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Indemnification Revisited

By Andrew P. Gaillard
August 18, 2003

A recent Wall Street Journal story asked, 'How much does it cost to defend a company and its executives when they are under investigation for accounting fraud?' In the case of Qwest Communications International, Inc., the Denver-based telephone company currently under parallel SEC and Department of Justice investigations, the answer is staggering. Over the course of the previous year, $75 million was expended on outside counsel. As 'legal pressures' continue to mount, the Journal reported that 'more than $7 million per month' in legal fees was anticipated. For the beleaguered company, there appears to be no end in sight. In late February, four former Qwest executives were indicted in what Attorney General Ashcroft described as the 'first phase' of the investigation.

If simple economics were not enough to motivate corporate counsel to take a fresh look at what their company's corporate documents say about indemnification, a recent pronouncement from the DOJ should. On January 20, 2003, the Deputy Attorney General issued a memorandum to all U.S. Attorney's offices entitled 'Principles of Federal Prosecution of Business Organizations.' In large measure, the memorandum restates a June 16, 1999 DOJ memorandum entitled 'Bringing Criminal Charges Against Corpor- ations.' Each of these memos sets forth guidelines and factors to be used by prosecutors in determining whether to charge a corporation or other business entity in a particular case.

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