring.

Given the factors discussed above, what can your client reasonably hope to achieve by cooperation? Perhaps immunity for testimony, or merely cooperation credits during sentencing. Even limited benefits can be worthwhile depending upon the circumstances. As a result, nearly every case involves a determination regarding a potential proffer.

Cooperation as a Condition of Employment
An employer may make cooperation with government or private investigators a condition of employment. Federal employees are required to participate in investigations conducted by the Office of Inspector General. Refusing to participate in an investigation can be grounds for termination. Many private employers have similar policies. As a result, your client may have a strong incentive to cooperate with investigators if his or her employment is in jeopardy.

Many individuals realize that it is illegal to make misstatements to a federal investigator. What your client may not know is that statements made to corporate employees or others conducting an internal corporate investigation may be turned over to government investigators. Misstatements made to those conducting a corporate investigation can, in some circumstances, be grounds for obstruction-of-justice charges if later turned over to the government. This can be especially risky as internal investigations may be conducted before individual employees have retained counsel, before they are apprised of the ramifications of making material misstatements, and while feeling compelled to participate with the investigation to retain their jobs.

Risks of a Proffer
Headlines are full of cautionary tales of individuals who have spoken to prosecutors, or even Congress, only to find themselves in more trouble than they would have been had they simply remained silent. If your client is going to speak to the government under any circumstances, he or she must be prepared to discuss his or her involvement accurately and completely.

Preparing a client for such a discussion can be a difficult task on a number of fronts. You must be assured that your client is willing and able to forthrightly discuss his or her involvement. The client must have a clear knowledge of all facts within his or her purview, and a clear knowledge of what he or she doesn’t know. The process is similar to preparing a witness for a deposition, but without the comfort of having 30 days to review and correct the transcript.

If the government views your client as not having met this standard, your client may join the long list of would-be cooperators who instead faced prosecution for obstruction of justice under 18 U.S.C., § 1001. Where the proffer was made to a civil enforcement agency such as the Securities Exchange Commission (SEC), the matter may be referred to the Department of Justice (DOJ) for criminal prosecution. If the government believes that your client has omitted or misstated important facts, any agreement your client has with the government may be voided and your client may face prosecution for the events your client discussed with the prosecutors, as well as obstruction of justice.

In addition, if your client testifies inconsistently in a subsequent proceeding, the proffer statement can be used for impeachment or rebuttal purposes. Keep in mind that most proffers are not stenographically recorded. As a result, notes taken by government agents will form the basis for determining if your client’s subsequent testimony is inconsistent with his or her proffer. To the extent that you can anticipate, or react to, potential misunderstandings during the proffer session, you must make certain that all parties leave the proffer session with the same understanding of your client’s testimony.

In the context of parallel proceedings, even if the proffer goes as planned, your client’s admission of facts may draw civil liability or regulatory action. As discussed below, information sharing between government agencies is routine and can result in significant collateral consequences.

Terms of a Proffer Agreement
A proffer is almost always required for government investigators to evaluate whether to recommend entering into a cooperation agreement, or a deferred or non-prosecution agreement. An attorney proffer may precede a proffer by your client, but in almost every situation, your client will be required to make a proffer to investigators.

In most cases, a written proffer agreement should be executed with each agency investigating your client. The proffer agreement provides that statements made during the proffer session may not be used against the witness in subsequent proceedings. However, statements made during a proffer session may be used as a source to discover other or additional evidence.

Proffer statements may be used to rebut inconsistent statements by a witness. Proffer statements may also be used to rebut inconsistent evidence or arguments offered by the defense counsel, as well as inconsistent cross-examination of government witnesses. U.S. v. Barrow, 400 F.3d 109 (2nd Cir. 2005). Counsel may challenge the sufficiency of the government’s proof, but may not implicitly assert facts that contradict his or her client’s proffer. If the government and the court believe that facts inconsistent with the defendant’s proffer have been asserted during trial, the proffer statement may be admissible as rebuttal evidence. Proffer statements may also be used to rebut “arguments made or issues raised sua sponte by a court or administrative law judge.” See SEC Enforcement Manual, Section 3.3.7 Proffer Agreements.

Proffer agreements also require that witnesses waive the protections provided by Rule 410 of the Federal Rules of Evidence. Rule 410 provides in relevant part that, “any statement made in the course of plea discussions with an attorney for the prosecuting authority which do not result in a plea of guilty or which result in a plea of guilty later withdrawn,” is not admissible against the defendant who made the plea in any civil or criminal proceeding. Nearly all proffer agreements require that the witness waive Rule 410 protections, and therefore agree that statements made during the proffer session can be used against the witness to rebut subsequent inconsistent statements. SEC Standard Proffer Agreement, SEC Enforcement Manual (pp. 84–85).

Proceeding Without a Proffer Agreement
Individuals may engage in plea negotiations with the government without a formal proffer agreement. However, to qualify for the protections afforded by Rule 410, an individual must be “engaged in plea negotiations.” Courts have held that engaging in a plea negotiation requires a reasonable expectation that cooperation with prosecutors may result in a concession by the government. Efforts to convince the government that an individual is not guilty of a crime and therefore should not be charged, are not considered protected plea negotiation. U.S. v. Levy, 578 F.2d. 896 (2d Cir. 1987); U.S. v. Robertson, 582 F.2d 1356 (5th Cir. 1978). If proceeding in this manner, i.e., without a proffer agreement, an individual should be explicit that he or she is speaking with the government in order to engage in plea negotiations.

On the other hand, an individual may decide to speak with investigators specifically to convince the government that he or she is not guilty of a crime and should not be charged. Such a conversation will not be considered a protected plea negotiation and therefore will not qualify for Rule 410 protection. Nevertheless, even if unsuccessful, the ability to tell the finder of fact that the defendant spoke with government without any proffer agreement or promise of immunity may be of value.

SEC Enforcement Policy for Individuals
In January 2010, the SEC announced a series of initiatives to strengthen its enforcement program and encourage individuals to cooperate with the SEC investigators. The initiatives are similar to those that the DOJ has used in the criminal context. The cooperation tools include the use of cooperation agreements, deferred-prosecution agreements, and non-prosecution agreements. The SEC also streamlined its process for submitting immunity requests to the DOJ. See SEC Release No. 2010-6, SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and Assist in Investigations (January 13, 2010).

The SEC also sought to standardize considerations for determining whether, how much, and in what manner to credit cooperation by individuals. The policy identifies four general considerations: (1) the assistance provided; (2) the importance of the underlying matter; (3) the societal interest in holding the individual accountable for his or her misconduct; and (4) the risk profile of the cooperating individual. See 17 C.F.R. § 202.12, Policy Statement Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions.

Exchange of Information Between Agencies
Government agencies are authorized to refer matters, and to share information concerning parallel investigations, subject to certain rules and exceptions. For example, the SEC may refer matters to state or federal law-enforcement and regulatory agencies, as well as professional licensing and oversight boards such as the Public Company Accounting Oversight Board (PCAOB), and the Financial Industry Regulatory Authority (FINRA). Collateral consequences from such a referral may include sanctions from license revocation to exclusion from government programs. Government agencies will generally not confirm that they have made a referral or that parallel proceeding are ongoing. This can make it extremely difficult for defense counsel to accurately access the range of collateral consequences an individual can anticipate.

In addition to making a referral, agencies can also share information gained during an investigation or from discovery, subject to certain exceptions. The SEC can share information with criminal investigators, and may take investigatory action that benefits both civil and criminal investigations. However, the SEC cannot take action solely to benefit a parallel criminal proceeding. See SEC Enforcement Manual.

Information sharing works both ways. The DOJ and local U.S. Attorney’s offices may share information with other state and federal agencies including the SEC. Some types of information gathered in criminal investigations, such as information gained from wiretaps or grand-jury proceedings, cannot be shared by criminal-enforcement authorities. See January 4, 2010, Memorandum from David W. Ogden, Deputy Attorney General, Guidance for Prosecutors Regarding Criminal Discovery.

Once information is turned over to a defendant, civil-enforcement agencies may seek the same information through discovery. For example, in SEC v. Rajaratnam, 622 F.3d 159 (2nd Cir. 2010), the SEC sought wiretap transcripts from a defendant who had received the transcripts from the U.S. Attorney’s Office in a parallel criminal proceedings. The Second Circuit held that the SEC had a right of access to the wiretap transcripts so long as the transcripts were legally obtained, are relevant, and the need for the information is balanced against the privacy interests at stake.

Determining whether to speak with government investigators must usually be made early in the investigation, and in many instances, there is significant pressure to cooperate with government or private internal investigators. The decision involves weighing the possibility of a referral being made to another agency, or the sharing of information if other agencies are already involved in parallel investigations. The decision is nearly always a crucial one, and is compounded by the timing, lack of complete information, perceived pressure to cooperate, and potential collateral consequences. Every situation is different, and the factors and risks discussed above will weigh differently in every case.

Keywords: litigation, criminal litigation, indictment, government cooperation, SEC, DOJ, USAO, PCAOB, FINRA

Kenneth C. Pickering is a partner with Mirick, O'Connell, DeMallie & Lougee, LLP in Worcester, MA.

Copyright © 2012, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).