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Enforcement Official Says Waiver of Attorney/Client Privilege Not Required as Measure of Cooperation

Peter Bresnan, an associate director in the SEC's Division of Enforcement, said the two most important developments in enforcement in recent years are the increase in civil remedies and the use of remedial undertakings. These developments represent a revolution in the SEC's thinking, he said, and evolved after the adoption of the Sarbanes-Oxley Act in June 2002. The SEC concluded that it had a greater need for specific deterrence and the Act gave the SEC the ability to return the penalty money to victims of the securities violations. Bresnan was a panelist at the Practising Law Institute's June 16 conference on corporate compliance, along with Timothy Coleman, the senior counsel to the deputy attorney general of the Department of Justice.

Bresnan's and Coleman's panel was titled "What does law enforcement regard as an effective compliance program?" Bresnan said the glib answer would be that they have no idea, because they have never seen one. Compliance programs are part of a greater issue of cooperation that the agency will look for during an investigation.

Coleman noted that the sentencing guidelines are different for corporations and other business organizations than they are for individuals. The guidelines for business organizations provide a reduction in the sentencing range if the organization had an effective compliance program in place at the time the offense occurred. The Department of Justice has more frequently turned to deferred prosecutions in which organizations are charged with a crime, but the charges are dismissed and there is no conviction, so the guidelines do not apply. Organizations that are subject to deferred prosecutions frequently pay a fine and have to implement specific reform measures. The guidelines are used to help determine the amount of the fine. Coleman said this approach provides relief without causing any collateral damage.

Bresnan referred to the SEC's Seaboard report that outlined the Division's philosophy on cooperation. Former director Stephen Cutler had the investigators keep a log of cooperation in every case, both good and bad. Bresnan pointed to the recent investigation of Electro Scientific Industries that resulted in no charges against the company because of its extensive cooperation. On the flip side, he said, was a case like Computer Associates, which was hit with a $225 million penalty for securities violations and failure to cooperate.

The Division has brought a lot more cases against gatekeepers because of their role in ensuring compliance with the law, according to Bresnan. He said the Sarbanes-Oxley Act reporting up provisions should be viewed as a positive development by lawyers. He urged lawyers to remember that their client is not management or the person who hired them, but the corporation, which is owned by shareholders. He also cautioned against mere technical compliance with the law. That short-changes the client and the lawyer, he said.

In response to a question about whether the staff requires a waiver of attorney/client privilege in order to be seen as cooperating during an investigation, Bresnan said the SEC does not demand waivers of privilege, or that an entity cooperate at all. The staff is willing to explore other ways of getting to the underlying facts that gave rise to the case, he explained. That may include attorney proffers, verbal recitations, factual summaries or access to witnesses. There are ways to get around a waiver, he said, and it is not required in order to obtain credit for cooperating.

Coleman agreed. What the DOJ is interested in obtaining may be covered by the work product doctrine, he said, but the investigators will accept notes, memos, oral presentations and occasionally will enter into confidentiality agreements. However, a waiver may be requested when the target is relying on the advice of counsel as a defense. In that case, DOJ will want to know what the advice was, according to Coleman.