Presenting a live 90 ‐ minute webinar with interactive Q&A Financial Institution D&O Litigation: Parallel Proceedings Representing D&Os Faced with Multiple Agency Proceedings, Private Civil Litigation, and Criminal Actions WEDNES DAY, JUNE 12, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Todd R. Harrison, Partner, Patton Boggs , New Y ork/ Washington, D.C. Jonathan S . Feld, Member, Dykema Gossett , Chicago/ Washington D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Parallel Proceedings Against P ll l P di A i t Directors and Officers of Financial Institutions f Fi i l I tit ti Jonathan Feld, Dykema Todd Harrison, Patton Boggs June 12, 2013 June 12, 2013 www.dykema.com www.pattonboggs.com
Parallel Proceedings Defined • Multiple cases arising out of the same set of facts • Directors and officers (D&Os) may face three, four or five Di t d ffi (D&O ) f th f fi separate investigations • These actions may occur successively, not simultaneously • • An outcome in one action may affect the outcome in another An outcome in one action may affect the outcome in another 6
Parallel Proceedings Defined, cont’d • Cross-jurisdictional • • Criminal Criminal • Civil • Regulatory and self-regulatory • Congressional investigation • Foreign proceedings • Private proceedings p g 7
Where do Parallel Proceedings Usually Arise? Usually Arise? • Investigation or prosecution by the U.S. Attorney or DOJ; • • Office of the Comptroller of the Currency (OCC) Federal Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) or other agency with authority over financial institutions is investigating whether to bring an enforcement action; • SEC, with authority over securities, is investigating a violation; • Financial Industry Regulatory Authority (FINRA); • • Congressional Investigations; Congressional Investigations; • NY State Attorney General, District Attorney or other non- federal agencies; • • Private litigation Private litigation 8
Potential Targets of Parallel Proceedings • Greater emphasis on: – Mortgage lenders Mortgage lenders – Banks and their subsidiaries – Brokerage firms Financial institution defined (18 USC § 20): Financial institution, defined (18 USC § 20): • • – credit union – federal home loan bank or member – small business investment company small business investment company – depository institution holding company – member bank of Federal Reserve system – a branch or agency of a foreign bank a branch or agency of a foreign bank – a mortgage lending business 9
Current Trends in Parallel Proceedings • Post Dodd-Frank actions and litigation facing D&Os – FDIC investigations – Securities Fraud under SEC/DOJ Securities Fraud under SEC/DOJ – Mortgage Irregularity Investigations and investor litigation – London Interbank Offered Rate (LIBOR) investigations and investor litigation g • Agency cooperation • Amendments to the law – Whistleblower awards – Clawback policies • International proceedings • FDIC litigation against D&Os of failing banks – Impact on SEC and DOJ decisions to institute proceedings I t SEC d DOJ d i i t i tit t di 10
Recent Parallel Proceedings g • Broker-dealers charged with multimillion-dollar kickback scheme in violation of Foreign Corrupt Practices Act (FCPA), civil SEC parallel violation of Foreign Corrupt Practices Act (FCPA), civil SEC parallel action also filed – U.S. v. Clarke et al. and SEC v. Bethancourt et al. • • Federal judge in New York recently ordered the SEC to begin turning Federal judge in New York recently ordered the SEC to begin turning over documents to former SAC Capital Advisors LP portfolio manager Mathew Martoma. • • Mr Martoma faces insider trading charges from the SEC as well as a Mr. Martoma faces insider trading charges from the SEC as well as a criminal indictment – SEC v. CR Intrinsic Investors LLC et al. • Former hedge fund professional and corporate lawyer accused of $3 Former hedge fund professional and corporate lawyer accused of $3 billion insider trading scheme plead not guilty to criminal charges, filed the same day as a civil SEC lawsuit – U.S. v. Riley et al. U S v Riley et al 11
Major Issues that Arise in Parallel Proceedings j g • Privilege – 5 th Amendment – Attorney-Client Att Cli t • Actions affecting other actions – Civil and criminal – Congressional – Foreign • Best practices in internal and external investigations • Strategies for limiting D&O’s exposure, without looking guilty • Duties of Anti-Money Laundering/Bank Secrecy Act (AML/BSA) Officers • I Insurance coverage for D&O f D&O 12
The Phone Rings… • Is the company under investigation? – By whom? y – Formally or informally? – Has more than one agency called yet? – Has the executive been named a target? Has the executive been named a target? • Has a lawsuit been filed? – Civil, or criminal? – Federal or state? – Private or governmental? • Internal Investigations Internal Investigations • Role of audit committee during government investigation 13
The 5 th Amendment and its Implications Executive’s choice to exercise 5 th Amendment - consequences both ways: • – Adverse inference reflects poorly in civil proceedings – Limit a company’s cooperation credit Limit a company s cooperation credit – Any testimony will likely be deemed an admission by the company – To waive may risk self-incrimination; to assert may lead to adverse consequences in civil action • May lead to executive’s loss of employment in certain regulated industries (e.g., FINRA Rule 8210) • Overall considerations: – The level of an executive s exposure The level of an executive’s exposure – The amount of incriminating evidence against the executive – The seriousness of the charges – The number of proceedings brought against the client The number of proceedings brought against the client – The value the government may place on cooperation 14
Staying Parallel Proceedings Helps offset the 5 th Amendment dilemma • – Civil discovery is far broader than in criminal cases – Once the 5 th is waived, it cannot be reinvoked; however, it may be waived later in a civil proceeding – Administrative proceedings not protected by F.R.E. p g p y • There is no Constitutional requirement to stay proceedings – DOJ may oppose a stay • • If proceedings are not stayed it may be safer for an executive If proceedings are not stayed, it may be safer for an executive to plead 5 th Amendment • SEC v. Dresser Industries , Inc. , 628 F.2d 1368 (D.C. Cir. 1980) (SEC could not use civil discovery process for purpose of 1980) (SEC could not use civil discovery process for purpose of aiding DOJ in criminal investigation) 15
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