Following up on our recent blog in a series about internal investigations, investigative attorneys are often engaged, at least in part, for the very purpose of establishing legal privilege over an internal investigation. In other words, they are paid to be paranoid about privilege waivers and their impact on our clients’ legal fortunes.

Can there be a real argument that the investigative materials frequently requested by outside auditors invoking Section 10A of the Securities and Exchange Act of 1934 are not also extremely attractive to potential hostile downstream litigants, including employees terminated as a result of the investigative findings, governmental authorities, or shareholders? It’s worrying that legal protection might be considered waived if the protected materials could be shared with an adversary. See S.E.C. v. Roberts, 254 F.R.D. 371, 381 (N.D. Cal. 2008).

Government Enforcers

When government enforcers work with outside counsel and their publicly traded client in an FCPA investigation disclosed to the SEC and DOJ and the company’s outside auditors to conduct a 10A review, are they adversaries for the purposes of the attorney work-product doctrine?

The answer for government enforcers like the DOJ and SEC is pretty often “yes,” even if the company is now working with government parties. See generally Wadler v. Bio-Rad Laboratories, et al., 212 F. Supp. 3d 829 (2016) (ruling in the context of an FCPA internal investigation that, pursuant to the well-settled “general waiver” principle, privileged communications cannot be shared selectively); United States v. Hatfield, No. 06-CR-0550 (JS), at *3-4 (E.D.N.Y. Jan. 8, 2010) (holding that independent auditors were adverse to the company’s CEO where auditors had “concerns regarding … management” and “a responsibility to publicly reveal the truth”).

Outside Auditors

The trickier question comes in the context of outside auditors. Aren’t they there to help the company and aren’t their interests consequently aligned? Although not in the majority, courts have concluded that independent auditors in fact have an inherently adversarial relationship with the companies they audit. Compare Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113, 116 (S.D.N.Y. 2002).

As a consequence, companies have a solid basis for fearing a downstream assertion that they waived work product protection over the subject of the information disclosed to their outside auditors. These cases, and the more generally unsettled state of the law on this key issue, create a non-trivial risk that turning over their search terms today could create privilege waiver arguments tomorrow.

This fight has been fought—most frequently with success. Although privilege waiver arguments are inherently fact-dependent, being prepared to identify and fight even unwitting efforts by third parties to put privilege in jeopardy is a skillset that should be part of every careful and experienced outside counsel’s toolkit.

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Photo of Jason Day Jason Day

Jason Day is the firmwide chair of the Corporate practice and a member of the firm’s Executive Committee. Jason serves as a trusted advisor to public companies on their most sensitive securities and corporate governance matters. He regularly counsels public company boards of…

Jason Day is the firmwide chair of the Corporate practice and a member of the firm’s Executive Committee. Jason serves as a trusted advisor to public companies on their most sensitive securities and corporate governance matters. He regularly counsels public company boards of directors and management on SEC disclosure obligations, fiduciary duties, internal investigations, proxy advisory firm standards and stockholder activism matters.

Jason has represented issuers and underwriters in dozens of capital markets offerings, including underwritten equity and debt offerings, initial public offerings, Rule 144A offerings and convertible note offerings, among others. He also counsels companies and their boards on public company change in control transactions, including mergers, tender offers, and SPAC transactions.

Photo of Markus Funk Markus Funk

Markus Funk, who from 2016 – 2021 served as the firmwide chair of the White Collar & Investigations practice, is a decorated former federal prosecutor in Chicago, and a former section chief with the U.S. State Department-Balkans. He earned a PhD (DPhil) in…

Markus Funk, who from 2016 – 2021 served as the firmwide chair of the White Collar & Investigations practice, is a decorated former federal prosecutor in Chicago, and a former section chief with the U.S. State Department-Balkans. He earned a PhD (DPhil) in law from Oxford University, where he started his career as a lecturer in law. In 2021, Chambers ranked him “Band 1” for Litigation: White-Collar Crime & Government Investigations – Colorado and also included him in the rankings for FCPA – USA – Nationwide (a first for a lawyer based in Colorado/the Rocky Mountain Region).

In private practice since 2010, Markus focuses on internal investigations, complex commercial litigation both at the trial and appellate levels, white collar criminal defense, corporate social responsibility and supply chain compliance, and corporate counseling. He was selected to serve as a World Bank Group advisor and monitor to an Africa-based company seeking reinstatement following debarment, and he routinely counsels clients and conducts internal investigations and reviews throughout the world. During his time in public service, Markus and his team prosecuted “Operation Family Secrets,” which National Public Radio lauded as “one of the most important criminal investigations . . . in American history” (the 1995 movie “Casino” was based on the charged criminal activities). At the time of his departure from the U.S. Department of Justice, the Chicago Sun-Times described Markus as a “street-smart prosecutor with an Oxford pedigree.”

Markus also is the founding co-chair of Perkins Coie’s Supply Chain Compliance practice and in 2015 was tapped to head up the firm’s Africa Practice. The recipient of numerous awards, he was named Colorado’s “Best Overall Litigator” (2015); “Colorado White Collar Lawyer of the Year” (2015); one of “10 Best Attorneys for the State of Illinois” (2014) and “10 Best Attorneys for the State of Colorado” (2017); and “Lawyer of the Year” (2013). He co-founded the ABA’s Global Anti-Corruption Committee in 2010 and has chaired the section since then. He is also ranked “Band 1” by Chambers and Partners, who in their 2019 assessment quoted one of Markus’ clients, saying “his knowledge and experience base far surpasses any other attorney that we have worked with and he is always extremely thorough and proactive, enabling us to get well ahead of any situation at hand.”