Responding to Government Investigations: Pitfalls and Procedures

Whether they know it or not, the likelihood that your clients will face a government investigation is increasing. On Aug. 12, 2011, the Security and Exchange Commission’s (SEC) final rules implementing the Dodd-Frank whistleblower rewards provisions went into effect.[1] Under SEC’s final rules, the SEC can share whistleblower information with other enforcers, including the United States Attorney General and states’ attorneys general. Accordingly, it is likely that there will be many more whistleblowers — and thus many more government investigations — in the near future.

Furthermore, Jerry Martin, the United States Attorney for the Middle District of Tennessee, has explicitly stated that “[e]nsuring accountability in federally funded health care programs remains a high priority of this office.”[2] Martin’s priorities appear to be in line with nationwide trends in enforcement: earlier this year, the Department of Justice announced that it recovered $4.1 billion in health care fraud moneys in 2011.[3] With the increased emphasis on prosecuting health care fraud and abuse in the Middle District — and the nation — health care providers can expect even more attention from federal investigators.

Failing to respond appropriately when the government comes calling can be disastrous for companies. First, in addition to the danger of liability for the alleged crime being investigated, government investigations raise a danger of liability for obstruction of justice and witness tampering.[4] Even interference that does not rise to the level of obstruction of justice can have serious collateral consequences. Of particular relevance to health care companies, the Office of the Inspector General can exclude a provider from Medicare if the provider does not give investigators “immediate access upon reasonable request.”[5] At a minimum, failure to respond appropriately to a government investigation can prejudice a company’s ability to defend itself and/or negotiate with government enforcers.

As government investigations increase, it is crucial to ensure that companies are prepared for the knock at the door well before the government arrives.

Common Issues in Government Investigations

Regardless of the specific alleged violation that the government is investigating, or the means by which it is investigating it, certain general principles apply when responding to most government investigations.

First, and perhaps most important, is the coordination of information. Organizing a crisis response team with clear lines of communication should be the company’s first priority. Typically, this team will include in-house attorneys and compliance officers. Additionally, for each company site, there should be a crisis response designee who can immediately respond to any government investigation and can alert the primary team members. Finally, the company should ensure that the crisis response team has access to the company’s public relations employees or firm. The office, home and cell numbers of all crisis response team members and designees should be available, as companies often are not first informed of a government investigation during normal working hours.

Next, virtually every government investigation will impose document preservation obligations on the client. As soon as an investigation is reasonably anticipated, normal document destruction must be suspended. This is typically accomplished through the use of a document hold notice, issued by the general counsel or a senior executive directing that appropriate persons preserve all potentially relevant documents. As in litigation, “documents” should be construed broadly (and explicitly) to include electronically stored information. Counsel typically should spend time with the company’s information technology professionals to ensure that appropriate procedures are put in place to preserve, where appropriate: email and Exchange data; shared network data; and back-up tapes.

After the initial response to a government investigation passes, the crisis response team typically should prepare a disclosure to the board of directors. Often, the board should then set up a special committee of disinterested directors to exercise independent oversight during the company’s own internal investigation. This independence from management will help the company defend against derivative claims and allegations of self-dealing, especially regarding the advancement of attorneys’ fees to management employees. As the internal investigation progresses, the company will need to consider to whom it will disclose the fruits of its investigation, potentially including investigators, auditors and insurance carriers.

Furthermore, the company likely will need to determine whether, and if, it can provide counsel for the company’s officers, directors, and employees. It is important to review the company’s governing documents and applicable law to ensure that indemnification and/or advancement of fees are permissible. Directors’ and officers’ insurance should be promptly reviewed as well. Finally, the company should consider whether to enter into a joint defense agreement (JDA) with its directors and officers. In Tennessee, the common interest privilege exists independent of a written JDA.[6] Also note that some prosecutors may look askance at JDAs between a company and its employees.

Of course, the initiation of an internal investigation usually has the benefit of sober, thoughtful advice from counsel. What your clients need to know ahead of time is how to respond to the first contact with the government.

The Government’s Investigative Tools — and Appropriate Responses

Depending on the nature of the investigation, the government may have a wide array of investigative tools at its disposal. These can be broadly divided into three categories: (1) search warrants; (2) subpoenas and civil investigative demands; and (3) requests for interviews. Each type of government inquiry may demand a different response.

Search Warrant

A search warrant issued by a court gives specified law enforcement officers legal authorization to search specified premises and to seize specific materials. To be valid, a search warrant must: (1) describe the materials that can be seized and the places that may be searched; and (2) be signed by, or on behalf of, a judge or magistrate with jurisdiction over the area to be searched.

Of all of the government’s tools to investigate potential crimes, search warrants can be among the most intrusive and disruptive. Furthermore, mishandling a response to a search warrant can severely compromise the company’s defense. However, with appropriate procedures in place, the company can protect its defense strategy and minimize any disruption.

Employees may request that the investigators wait to begin the search until counsel can arrive, but if investigators decline the request, employees must permit investigators to commence their search. If counsel is not permitted to arrive prior to the commencement of the search, a senior employee should ask to speak with the lead investigator to determine what is sought and the nature of the investigation. The employee should also request: (1) the name and phone number of the prosecutor handling the investigation; (2) a copy of the search warrant; and (3) a copy of the application to the court and its accompanying affidavit. An employee should also ask if the investigator is willing to accept copies in place of original documents. Similarly, an employee should request that the copying or seizure of any electronic documents occur in a manner that least disrupts the company’s on-going business operations, while still providing investigators with the information encompassed by the search warrant.

If counsel has not arrived when the search commences, the senior employee on-site should inform all other employees that they should not interfere with the search, but that they should not consent to an expansion of the search beyond the terms of the warrant and that they may, but are not required to, consent to questioning by investigators. The senior employee on-site should also consider sending nonessential personnel off-site.

Once the search begins, it is critical that the company’s employees not interfere with investigators during their search or improperly prevent them from accessing anything listed in the search warrant. Though employees should not physically impede any search, they should make clear that they do not consent to (1) the search; (2) an expansion of the search beyond the areas specified in the search warrant; or (3) the collection of documents not encompassed by the search warrant. To the extent they are able to identify privileged or confidential documents, employees should object to the search of such documents. At a minimum, employees should request that privileged or confidential documents be segregated from other seized or copied documents, and that they be marked to reflect their status.

During the search, employees should track:

  • the precise areas and files searched;
  • the time periods when each area was searched;
  • the manner in which the search was conducted;
  • employees who were questioned or whose interview was requested;
  • all verbal communications with investigators; and
  • the contact information for the investigators who participated.

Employees should keep notes regarding, and ask to copy, all documents seized. If investigators copy documents (whether paper or electronic), employees should make a record of the method by which the documents were copied. If possible, photographs of the premises should be taken both as soon as the investigators arrive and as soon as the investigators complete their search.

Finally, employees should request an inventory of all documents taken. Investigators typically request that a company representative sign the inventory. Employees should compare the inventory against their records of the search and should not sign the inventory unless it is accurate, complete and sufficiently detailed.

After the search has concluded, counsel should request that the lead prosecutor debrief company counsel. Counsel, in turn, should debrief senior management and/or the board of directors, as well as other members of the crisis management team. Counsel should also coordinate with the company’s public relations function to ensure an appropriate message is conveyed to persons both inside and outside the company.

Subpoenas and Civil Investigative Demands

If the government chooses not to seek a search warrant, it still may have a range of tools with which to compel the production of documents — in some cases even before litigation has formally been initiated. Depending on the context, the government may seek a grand jury subpoena, an administrative subpoena, or a civil investigative demand (CID).

Subpoenas

A grand jury subpoena requires that a person testify, that specified documents be produced at a particular time and place, or both (i.e., that a person testify and bring specified documents at the time of testifying). The standard for issuance of a grand jury subpoena is lower than a search warrant; rather than demonstrating probable cause, a grand jury can investigate “merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.”[7] Furthermore, challenges to grand jury subpoenas can be difficult; to prevail, a challenger must demonstrate that “there is no reasonable possibility that the category of materials the government seeks will produce information relevant to the general subject of the grand jury’s investigation,” or that compliance would be unreasonably burdensome.[8] Grand jury subpoenas may only be issued in criminal matters, however.

Administrative subpoenas provide another powerful tool for the government to gather evidence. Unlike grand jury subpoenas, administrative subpoenas may be either civil or criminal in nature. For federal health care offenses (as well as a limited number of other crimes), the Department of Justice may seek an administrative subpoena pursuant to 18 U.S.C. § 3486. Under a patchwork of other laws, many other federal agencies are authorized to subpoena documents and records.[9] Though an agency’s issuance of a subpoena typically is not subject to prior judicial approval, such a subpoena may be modified or quashed by a court upon a recipient’s motion. Judicial review of administrative subpoenas is relatively deferential, however.[10]

Civil Investigative Demands

A federal CID can require a production of documents, answers to interrogatories, oral testimony, or some combination of these. At the federal level, these demands commonly are used during false claims investigations, often after the government has received a sealed qui tam complaint filed by a private relator but before the government has decided whether to intervene.[11] Federal law also gives the attorney general authority to issue a CID as part of a racketeering investigation.[12] State law gives the Tennessee attorney general authority to issue CIDs compelling testimony in any matter “where the state of Tennessee is a party litigant, or there is reasonable cause to indicate it will be a party litigant.”[13]

Similarly, until 2010, only the United States attorney general had the authority to issue federal CIDs and therefore they were used rarely. In March of that year, however, the Department of Justice issued a new rule that delegates to U.S. attorneys authority for CID issuance in health care fraud matters.[14] Accordingly, the use of federal CIDs is likely to continue increasing.

Responding to a Subpoena or CID

Unless the company has agreed in advance to accept service of the subpoena or CID by fax, it typically will be served by a law-enforcement officer or other government investigator visiting a company office or facility. At this stage, the company’s crisis response protocols should direct the receiving employee to send the subpoena immediately to counsel.

Once counsel has received the subpoena or CID, they should review it for potential objections. Additionally, counsel should contact the lead government investigator to determine whether the scope of the request (and the time for, and method of, production of documents) can be negotiated. In many instances, the company may have received a subpoena or CID that is not tailored to the types of information in the company’s possession. In such cases, particularly where the company is not a target of the investigation, the government may be willing to narrow the scope of its requests. Furthermore, depending on the stage of the investigation, the government may be willing to grant an extension to the time for production specified on the face of the subpoena or CID. Finally, it is almost always important to discuss the method by which documents will be produced — including important issues such as production format (i.e., native or .tif image) and whether metadata will be included in the initial production.

Once the scope, timing and method of production have been determined, counsel should develop a timeline for production and a protocol for collection and processing. Special consideration should be given to whether the company will rely on employees’ self-collection of their own responsive documents — in which case the instructions regarding the parameters of the requests become critical and counsel may consider requesting that employees sign a declaration of their compliance with the instructions. Alternatively, the company may prefer that counsel direct the collection of all documents, typically in coordination with information technology professionals. Often, the company will prefer to run search terms and date restrictions against electronically stored information, or a hybrid approach. In any event, it is often a good practice to advise the government in advance of the protocols the company is using to prevent misunderstandings down the road.

After the protocol has been established, counsel should contact appropriate executives to begin collecting responsive documents. To the extent these communications are written, they should be clearly marked as privileged and confidential, to prevent inadvertent production of the communications in any subsequent litigation.

For subpoenas or CIDs that require testimony on behalf of the company, management of the company should consult with counsel to determine an appropriate person or persons to testify. In some cases, a single employee will have sufficient knowledge to testify as to the subjects in the requests. In other cases, however, the company will need to educate an employee or employees to testify as to all the subjects covered by the requests. In such cases, document collection will again be critical. Furthermore, management will often be tempted to instruct other employees to prepare “summary” documents to provide to the testifying employee to assist in the education process. Counsel should be very careful in permitting the creation of new documents, however, as such documents frequently will be discoverable.

Request for Interview

Finally, rather than compelling the production of documents or testimony through search warrants, subpoenas or CIDs, the government may simply request to interview company employees. Though requests for interviews may occur in conjunction with the service of a subpoena or the execution of a search warrant, investigators may contact employees away from the workplace. Thus, although a request for interview may not have the compulsory force of a warrant, subpoena or CID, company counsel should be alert to potential pitfalls when the government calls on the company’s employees.

First, the company cannot prohibit employees from speaking with government investigators. However, the company can advise employees that if they are contacted (whether at work or at home), they have the right either to speak to the investigator or refuse to be interviewed. The company may also ask (but not require) employees to immediately notify company counsel if they are contacted for an interview. Additionally, if the company is willing to provide individual counsel to employees, employees should, of course, be advised of the company’s offer.

Employees may impose reasonable conditions on the interview itself. For example, employees may require the government to permit either the employee’s individual counsel and/or company counsel to be present for the interview — of course, if only company counsel is present, it is critical to explain that company counsel does not represent the individual personally. Additionally, unlike the corporate entity, individuals have a Fifth Amendment right to refuse to give incriminating testimony. Furthermore, the employee has the right to end the interview at any time. Employees should also be advised that a request for interview, by itself, does not entitle the government to review or seize any of the company’s documents.

Because interview requests may not occur in the office, it is important to advise employees of their rights ahead of time. Ideally, advice to employees should be provided in a well-drafted written memorandum to prevent the government from any misapprehension as to what was advised.

Conclusion

Preparation is critical in responding to any government inquiry, regardless of whether it comes in the form of a search warrant, subpoena, CID or request for interview. On-the-job training is not the best way to prepare a crisis response team. It can be critical to put in place policies and procedures before a search warrant is served or an investigator knocks at an employee’s home — and for employees to understand what their rights and obligations are. Government investigations can be disruptive and stressful for the company’s employees; putting procedures in place on the front-end can alleviate unnecessary strains on the company.

Notes

  1. See SEC Release No. 34-64545, “Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934.”
  2. Press Release, “TennCare Fraud Settlement Announced,” July 13, 2011, available at http://www.justice.gov/usao/tnm/pressReleases/2011/7-13-11.html
  3. Kelly Kennedy, “Fight Against Health Care Fraud Recovers $4.1B,” USA Today, Feb. 14, 2012, available at http://www.usatoday.com/ news/washington/story/2012-02-14/sebelius-holder-announce-health-care-fraud-money/53097474/1.
  4. See, e.g., Arthur Andersen LLP v. United States, 544 U.S. 696 (2005).
  5. 42 C.F.R. § 1001.1301.
  6. Boyd v. Comdata Network, 88 S.W.3d 203, 209 (Tenn. Ct. App. 2002).
  7. United States v. Morton Salt Co., 338 U.S. 632, 642-43 (1950).
  8. United States v. R. Enters Inc., 498 U.S. 292, 301 (1991).
  9. See, e.g., Inspector General Act, Public Law 95-452 (authorizing inspectors general to issue subpoena duces tecum); 15 U.S.C. § 1193 (authorizing Secretary of Commerce to subpoena documents in certain circumstances).
  10. See United States v. Powell, 379 U.S. 48 (1964) (articulating flexible four-factor test to determine “good faith” issuance); Morton Salt, 338 U.S. at 653 (emphasizing that courts should simply determine whether the information sought is “reasonably relevant”).
  11. 31 U.S.C. § 3733.
  12. 18 U.S.C. § 1968.
  13. Tenn. Code. Ann. § 8-6-401.
  14. See 28 C.F.R. § 0 (Appendix to Subpart Y).

Taylor J. Phillips TAYLOR J. PHILLIPS is an attorney at Bass, Berry & Sims PLC in Nashville. He has an active practice in the Compliance and Government Investigations Group. He routinely assists clients in investigations and compliance related to the Foreign Corrupt Practices Act, as well as healthcare fraud and abuse investigations. He is a graduate of the University of Virginia School of Law.