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Mr. Mark B. Sheppard
Testimony of Mark B. Sheppard, Esquire
Good morning Chairman Specter, Ranking Member Leahy, and distinguished members of the Judiciary Committee. My name is Mark Sheppard. I practice white collar criminal defense and complex civil litigation at the Philadelphia law firm of Sprague & Sprague, where I have the privilege of practicing with noted trial attorney Richard Sprague. Before joining the firm, I was a
I want to begin my remarks by thanking you for the opportunity to voice my concerns, as a practitioner, about the deleterious effect of the "cooperation" provisions of the Thompson Memorandum and similar federal enforcement policies 1 such as the Securities Exchange Commission's Seaboard Report. 2 These policies have so drastically altered the enforcement landscape that they threaten the very foundation of our adversarial system of justice.
This threat is brought about by the confluence of two recent trends: increasing governmental scrutiny of even routine corporate decision making and untoward prosecutorial emphasis upon waiver of long recognized legal protections as the yardstick by which corporate cooperation is measured. These policies and, in particular, those provisions which inexorably lead to waiver of the attorney-client and work product privileges, upset the constitutional balance envisioned by the framers, impermissibly intrude upon the employer/employee relationship, and in real life, result in the coerced waiver of cherished constitutional rights.
The Thompson Memorandum sets forth the "principles to guide (federal) prosecutors as they make the decision whether to seek charges against a business organizations." While the
According to the Memorandum, "authentic" cooperation includes the willingness to provide prosecutors with the work product of corporate counsel from an internal investigation undertaken after a problem was detected. Authentic cooperation also includes providing prosecutors with the privileged notes of interviews with corporate employees who may have criminal exposure, yet have little or no choice to refuse any request to speak with corporate
Despite these draconian outcomes, corporations are complying with these demands in ever increasing numbers. Following the precepts of the Thompson Memorandum is mandatory for federal prosecutors. And while no "one" of the 9 elements of cooperation outlined in the Memorandum purports to be dispositive of cooperation, in practice, each is mandatory. In the current climate few, if any, public companies can afford the risk of possible indictment and the myriad of collateral consequences, not the least of which is the diminution of shareholder value. Indeed, the words from the front lines are frightening, as one attorney recently noted:
Even before Sarbanes-Oxley, internal corporate investigations were standard operating procedure whenever a potential compliance issue came to light. Incident to these investigations, internal and confidential documents are reviewed and all employees who may have knowledge of the particular incident are interviewed. The reports generated by these investigations, including analysis by the company's counsel and statements of employees who may not choose to speak with prosecutors are a veritable road map. As such, they are simply too tempting a source of information for prosecutors to ignore.
It is my experience that occasionally - although not routinely - federal prosecutors can be convinced to conduct their investigations without these privileged "roadmaps." Indeed, law
However, the Thompson Memo itself makes clear that these standard elements of cooperation are not always enough. Prosecutors are now empowered to expect corporate counsel to act as their deputies. Counsel is expected to encourage employees to give statements without asserting their Fifth Amendment rights and without obtaining independent counsel, despite the potential conflict
Too often, employees must face this Hobson's Choice with out the benefit of separate counsel. That is because individual employees also face the prospect that the corporation will refuse to advance or reimburse the employee's legal fees if they refuse to cooperate with the government. Representation by experienced counsel in corporate fraud cases could bankrupt an individual. For some individuals that I have represented, advancement of fees was essential to having any representation, let alone effective representation of counsel. Further, most white collar practitioners recognize that their cases are often won or lost pre-indictment. Effective assistance of counsel in the investigatory stage is essential. The government knows this. I fear that under the guise of cooperation, prosecutors are seeking to deprive employees of counsel of their choosing, in the hope that counsel chosen by the corporation may be more inclined to tow
All of this is done at the behest of prosecutors and in the name of authentic cooperation in the laudable effort to combat corporate fraud. Lost in the stampede to the prosecutor's door
Finally, the Thompson memorandum and like pronouncements are simply bad policy. Encouraging employees to be proactive in seeking legal counsel is a key component of any corporate compliance strategy. Corporations and the people they act through must feel free to discuss difficult issues in an ever increasing regulatory environment. Rather than encourage this, these policies will inevitably chill communications with corporate counsel impugning meaningful corporate governance practices. Thus rather than achieving the salutary effects sought, the Thompson Memorandum will increase the likelihood of potentially illegal conduct by undermining meaningful corporate compliance. Prosecutorial expediency is simply not worth it.
Again, I thank the Chairman and the Committee for this opportunity and I look forward to responding to any questions you may have.
3 Thompson Memorandum, supra note 1, at 5.
4The Decline Of the Attorney-Client Privilege in the Corporate Context-Survey Results,