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©2008 Foley & Lardner LLP

INTERNAL INVESTIGATIONS 8:30 AM

Kirk Forrest, Minerals Technologies, Inc.

Dawson Horn III, Altria Corporate Services, Inc.

Bryan House, Foley & Lardner LLP

Robert Huff, Aon Consulting

Amy Jones, McDonald’s Corporation

Peter Kiernan, Eversheds LLP

Nancy Sennett, Foley & Lardner LLP

Scott Shaffer, Deloitte Financial Advisory Services LLP

David Skidmore, NCR Corporation


KIRK G. FORREST VICE PRESIDENT, GENERAL COUNSEL AND

SECRETARY Minerals Technologies, Inc.

Kirk G. Forrest is Vice President, General Counsel and Secretary of Minerals Technologies Inc. ("MTI"). At MTI, he serves as Chief Legal Officer and is a member of its eight-person Leadership Council. He is also MTI's Chief Compliance Officer. He advises the MTI Board of Directors, its Committees and the Company's leadership team on all legal matters impacting the Company. Previously, he served as Vice President and General Counsel at SAM'S CLUB and a Corporate Vice President of its parent company, Wal-Mart Stores, Inc. Before that he was Associate General Counsel at The Williams Companies in Tulsa, Oklahoma. He has also been in private legal practice and has served on the legal staffs of MAPCO, International Paper and Xerox. Kirk Forrest received his JD from Harvard Law School (J.D., 1975) and his undergraduate degree from Cornell University (A.B., magna cum laude, 1971). He has extensive litigation, risk management, corporate governance and business counseling experience. He is active within the profession and has served as a director of several bar associations including the Minority Corporate Counsel Association. He has served as a Board member for several non-profit organizations including the Legal Aid Society of San Francisco and the Simon Estes Educational Foundation where he was also the President of the Foundation. In addition, he is a Boardroom Bound New York Friend, supporting an organization that prepares and promotes the next generation of corporate board directors.


DAWSON HORN III ASSISTANT GENERAL

COUNSEL Altria Corporate Services, Inc.

Mr. Horn is Assistant General Counsel at Altria Corporate Services, Inc (“Altria”) in New York, New York. He has been with Altria for five years and his primary responsibilities have been in the areas of product liability and civil RICO litigation. He has recently managed Altria’s defense in the multi billion dollar RICO law suit by the Department of Justice against the major U.S. cigarette companies. He is also involved in government affairs activities. While his most recent challenges have been in the area of litigation, which is consistent with his early background as a litigator with Pepper Hamilton & Scheetz in Philadelphia, he has significant transactional experiences having been procurement counsel for Scott Paper Company and Campbell Soup Company, as well as having lead corporate transactions for UnitedAuto Group and Dannon Companies. Mr. Horn received his A.B. degree from Duke University (with honors) in 1978 and his J.D. from Duke University School of Law in 1983. He is admitted to practice before courts in the Commonwealth of Pennsylvania and its related Federal courts.


BRYAN B. HOUSE PARTNER Foley & Lardner LLP

Bryan B. House, a partner with Foley & Lardner LLP, represents litigants in a variety of matters in state and federal courts, as well as proceedings before the Securities and Exchange Commission. Mr. House’s particular focus area is securities litigation and Securities and Exchange Commission and other government enforcement proceedings. He is a member of the firm’s Securities Litigation, Enforcement & Regulation and the White Collar Defense & Corporate Compliance Practices.

Mr. House represents clients in a variety of litigation and government enforcement proceedings. In particular, he has significant experience in securities law enforcement matters, including matters involving initial public offerings, listed equities, and municipal bonds. He has represented broker-dealers, underwriters, issuers, futures commission merchants, attorneys, auditors, financial institutions, and officers and directors in litigation and enforcement matters. These proceedings have included such diverse matters as accounting irregularities, audit failures, market timing, options backdating, and Foreign Corrupt Practices Act matters.

Mr. House has also represented companies, board committees, officers, and directors in connection with internal investigations regarding a variety of securities related matters. In the course of these representations, Mr. House has provided advice to clients regarding numerous corporate governance processes and improvements.

Mr. House graduated, with distinction, from Indiana University in 1990, where he received Phi Beta Kappa honors. He graduated from the University of Minnesota, cum laude, in 1993. He is admitted to the bar in Wisconsin, Virginia and the District of Columbia, as well as numerous federal courts.


ROBERT HUFF MANAGING DIRECTOR Aon Consulting

Bob Huff is a Managing Director and the global practice leader of Aon Consulting’s Corporate Investigative and Security Services practice, and has more than 17 years of experience in conducting investigations, developing business intelligence and practicing law. Previously, Bob was a practice leader of investigations and security services at another large international consulting company, and also was a member of fraud and forensic accounting group at a “Big Four” firm. Before entering into the consulting field, Bob was a Special Agent with the Federal Bureau of Investigation. While at the FBI, he served as the lead investigator on numerous multi-million dollar fraud cases. A member of the UNABOM Task Force, Bob participated in the investigation and ultimate arrest of Theodore Kaczynski. He began his career as a practicing civil litigation attorney. Bob has testified in federal court and before Grand Juries. He also speaks frequently on various investigative, business intelligence and security issues such as FCPA compliance, pre-deal investigative due diligence and supply chain security. Bob has managed numerous international investigations and business intelligence engagements, including matters in Europe, Asia, the Middle East and Latin America. His clients include Fortune 500 companies, law firms, private equity firms and investment banking concerns. Bob has a J.D. and BBA in Finance.


AMY JONES DIRECTOR McDonald’s Corporation

Amy Jones has 10+ years of experience within world class audit organizations and is currently the Director of Internal Audit for McDonald’s Corporation. At McDonald’s Corporation, Amy is responsible for directing McDonald’s internal audit activities throughout the world and managing audit teams in the United States, Europe, and Asia/Pacific. Since joining the company in 2004, she has been a key member in hiring and developing of the global McDonald’s Internal Audit Team, building the department’s processes and methodology, and testing and evaluating Sarbanes-Oxley controls. Prior to joining McDonald's, Amy worked for The Home Depot in its Strategic Financial Analysis Group and Internal Audit Department in Atlanta. Within the Internal Audit department, Amy was an integral part in transforming the existing department into one’s of the Company’s Leadership Programs for high performing employees. Amy started her career in public accounting at KPMG in its Real Estate and Public Services groups. Amy is a graduate of Auburn University and is a Certified Public Accountant.


PETER KIERNAN PARTNER Eversheds LLP

Peter specializes in domestic and international investigations, fraud, international corruption, corporate crime and regulation. Peter has 17 years' experience in the government service; prosecuting for HM Inland Revenue and Serious Fraud Office as a Case Controller and Assistant Director, leaving as Deputy Director. He has worked on many major fraud investigations including Barings, Polly Peck and Independent Insurance and lead a highly successful team of lawyers. As the SFO Head of Policy he was responsible for developing the role of the SFO in relation to overseas bribery and corruption. Peter was Solicitor to the Butterfield Review into HM Customs & Excise Investigations & Prosecutions. He regularly writes articles for a variety of legal journals, the most recent being an opinion for 'The Lawyer'. He has also been a guest commentator on national radio on fraud issues. He is part of the team appointed by the Solicitors' Regulatory Authority to undertake intervention work on their behalf in Wales and is a member of the Law Society's Anti-Money Laundering Panel advising other lawyers on money laundering issues. Peter is a regular speaker and trainer both domestically and internationally, including Poland, Japan, Oman and Slovakia. Peter is recommended in the Chambers & Partner Guide to the UK Legal Profession 2008 and the Legal 500 2008 for fraud and tax investigations.


NANCY J. SENNETT PARTNER Foley & Lardner LLP

Nancy J. Sennett is managing partner of Foley & Lardner's Milwaukee office. Ms. Sennett is a member, founder and first chair of the Securities Litigation, Enforcement & Regulation Practice. She is also a member of the International Business Industry Team. A former member of the firm's Management Committee, she also chaired the firm's Strategic Planning Committee.

Ms. Sennett's practice includes all aspects of commercial and business litigation. Her practice is focused on securities litigation representing corporations, boards of directors, broker-dealers, investment advisers, law firms and individuals in private securities litigation, including shareholder class actions and derivative suits, SEC enforcement actions, SRO proceedings and ERISA actions. She has also conducted internal investigations for public and private companies. She has had experience in the federal courts of appeal, district courts, and state courts throughout the country, as well as experience in arbitrations and mediations.

Ms. Sennett is listed in the current edition of The Best Lawyers in America® and as a leading Wisconsin litigator in Chambers USA® for 2002-2007. She was named to the 2006 and 2007 lists of Wisconsin Super Lawyers by Law & Politics Media, Inc. for her securities litigation work.

Ms. Sennett is licensed to practice in Wisconsin and is a member of the Milwaukee Bar Association, having received its 2003 Lawyer of the Year award.

Ms. Sennett joined Foley in 1979, after receiving her J.D. degree, cum laude, from Northwestern University, where she served as notes and comments editor of the Northwestern University Law Review. She received her undergraduate degree, with honors, from the University of Wisconsin - Madison in 1973, where she studied English and communication arts.


SCOTT I. SHAFFER PARTNER Deloitte Financial Advisory Services LLP

Scott I. Shaffer is a partner in the Forensic & Dispute Services practice of Deloitte Financial Advisory Services LLP Chicago office. His primary focus is on Forensic Accounting Investigations and he has over 29 years of experience in public accounting.

The first 10 years of Scott’s career were spent conducting audits for various size companies in a variety of industries. For the last 19 years of his career Scott has focused on providing investigatory and litigation consulting services. His experience includes assisting legal counsel in whistle blower investigations, supplier investigations, forensic accounting disputes, reconstruction of books and records, corporate investigations, financial statement restatements and fraud examinations. He has provided expert witness testimony for depositions, trials and arbitrations and has assisted legal counsel in mediation settlements.

Scott’s experience includes serving clients in a variety of industries, including real estate, manufacturing, construction, health care, financial services, professional services, gaming, insurance, not-for-profit and governmental with his primary focus is on the automotive industry. He is a Certified Public Accountant (CPA) and has his Masters in Business Administration (MBA) which he graduated as a valedictorian.


DAVID SKIDMORE DIRECTOR, CORPORATE

SECRETARY NCR Corporation

David Skidmore, CPP, joined NCR Corporate Security in March 2000. NCR is a Fortune 500 company headquartered in Dayton, Ohio, has annual revenues of $5 billion dollars with 23,000 employee with operations in 120 countries. David was promoted in April 2004 to the Corporate Security Director, reporting to the VP of Internal Audit and the Audit Committee of the companies' Board of Directors. In this role, he manages and conducts investigations on a global basis, oversees the departments overall responsibilities including investigations of fraud, embezzlement, and other defalcations, losses from ATM machines, safety and security reviews; and computer forensics investigations. The Corporate Security function at NCR is also responsible for investigations on behalf of NCR's Ethics and Compliance Office. He is a retired Sergeant from the Montgomery County Sheriff’s Office where he served as a Detective and Detective Sergeant working criminal investigations, internal affairs investigations, and managed the department’s national accreditation process. David has 25 years of investigative experience and holds a undergraduate degree in Criminal Justice.


Internal Investigations Breakout Panel 2008 National Directors Institute

March 6, 2008, 8:30 am - 9:30 am

I. Panel Introductions

II. General Counsel Perspectives on “Big Ticket” Investigations (Kirk Forrest—Mineral Technologies)

A. Initiating an internal investigation.

B. Ensuring proper flow of information.

C. Maintaining control over the investigation and protecting your Company’s good name.

D. Protecting privilege from the investigation’s inception.

1. Recent Privilege Case – Ryan v. Gifford (Del. Ch. Jan. 2, 2008)

III. Issues Relating to Regulators (Dawson Horn—Altria Corporate Services)

A. Conducting an investigation with the regulators watching.

B. Determining whether to disclose information to the regulators.

C. Cooperating with the regulators while attempting to maintain privileges.

1. Department of Justice’s December 2006 McNulty Memorandum

2. Proposed Rule 502 of the Federal Rules of Evidence

3. Selective Waiver – In re Initial Public Offering Securities Litigation (S.D.N.Y., Feb. 14, 2008)

IV. Corporate Security Team Perspectives (David Skidmore—NCR Corporation)

A. Working effectively with the General Counsel and outside counsel.


B. Working effectively with Internal Audit.

C. Transmitting information to the “C-Level” officers and the Board.

V. Internal Audit Perspectives (Amy Jones—McDonald’s Corporation)

A. Handling “lower level” internal investigations as part of the internal audit function.

B. Interacting with outside auditors and counsel on more serious investigations.

C. Transmitting information to the “C-Level” officers and the Board.

VI. Outside Expert Perspectives on Effective Investigations (Scott Shaffer—Deloitte Financial Advisory Services)

A. “Scoping out” the work of outside consultants and forensic experts.

B. Dealing with the Company’s outside auditors during the investigation.

C. Attempting to control costs in an internal investigation.

VII. International Issues (Peter Kiernan—Eversheds LLP)

A. Addressing important issues in international investigations.

B. Helping foreign personnel understand the standards required of employees of US-based companies.

VIII. Q & A Session

IX. Concluding Remarks

Pretexting & Investigations: Information Gathering Do’s and Don’tsUnderstanding the legal and ethical rules of the road for investigative activities is difficult—pretexting, in particular, can present complex challenges for the uninitiated

You don’t need to look any farther than most daily business headlines to understand that Congressional and regulatory inquiries into the conduct of investigations can lead to criminal charges and potential damage to both corporate and individual reputations. One of the keys to mitigating legal, ethical, and reputation risk is to understand the rules of the road going into an investigation. There is an important balance between doing what needs to be done to protect your company and the other extreme of employing overly aggressive investigative tactics and techniques. How confident are you that you know the rules?

Pretexting is defined by the Federal Trade Commission (“FTC”) as the practice of obtaining personal information under false pretenses, and is also defined in broader terms as using impersonation to trick someone into revealing personal information. Pretexting has been a particularly hot topic in some recent, high profile corporate investigations and indictments. In a webcast presentation held November 28, 2006, Deloitte Financial Advisory Services LLP (“Deloitte FAS”) and law firm Kramer, Levin, Naftalis & Frankel LLP “(Kramer Levin”) provided the experienced perspective of three distinguished forensic and legal professionals regarding crucial “do’s and don’ts” of pretexting and investigations. The panel featured Wendy Schmidt, Principal, Business Intelligence Services, at Deloitte FAS, as well as Tim Harkness and Kerri Ann Law, both Partners with Kramer Levin. Close to 300 professionals including CFOs, General Counsel, and management from law firms and corporations joined the webcast.

Practices, not basic concerns, are what’s differentWendy noted that concern about investigators overstepping legal, ethical, or common sense boundaries have been around as long as there have been investigations. But today, while the questions about an investigation have not changed much—should we conduct one ourselves, do we need help, and what will happen if it ends up in the press—the acceptance of investigatory practices has increased exponentially. The result, according to Wendy, is that some companies have stopped being as careful and concerned as they need to be about how investigations should be conducted. Specifically, what’s appropriate and what’s not.

“Investigations often require some level of pretense to obtain source information,” Wendy said, “but there are different levels of pretense, ranging from those that raise significant legal issues, for example, pretending to be a law enforcement official or taking on the identity of another real person, to those that don’t run afoul of legal or ethical rules at all, such as acting as a purchaser to determine whether goods, watches for example, have been counterfeited.”

Deloitte Financial Advisory Services LLP

Adding to the confusion about pretexting are the wide range of differing definitions that have been assigned to it. Kerri cited two examples:

The FTC definition—“The process of getting personal information under false pretenses. Pretextors sell your information to people who may use it to get credit in your name, steal your assets, or to investigate or sue you. Pretexting is against the law.”

As defined by some members of Congress—“The use of deception to discover who you have been on the phone with and maybe even where you were. In plain language, it’s pretending to be someone you’re not to get something you probably shouldn’t have to use in a way that’s probably wrong.”

In addition to these perspectives, one should also consider many other state, local, and regulatory agency statutes and laws that also refer to related actions such as “unfair deceptive acts affecting commerce” or invasions of personal privacy. “From my experience, one of the keys to making sure you’re compliant with the law is to first make sure you know which law governs--and to realize that both federal and state law come into play. And then, have open communications with your investigator so you’re both on the same page. There are lots of obvious things an investigator can do, as well as some obvious things they should not do, but you’ll both need to discuss and be clear on all of those gray areas,” Kerri advised.

She then offered a couple of “guiding legal principles” to keep in mind when conducting an investigation:

First, what type of investigative methods are you using? If they would be considered highly offensive to a reasonable person, they are probably inappropriate. If they are rational and relevant, they’re probably fine.

Second, what type of information have you obtained? If it was information that was otherwise publicly available, obtaining it without revealing one’s identity is probably okay. If the information is confidential or proprietary, like financial information, you cannot use trickery to get it.

Addressing practical issuesAfter covering some of the legal issues involved with pretexting, the discussion then turned to some very important and practical considerations. Wendy pointed out that the possibility of your investigation appearing as a story in The Wall Street Journal is more likely today than ever before because of the popularity of the topic.

“The press will likely pounce on the next story that seems to have any similar elements (to some of the other cases that have been written about). So, the decisions on whether to employ various investigative techniques must be carefully weighed. And a vital element of that decision is the context,” Wendy added. Using a hypothetical example of a company that has reason to suspect that its intellectual property is threatened, Wendy noted that they might be able to justify more aggressive investigative techniques, excluding those, of course, that are illegal or may be unethical. The same might be said of an internal fraud investigation or defense against a hostile takeover. But, in today’s climate, that same company may have a more difficult time justifying its actions in a context in which they are merely conducting a due diligence investigation or trying to identify a person who has posted negative information about the company or its executives on the Internet.

Further, Wendy emphasized that a thorough examination of public records and other open sources should be completed before conducting interviews, or employing more secretive tactics, such as following a suspect around or going through his trash.

Using a hypothetical example, Wendy asked, “What if you found someone who has been taken into Tom’s confidence and that person agrees to place a phone call to Tom which would be recorded in the hope of obtaining incriminating evidence? Again, it is imperative that you get careful legal advice. In some states, only one party on the call needs to consent to the recording. In other states, all parties involved in a call must consent to a recording. Therefore, it is important to obtain legal advice specific to the location of the investigation.”

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Relevant Citations Available on Kramer Levin WebsiteThe law around pretexting has been evolving over the past 20 years. While the Kramer Levin attorneys provided the legal framework for a basic understanding of pretexting during the webcast, the firm also has posted a number of helpful written materials on the subject, including relevant citations to statutes and cases, on their website at www.kramerlevin.com, under the heading “presentation materials.”

What happens once litigation is in the works?Tim Harkness then addressed the question of whether the onset of litigation changes the rules. The short answer is yes, but he said that’s not the end of the whole story. “One of the issues that comes up is the ‘no contact’ rule, which says that a lawyer or lawyer’s agent is not supposed to contact someone if that someone is represented by counsel. That is a general rule that all lawyers learn in law school. But it does not mean that after litigation gets underway, all investigative work must be done with only the tools civil procedure provides; it does not mean that you can’t speak privately with certain potential witnesses,” he said.

But one has to proceed carefully in this area, because not all courts agree, even in cases that are similar. When deciding whether you can speak to current or former employees of an investigation subject, you really need to focus on two things:

First, how high up in the organization is or was the person?

And, second, was this particular individual integral to the events at issue?

Tim explained, “the higher someone is in the organization or the more central he or she is to the dispute, the more likely it is that the witness will be considered represented by your adversary’s counsel and will be off limits to ex parte interviews. However, that’s not universally the case. It does vary some by jurisdiction. Review these contacts with your counsel and be certain who you can speak with after the litigation begins.”

Another important set of questions center around the civil Miranda warnings. These refer to warnings that attorneys and investigators give when they are interviewing someone they don’t represent. The main thing is to make sure that the person being interviewed knows that he or she is not speaking to his or her personal lawyer. Failure to do so can lead to problems with having their lawyers disqualified. Again, context is very important in the issuing—or not—of these warnings. Tim says one must be thoughtful about if and when to issue them.

Lying can lead to obstruction of justice chargesAnother recent wrinkle in this area has been the Department of Justice’s efforts to prosecute individuals who lie to internal investigators when those individuals know that the company that hired the investigators are cooperating with the government. According to Tim, two cases in recent years have resulted in the Department of Justice prosecuting people for obstruction of justice when they lied to internal investigators. “I personally tend not to warn people I don’t represent about this possibility, but I do mention it if I think I’m being lied to by a client’s employee,” he said. He believes involving the counsel for a company witness who is lying can help. “Having someone the witness trusts explain the facts of life to that recalcitrant witness can have a very sobering effect and sometimes enables investigators to get to the truth a little bit faster. Of course, it can have the exact opposite effect too, so one must be very careful,” Tim concluded.

Another critical component of any investigation is the governance context in which it is happening. Some public companies now have protocols for investigations that get very specific about procedures related to pretexting. But just following protocol is not the total answer. From a governance perspective, an investigation is an evolving situation that requires command of the facts and dealing with various aspects as they evolve.

Tim suggested the governance context should start by asking, who is directing the investigation and what is the scope of the investigators’ authority? “The person leading the investigation is key,” Tim said, “but as new information comes to light, it is possible that internal personnel or board members involved may become disqualified. The Kramer Levin website (see sidebar in this summary) carries a check list of questions to use at the outset of an investigation to help focus your work.”

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“Just following protocol is not the total answer. From a governance perspective, an investigation is an evolving situation that requires command of the facts and dealing with various aspects as they evolve.”

Tim HarknessKramer Levin

Ongoing evaluation of situations requiredTim cautioned that consistent evaluation of what you are doing is critical from a governance perspective. “Where I see things get off track sometimes is when those supervising an investigation do not reevaluate things in light of what they know, what they suspect, and what more they truly do need to know to get to the end of the investigation. Without that reevaluation, all the protocols in the world will not save you from a governance problem,” Tim emphasized.

He said the same is true for defining the scope of the investigation. “You may initially hire investigators to look at one person and learn later that they really need to look at three completely different people. I suggest continually reassessing to make sure that everyone is focusing on the right things.”

In addition, if you expect law enforcement officials to get involved, you need to think about issues such as attorney-client privilege and waiver of work products from the very first day. This, in turn, will shape who hires the investigators, whether an outside firm should run a formal and independent investigation, and how you document everyone’s roles and responsibilities during the investigation.

Another important question, Tim pointed out, is whether or not civil litigation could result. If so, it is likely that your investigative work will become public at some point down the line. Both of these situations tie into practical and strategic questions you need to constantly revisit: Even if the investigative technique you may want to use is legal and ethical, do you want to use it? How will it look in being used? And what are you going to do with the information you get? You need to have answers to these questions before any investigator goes to work.

Do you need an outside investigator?Wendy joined the discussion to share her experience in business intelligence as it relates to dealing effectively with investigators. “The first question is to consider whether you need to hire an investigator in the context of the situation,” she said. “And that answer really depends on the circumstances. In certain situations, why not just ask employees to provide needed information? In other kinds of investigations you may not have that luxury—litigation support or fraud investigations, for example. Regardless of who is leading, however, investigations do need to be conducted discreetly, at least in the beginning until your strategy calls for perhaps a more open investigation.”

Wendy emphasized the importance of having written guidelines regarding the use of investigators. The guiding principle should be that investigations are conducted legally and ethically. And, she said, a good practice is to require approval from management prior to using outside investigators and to keep management apprised of the nature and scope of the investigation.

Tips on hiring and supervising investigators“When you do hire an outside investigator,” Wendy advised, “consider investigating the investigator” as follows:

Understand who you are dealing with, and if they deal with subcontractors, determine if your investigator has agreements with them that require them to also conduct the investigation legally and ethically.Make sure your contract reflects the specifics you have discussed. Discuss in detail what you consider appropriate investigative tactics in the context of the particular situation at hand. Make it clear that you don’t want to access personal confidential information, telephone records, bank account records—any information that would violate the Fair Credit Reporting Act, or would interfere with a government investigation. Make it clear that you do not want the investigators to misrepresent who they are.Understand up front how the investigator will achieve the results that you desire. Define the objectives, the scope and the format for the report. And make sure, as Tim discussed, that you understand all the rules regarding the use of the interviews of former employees, or adversaries in the litigation. Request that the reports that you receive from the investigators source where their information is coming from. Be wary of investigators who tell you that they can get you any information that you want or information that’s only available to law enforcement. You are responsible ultimately for what they do. So be sure to demand transparency. And ask a lot of questions who, what, when, where, why, and how.Be mindful that you really do get what you pay for. We call this the “white shoe” versus the “gum shoe.” Make sure you understand who it is you’re dealing with.

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“The guiding principle should be that investigations are conducted legally and ethically.”

–Wendy SchmidtDeloitte FAS

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 140 countries. With access to the deep intellectual capital of approximately 135,000 people worldwide, Deloitte delivers services in four professional areas, audit, tax, consulting and financial advisory services, and serves more than 80 percent of the world’s largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.

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In the United States, Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu and services are provided by the subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP, and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the U.S. member firm are among the nation’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through nearly 40,000 people in more than 90 cities. Known as employers of choice for innovative human resources programs, they are dedicated to helping their clients and their people excel. For more information, please visit the U.S. member firm’s Web site at www.deloitte.com.

Copyright © 2007 Deloitte Development LLC All rights reserved.

Contact UsTo learn more about how Deloitte Financial Advisory Services LLP can help with your questions on pretexting, please contact:

Wendy Schmidt Principal Deloitte Financial Advisory Services LLP 212-436-3038 [email protected]

For more information, please visit our website at: www.deloitte.com/us/forensic

Deloitte Financial Advisory Services LLP

Government Investigations: Cooperation Without Surrender

Just a few years ago, company management could reasonably assume that if they were contacted about an inquiry or investigation by the Securities & Exchange Commission (SEC), that agency would be the only regulatory entity involved. Today, however, the reality is that when the SEC shows up, it is likely quietly partnering with other agencies, including the Department of Justice (DOJ), through its regional U.S. Attorney’s Offices. Another risk is that by cooperating with the SEC and DOJ, the information provided could be obtained by plaintiff’s counsel in a civil action. If there is any good news in this, it is that the number of actual criminal indictments of corporations is less today than it was a year or two ago, due in some part to ramifications of the Supreme Court’s reversal of the convictions in the Arthur Andersen case. This setback for the DOJ has meant more caution and compelling investigatory work before an indictment is filed, in part because prosecutors fear that a reversal of a conviction or the long-term damage suffered by an organization and its industry if ultimately found wrongly accused could be damaging to the agency’s reputation and effectiveness. Most importantly, the current enforcement climate provides new and meaningful opportunities to defend the attorney-client privilege, protect the company’s record for purposes of inevitable parallel civil litigation, and yet still earn the cooperation credit necessary to avoid negative civil and criminal enforcement actions.

What are the realistic threats a company faces when the government comes knocking? Assuming an indictment is unlikely, the next “worst-case scenario” would be a deferred prosecution, meaning the DOJ withholds from filing an indictment during the equivalent of a corporate probationary period. In exchange, the company must take a number of confessional and remedial steps, to include acknowledgment that a case could be made due to possible errors, fraud, or other crimes. Organizations must normally accept responsibility unequivocally and publicly. Fines — sometimes quite onerous — may be imposed, governance reforms may be required, and in some cases an independent monitor may be appointed to oversee implementation of reforms. There may also be an agreement for the company to cooperate in an ongoing investigation, which may involve certain waiver of rights. It is here that the balance between cooperation and pushback is particularly relevant.

How to be cooperative while protecting the rights of your company, your shareholders and executives during and after an investigation

Potential Investigation TriggersThe most common reasons for regulatory interest in a company may include one or more of the following triggers:

Whistleblowers — Today, individuals have many avenues of access to report potential violations, such as company hotlines, email, or directly to company auditors or regulators via phone or email.

Restatements — Announcement of a restatement or an 8K filing can inspire regulatory interest.

Surprise resignation by an officer, board director or independent auditor — You can be assured the government will be paying attention, regardless of the public reason given for the decision. The resignation of a CEO in the prime of his career for “personal reasons” is likely to trigger regulatory skepticism. One can assume that the SEC and the DOJ, once alerted to this type of disclosure, will then dig deeper.

Outlier industry performance — When your company seems to be in a unique, stronger position than similarly situated industry competitors.

Unusually high number of end-of-reporting period transactions — The government typically watches for either press releases or the disclosures in the 10Q or 10Ks, or perhaps a whistleblower identifies that there is an unusual transaction on which the government ought to focus.

Counter-party transactions — A counter-party has an axe to grind or is unhappy with how a transaction turned out, so they might turn to the government to complain and thereby trigger an inquiry.

Analysts and media reports — Exercising of stock options, for example, that gain media attention or any other anomalies related to performance can trigger news stories that prompt government interest.

Company objectives in mounting a responseThe potential for adverse impact from any civil or criminal enforcement action on the company is great, ranging from negative stock market reactions to a damaged reputation, crippling fines, business interruptions, and possible bankruptcy. Response choices for a company include voluntary disclosure of wrongdoing, termination of responsible parties, and improvement of antifraud programs and internal controls, policies, and governance practices.

A number of different parties will get involved in any corporate investigation, and it is important for company senior executives to understand that each group has its own agenda, or set of objectives:

Law Enforcement — As mentioned earlier, this may include the SEC and the DOJ, as well as other collaborating groups, such as the FBI, and states’ Attorney General offices. Their objective is to investigate and prosecute violations of the law by companies and individuals. Among other things, they seek injunctive actions, indictments, fines, disgorgement, and officer and director bars.

Board of Directors/Audit Committee — The board of directors may elect to conduct its own independent investigation to understand the allegations and whether there is any impact on the company’s financial results. This investigation is typically done through the audit committee or, it may involve appointment of a special committee. This committee hires independent legal counsel who may also involve forensic accountants to preserve electronic evidence, conduct e-discovery, and evaluate the allegations or financial transactions, accounting issues and internal control issues. The investigative team’s agenda is to gather the relevant facts and provide an objective view of the relevant issues to the committee so that remedial actions can be assessed.

Company Defense Counsel — Their objective is to defend the company in connection with potential government actions and/or in connection with shareholder suits. The firm could be the company’s ongoing outside counsel or it may involve a different outside law firm hired to address a parallel securities litigation case, or a parallel derivative litigation case that has been filed.

Independent Auditors — If an allegation involves financial reporting, accounting, or internal controls, the independent auditors will be involved. Increasingly, outside auditors conduct their own “shadow” investigation in parallel process with the government’s regulatory review. This step may include the request to see documents of issue and other relevant information gathered by the investigators working for the board of directors. Because the full extent of a matter is not known within the company until an investigation nears its end, it is wise to take the proactive step of getting independent auditors up to speed in evaluating the financial reporting issues and ensure they are comfortable with the scope of the investigation and techniques employed. Companies should set realistic deadlines for completing the investigations and consider delaying SEC filings when issues cannot adequately be evaluated in time to file on time.

In order to better understand today’s regulatory investigation climate, one needs to be familiar with some important regulatory policies that impact investigations. The first is the DOJ’s “Thompson Memorandum”1, which provides many of the existing parameters and incentives for a company’s response. This document had — and continues to have — significant impact on government investigations. The purpose of this memorandum was to provide mandatory guidelines for prosecutors to consider in deciding whether or not to indict a corporation. Among the factors it outlines that prosecutors must consider are: seriousness of the offense; existence of a corporate compliance program; any remedial actions taken by the company; and, importantly, the level of cooperation the company has demonstrated with the government investigation.

Thompson Memorandum BacklashThe Thompson Memorandum instructed prosecutors who were considering an indictment of a company to consider factors including those related to rights and protections traditionally provided by the attorney-client privilege but which were waived by the company in connection with its cooperation with a government investigation: (1) whether a corporation had chosen to give the DOJ information otherwise protected by the attorney-client privilege or the work-product doctrine; and (2) whether the company had chosen to advance legal fees to employees and agents, which some prosecutors viewed as evidence that the corporation was protecting culpable parties in order to evade corporate liability.

While the Thompson Memorandum called its provisions keys to “cooperation,” many others called them the path to “surrender.” Recent surveys of corporate counsel, for example, show that they clearly believed there was a “culture of waiver” created by this policy that dictated companies had to provide everything requested or face the threat of an indictment.

Over time, there was increasing recognition that the practical effect of the Thompson Memorandum was to chill any legitimate desire by the corporation to keep privileged communications and work-product confidential and that it harmed a company’s ability to support employees who were caught up in an investigation.

Three developments over the past year produced a change in approach that ultimately resulted in revision of the thinking embodied in the Thompson Memorandum:

Addressing Executives’ Questions From A Government InquiryQuestions expressed by executives facing a regulatory agency investigation can be very wide ranging, from how the process works to how extensively information needs to be shared with the regulators. Following are some key questions to consider when a matter arises:

Does this matter have to be disclosed, and, if so, to what extent, to — my audit committee, auditors, the whole company, the general public?

What does it mean for upcoming filing deadlines? For example, how will it impact a scheduled 10K or 10Q filing?

What needs to be done regarding retention of electronic or hard copy documents? Does a preservation notice need to be disseminated?

What documents and information do I have to share with the government?

What does this mean to my existing defense on other ongoing litigation matters?

How might this impact the transaction that I’m just about to close or announce?

Do I have to conduct an investigation? If so, who should lead it? Who should perform it?

Responses and clarifications around many of these issues are covered in this paper.

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1 Memorandum from Larry D. Thompson, Deputy Attorney General, Department of Justice, to Heads of Department Components and United States Attorneys (January 20, 2003), located at http://www.usdoj.gov/dag/cftf/business_organizations.pdf

U.S. Sentencing Guidelines — The guidelines provide a culpability score, which is used to determine sentences for corporations and organizations. One key provision provided that the culpability score could be reduced if the organization “fully cooperated” in the investigation and that the waiver of the attorney-client privilege and work product protection is not a “prerequisite to a reduction in culpability score . . . unless such waiver is necessary to provide timely and thorough disclosure of all pertinent information known to the organization.” Last November, the Sentencing Commission deleted this final sentence, commenting that it had been concerned that it had been misinterpreted to encourage such waivers.

United States v Stein (6/26/06) — The decision in this case held that the legal fee indemnification provision of the Thompson Memorandum was unconstitutional. The court held that by threatening indictment of the firm – “the corporate equivalent of capital punishment” – the government coerced the firm into abandoning its practice of advancing legal fees to employees accused of wrongdoing.

Attorney-Client Privilege Protection Act of 2006 — This bill, proposed by United States Senator Arlen Specter (R – PA), set out to eliminate any consideration by the DOJ of a corporation’s decision to waive attorney-client privilege protection and to advance legal fees to employees.

In apparent response to these developments, the Department of Justice on December 12, 2006, issued a new set of guidelines for prosecutors in the form of the “McNulty Memorandum.”2. The McNulty Memorandum purportedly provided greater protections for the attorney-client privilege than its predecessor memo, stating: “The attorney-client and work product protections serve an extremely important function in the U.S. legal system. . . . Waiver of attorney-client and work product protections is not a prerequisite to a finding that a company has cooperated in the government’s investigation.”

In essence, the McNulty Memorandum retains the Thompson Memorandum requirements except in the following ways: (1) prosecutors should only rarely seek disclosure of most attorney-client communications or attorney work-product from corporations; to obtain disclosure of any such information, mere convenience for the prosecutor is insufficient — prosecutors must show “legitimate” need for the information, which is defined as a degree of likelihood it will benefit the government’s investigation; (2) prosecutors in determining “legitimate need” must consider (a) whether the information sought also can be obtained in a timely and complete fashion, using alternative means that do not require waiver; (b) the completeness of voluntary disclosures already provided by the company and (c) the collateral consequences to a corporation from waiving its rights, e.g., the consequences of civil litigation.

Legitimate information requestsIf, after all of these considerations have been taken into account, a U.S. prosecutor determines there still is legitimate need to ask a company to waive attorney-client privilege, a U.S. prosecutor first must obtain approvals from the DOJ based on whether the requested information falls within “Category One” or “Category Two” information.

Category One — Category One information is defined as purely factual background, including key documents, witness statements, and interview memos. Legitimate need must be established in order to obtain this information. A United States Attorney must give written authorization and in turn consult with the Assistant Attorney General of the Criminal Division. It is the U.S. prosecutor’s duty to seek the least intrusive waiver necessary to conduct a complete and thorough investigation.

Category Two — This is a very special area involving attorney-client communications and nonfactual work-product. Category Two information can be requested only if the Category One information, which the prosecutor has already received, is deemed insufficient. To obtain Category Two information, the prosecutor must take the extraordinary step of petitioning the Deputy Attorney General of the United States, and demonstrate legitimate need and a description of the scope of the waiver sought. Although a prosecutor “must not consider” a corporation’s decision to decline to produce Category Two information in determining whether to charge the corporation, prosecutors may still consider such a waiver in assessing the level of cooperation provided. This latter consideration is a potential point of continuing concern for corporate counsel, who may feel pressured to provide such information to ensure “witness” status.

McNulty Memorandum — Pushback Opportunities to ConsiderThe McNulty Memorandum falls far short of resolving the problems raised when the government pressures organizations to cooperate. Organizations may still feel a “culture of waiver,” especially when pressed by prosecutors to provide Category One information. But corporate counsel should be aware of opportunities to achieve cooperator status while protecting the attorney-client privilege through “pushback” opportunities provided under the McNulty Memo.

Regarding Category One, corporate counsel may be able to produce raw documents and data, which may answer their factual requirements without resorting to production of factual chronologies and other internal investigation information that may prejudice the company in parallel civil litigation. Counsel should also consider alternative means to providing factual information without turning over Category One work product. For example, make witnesses available for interviews rather than turning over witness statements. When possible, obtain an acknowledgement from the prosecutor of what you’ve provided: when Category One information is delivered, try to get the prosecutor

2 Memorandum from Paul J. McNulty, Deputy Attorney General, to Heads of Department Components and United States Attorneys (Dec. 12, 2006), located at http://www.usdoj.gov/dag/speeches/2006/mcnulty_memo.pdf

More About Cooperating with the SECThe “Seaboard Report,” the SEC’s guidance of cooperation, issued in October 2001 appears in Exchange Act Release No. 44969, and is entitled, “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions” (http://www.sec.gov/litigation/investreport/34-44969.htm#P16_499). The Report describes broadly 13 criteria associated with how the agency proposes to give credit to cooperators. It also covers self-policing efforts it expects of companies in putting into place effective compliance programs. Cooperation must be genuine, not cosmetic, and you certainly don’t want to be labeled as obstructionist. In the Report, the SEC lays out guidelines regarding how they will assess whether cooperation is, in fact, genuine. You should also know that today, with the SEC and DOJ working jointly on many cases, the requirements of the McNulty Memo and the Seaboard Report have many similar features.

to acknowledge on the record that the company is now engaging in meaningful cooperation. Even if you can’t get an on-the-record response, at a minimum you may be able to elicit assurances that will provide the foundation for later establishing formal witness status. Regarding Category Two information, Corporate counsel should be prepared to defend and negotiate hard for “witness” status without providing such information.

Have your plan readyIt’s important — and useful — for a company to plan an outline of actions to take in the event of a regulatory inquiry. By taking a few steps in advance — as part of a risk management or contingency planning scenario, you can avoid some of the chaos that comes with crisis management in an unprepared manner. Consider these pointers:

Decide how notification of board and audit committee will be handled.

Develop a plan for conducting an independent internal investigation that is performed by the audit committee or a special committee formed by the board. Consider the need for independent counsel and forensic accounting expertise.

Determine who will notify the independent auditor.

Determine how to deal with electronic and hard copy document preservation.

Identify whom the company will hire to represent it in front of the SEC and DOJ — an outside counsel who already understands the company’s business and culture or a different legal counsel for certain other reasons.

Design a program to help protect the company brand and reputation and address a plan for public relations and investor relations programs to protect relationships with customers, vendors, employees, and shareholders.

A government investigation will undoubtedly create intense pressure for all involved in your organization, despite planning and all the best advice. But some of the background information and strategies presented here can help make you a more cooperative respondent while still enabling you to know and protect your rights.

Contact InformationKerry Francis Partner, Forensic & Dispute Services, Deloitte Financial Advisory Services LLP 415-783-4274 [email protected]

John Hueston Partner, Irell & Manella LLP 949-760-5152 [email protected]

Howard Scheck Partner, Forensic & Dispute Services, Deloitte Financial Advisory Services LLP 202-378-5080 [email protected]

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About Deloitte

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