The New Enforcement Manual And Cooperation
A previous post in this occasional series on the new Enforcement Manual considered its discussion of the Wells Process (discussed here). Another key section discusses “cooperation credit,” considered in Section 4.3 and titled “Waiver of Privilege.”
Perhaps the most striking point in the section is the statement that the staff shall not ask a party to waive either the attorney client privilege or the work product doctrine. This directive, while perhaps consistent with earlier Commission policy, is the first flat statement on the point. It mirrors the position recently articulated in the new chapter to the U.S. Attorney’s Office Manual authored by Deputy Attorney General Filip on cooperation discussed here.
Beyond this statement, the guidance is less clear. The Section discusses different paths to cooperation credit. One path is the production of facts. Here, it specifies that “if a party seeks cooperation credit for timely disclosure of relevant facts, the party must disclose all such facts within the party’s knowledge.” Privilege waivers are not required, just the all the facts.
Another path is a various other acts which may assist the staff with its investigation. These include “voluntary production of relevant factual information the staff did not directly request and otherwise might not have uncovered; requesting that corporate employees cooperate with the staff and making all reasonable efforts to secure such cooperation; making witnesses available for interviews when it might otherwise be difficult or impossible for the staff to interview the witnesses; and assessing in the interpretation of complex business records.” These examples are in part drawn from, and are consistent with, Seaboard, the SEC’s 2001 Release on cooperation.
The critical issue may be what happens if the company wants to cooperate and assert privilege. In this instance the Section states: “A party’s decision to assert a legitimate privilege will not negatively affect their claim to credit for cooperation. The appropriate inquiry in this regard is whether, notwithstanding a legitimate claim of privilege, the party has disclosed all relevant underlying facts within its knowledge.”
These pronouncements may present a dilemma for a business organization seeking cooperation credit. In most instances the company will have collected at least a significant portion of the facts available to it from an internal investigation. That investigation is frequently conducted by independent counsel acting under the direction of the SOX empowered audit committee. As the Manual acknowledges, much of that inquiry will be covered by privilege. Without a waiver, the company would have difficulty seeking cooperation credit which, when privilege is asserted, is based on producing all the facts.
The Manual however, states that the underlying facts to the investigation are not privileged. Under that view, the company would not have to waive privilege to produce all the facts to the SEC. If the company however, disagrees in whole or in part, then it may not be able to obtain cooperation credit either by producing facts or through other acts.
It seems doubtful that the Manual intended to alter traditional SEC cooperation standards. Under those standards a company not waiving privilege could obtain cooperation credit, although it would not avoid prosecution based on that credit as discussed here. At best, the position of the Manual is not clear. Unclear standards however, ratchet up the pressure on a business organization seeking cooperation credit to avoid or mitigate a possible prosecution because they tend to propel it toward any act which might build credit, including waiver.