Investigation Dilemma: Sing or Keep Mum?

If your company wants to talk to you as part of an internal investigation, you may need to weigh your desire to be a team player against your Fifth Amendment rights.

If your company — like so many these days — is conducting an internal investigation, beware. Your interrogators may work for the same company you do, but they’re essentially government deputies, legal experts say.

In 2004, executives of CA (previously known as Computer Associates), including former finance chief Ira Zar, pleaded guilty to obstruction of justice charges because they had lied — not directly to government investigators, but to the outside law firm the company had hired to conduct an investigation into accounting fraud charges. Prosecutors claimed Zar and others were aware that Computer Associates would turn over the results of the internal investigation to the government, and thus were lying to the government.

“The government viewed statements made to [Computer Associates's] internal investigators to be equivalent to statements made to the government itself,” says Michael Levy, an attorney at law firm McKee Nelson.

A survey last October showed that 63 percent of companies had hired outside counsel to conduct internal investigations in 2006. And since companies frequently turn over the results of internal investigations to prosecutors in the hope of more-lenient treatment, legal experts say, executives must realize that speaking with internal investigators can open the door to civil or criminal proceedings.

Of course, not speaking to them is likely to get an executive fired.

To be sure, the idea that lying to your company is the equivalent of lying to the government has not been tested in court: the Computer Associates executives pleaded guilty rather than test their chances. But Levy says the issue is so prevalent that courts will have to address it “in the near future.” At the same time, the U.S. Senate is considering legislation that might restrict prosecutors’ ability to demand the results of corporate investigations. But until the courts or Congress take action, internal investigations still present executives with a Hobson’s choice.

With the backdating scandal driving an unprecedented number of internal investigations, some executives apparently have made that choice already. In October 2006, Andrew McKelvey, the founder of Monster Worldwide, resigned from his chief executive spot and the board after declining to be reinterviewed by lawyers conducting an internal probe of the firm’s stock-option-granting practices, even though he did not receive options himself. Since then, Monster has admitted it had intentionally backdated stock-option grants for six years, and a criminal investigation has begun.

Critics say the government’s tactic of using company investigations to gather information steps around the Fifth Amendment, the right to remain silent. “Most companies, in order to try to get credit for cooperating with the [government] investigation, will use the threat of termination of employment for failing to cooperate with the internal investigation…when they might otherwise have a constitutional right to remain silent,” observes Levy. (Ironically, he adds, a 1968 Supreme Court decision notes the government can’t put its own employees in that same predicament.)


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