March 22, 2018 Practice Points

Cooperation with the SEC: Waiver of Work-Product Protection?

A recent decision will likely impact the analysis of those weighing the pros and cons of cooperation with a regulator.

By Yvonne Williams-Wass and Rebekah Runyon

A recent decision will likely impact the analysis of those weighing the pros and cons of cooperation with a regulator. On December 5, 2017, a Florida federal magistrate judge ordered a law firm to turn over interview notes and memoranda from an internal investigation, finding that work-product protection had been waived when attorneys gave an “oral download” of their specific witness interview memoranda to the U.S. Securities and Exchange Commission (SEC). Order, U.S. Sec. & Exch. Comm’n v. Herrera,Case No. 17-20301-CIV-Lenard/Goodman (S.D. Fla. Dec. 5, 2017).

While the underlying dispute was ultimately resolved by the parties, the opinion may act as a disincentive for those considering whether to cooperate with an SEC investigation.

Magistrate’s Order
The case was brought by two former executives being sued by the SEC for accounting fraud. A law firm for the executives’ former employer had conducted an internal investigation, which included witness interviews. During the SEC’s investigation, the attorneys provided oral summaries of their interview notes and memoranda to the commission. To aid in their defense, the executives sought production of the items memorializing the law firm’s interviews.

Magistrate Judge Jonathan Goodman concluded that the oral summaries provided to the SEC constituted a waiver of work-product protection: “[W]ork-product protection is waived when protected materials are disclosed in a way that ‘substantially increases the opportunity for potential adversaries to obtain the information.’” He held that the summaries were the “functional equivalent” of the notes and memos sought by the executives and that the firm had not argued that “only detail-free conclusions or general impressions were orally provided.” Rather, the “substance” of the witness interview notes and memos had been disclosed, and that waived the protection.

Magistrate Judge Goodman limited the waiver to those interview memoranda and notes orally summarized for the SEC. Additionally, he declined to order the firm to turn over notes and memos given to the company’s auditor because he determined that the auditor was not an adversary.

Subsequent Order
Following the order, the law firm filed a motion for clarification or reconsideration of the order. Specifically, the law firm contended that it should be required to produce only the interview notes and the portions of the interview memos that had been read aloud to the SEC.

On December 19, 2017, the magistrate judge issued an order requiring, among other things, that the law firm identify all attorneys that attended the SEC meeting or provided summaries on other occasions and file under seal all notes and memoranda from the witness interviews.

The parties ultimately reached a resolution of the dispute concerning the underlying subpoena served on the law firm; and on January 3, 2018, the court issued an order vacating the December 19 order. Order, Herrera, Case No. 17-20301-CIV-Lenard/Goodman (S.D. Fla. Jan. 3, 2018) (Doc. 98).

Competing Developments
While it is too early to tell the full impact of the Herrera opinion, its announcement did dampen the prior week’s announcement from the U.S. Department of Justice regarding a revised Foreign Corrupt Practices Act Corporate Enforcement Policy. The policy revision promises significant incentives for companies that self-report instances of foreign bribery by adding a presumption of no prosecution when a company’s self-disclosure, cooperation, and remediation meet certain standards. While counsel may have initially been hopeful about the policy revision, the Herrera decision has now left counsel concerned that such cooperation could lead to a waiver of privilege.

Takeaways
In light of Herrera, companies should carefully consider whether to cooperate with regulators from the outset. Cooperation credit is given at the government’s discretion, which leads to uncertainty about whether cooperation will actually result in a reasonable outcome for the company.

When cooperating, counsel should be cautious about what information is provided to the regulators. As noted by the Herrera court, counsel should keep in mind the distinction between a substantive download of information and a disclosure containing detail-free conclusions and general impressions.

Furthermore, counsel should carefully consider the value of memorializing meetings in formal memos. Often, what is written down during an investigation includes unconfirmed facts and issues that ultimately do not become relevant to the investigation. Great care must be taken on how detailed memos are and how much of the detail is shared with the government.

Finally, as part of their Upjohn warnings, counsel should consider putting witnesses on notice that what is said may be turned over to the regulators and that cooperation with the government may constitute waiver of the work-product protection, which could lead to disclosure to others—including third-party litigants.


Yvonne Williams-Wass is counsel and Rebekah Runyon is an associate at Eversheds Sutherland (US) LLP in Atlanta, Georgia.


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