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The Cost of Cooperation

By Jonathan S. Feld and Dean V. Hoffman

Cooperation with government investigators has long been important for companies under the specter of an investigation. Under current agency policies and practices of the Securities and Exchange Commission (SEC) and U.S. Department of Justice (DOJ), and relevant provisions of the Sentencing Guidelines for Organizational Offenders, a “cooperative” corporation can realize substantial reductions in penalties or even avoid an enforcement action altogether. Seaboard Corporation in 2001 and HomeStore, Inc. in 2002 are excellent examples — both were able to avoid SEC enforcement actions because of the extent and nature of their cooperation with investigators.

The multi-million dollar question is what will be defined as “cooperation.” Over the past 10 years, the answer has evolved, and at each step, the requirements have increased. Waiver of the attorney-client privilege and work product protection is one of the “costs” that a corporation will likely have to pay. Recent enforcement actions also strongly suggest that a corporation will likely not be deemed “cooperative” without divulging its privileged internal investigation findings.

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