Editor: In light of your expertise as a criminal defense attorney, what is your construct on the hypothetical as it might relate to a securities fraud case rather than one involving product liability?
Asbill: The initial problem posed by the hypothetical is a product liability issue: does the paint on the pencils when chewed cause injury? It does not necessarily implicate criminal law in and of itself whereas some sort of securities fraud or accounting fraud would not only trigger the criminal implications that the rest of the hypothetical does, but would initially trigger a violation of some federal criminal statute.
Obviously when the general counsel and the PR people get together with outside counsel in response to the product liability issue that is a much different and benign analysis compared with one you would have if you knew somebody had, in fact, engaged in criminal wrongdoing within the company.
Editor: Let's contrast the two. If a company is doing something unlawful and it comes to the attention of the general counsel who dismisses it initially because it seems immaterial, but the newspapers pick it up, does this require it to make a filing?
Asbill: It depends on where the information has been published or publicized, and to whom. It makes a difference if it is to a regulatory agency, to investors via filings with a regulatory agency or directly to investors in some other form, at a shareholders meeting or a statement in a newspaper or report that is widely disseminated. Everything must be taken into consideration to determine the scope of the dissemination of false information but also whether anyone could claim that it is material to them in respect to their decision-making in investing in the company. My instincts are that if you know that there is a misrepresentation that on its face could seem material to anyone, you just have to assume in going forward that it is, in fact, material. It is better to be safe than sorry with respect to trying to correct that problem, unless the correction brings about much worse results.
Editor: Are companies fearful of litigating their cases?
Asbill: Public corporations are very fearful of litigating cases with a regulatory agency or any criminal law enforcement authority in terms of whether they can survive financially, preserve their public image and retain their licenses. Another point relates to firing key employees as the price exacted by prosecutors for not indicting the firm. That is very problematic in terms of employee loyalty. If everybody is expendable, it sends a very adverse but powerful message. If an employee is accused of wrongdoing and believes he is innocent, he should be allowed to defend himself and keep his job if he prevails. That's not the message that's going out to corporate employees these days. Very few lawyers advise companies to stand behind their employees if the circumstances surrounding the employee's conduct are grey and the employee insists his conduct was lawful. I find it very distressing that employees' rights are being eviscerated to maintain corporate survival due to the Federal Organizational Sentencing Guidelines' Draconian nature.
Editor: Where do you see the outcome of all this? Do you see future legislation that might curb the powers of prosecutors, changes in any of the laws we now have, such as the Federal Organizational Sentencing Guidelines?
Asbill: Clearly, I think the Sentencing Guidelines in large measure are the core of the problem, giving the government the power to leverage people in the way that we've been describing. It used to be that prosecutors went out and investigated crime through law enforcement acumen. Now they do it by squeezing people and threatening them with the consequences that could ensue. But it also leads to lying because people are afraid to stand up to prosecutors, knowing that the only way they'll get a break is to cooperate and give the government information that will lead to investigation or prosecution of others for wrongdoing. Unless judges are more active now that sentencing guidelines are advisory, I think this is going to continue unabated until corporate executives stand up to government bullying if they believe that they are innocent of any wrongdoing and agree to go to trial. If enough people are acquitted, I think the pendulum will start to swing. But successful defense litigation is the only thing that will cause change, unless there's a public outcry within the business community.
Editor: Do you decry the fact that the attorney-client privilege has been whittled down by the willingness of defense attorneys to waive the privilege in return for government leniency?
Asbill: I very much decry that fact. The privilege has existed a long time for good reasons, and gutting it for the sake of expedience is poor policy. It has definitely been impacted to the extent that the government is requiring you to waive it as a price of non-prosecution of the corporation. If in the DOJ's view you impede a criminal investigation because you refuse to turn over work product and attorney-client information, you're really leveraged. There are a lot of downsides to the corporation for agreeing to waive the privilege, not the least of which is exposure to civil lawsuits by plaintiffs and shareholder actions. Any time you waive a privilege, you risk a judicial finding which can lead to ruinous consequences in related litigation. It can lead to corporate employees and officers being less forthcoming in what they say to the corporation's lawyers if they know that their statements are going to be automatically turned over to prosecutors. If employees think their statements were reported inaccurately to the government, they may have a cause of action against the corporation. The overarching threat of waiver is going to discourage the kind of full internal investigations that the government purports to want you to conduct. It will also discourage the recording of the results of the investigation.
Published July 1, 2005.