At the November 2, 2016 Securities Industry and Financial Markets Association (“SIFMA”) Compliance and Legal Society Regional Seminar in New York, a SIFMA panel discussed the “Yates Memo,” its effect on internal investigations, and considerations regarding individual representation.

The Yates Memo is a September 9, 2015 memorandum issued by Deputy Attorney General Sally Yates to prosecutors and civil attorneys at the Department of Justice. The memo, titled “Individual Accountability for Corporate Wrongdoing,” provides guidance to Department of Justice attorneys regarding how they conduct their investigations and emphasizes the need to seek accountability from individuals who perpetrate corporate misconduct.

The Yates Memo lists six key steps to “strengthen [the] pursuit of individual corporate wrongdoing,” including that “[c]riminal and civil corporate investigations should focus on individuals from the inception of the investigation” and that “[i]n order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct.” In effect, the Yates Memo places a focus on the culpability of individual employees while providing a strong incentive for corporations to disclose information adverse to its employees’ interests.

The SIFMA panel stated that, while it is too early to determine the full effects of the Yates Memo (which has been in effect for approximately 14 months), employees are asking their firm and its corporate counsel whether they should be represented by individual counsel (1) earlier in investigations, and (2) more frequently than ever. As a preliminary matter, the SIFMA panel cautioned that corporate counsel should not directly answer that question. Rather, corporate counsel should inform the employee that they represent the firm and remind the employee of their obligation to cooperate in internal investigations. With regard to whether the firm should provide individual counsel to an employee, the SIFMA panel stated that “the last thing” corporate counsel wants is to realize six months into an internal investigation that an employee needs individual representation. Thus, corporate counsel should consider factors regarding individual counsel early in an investigation.

The SIFMA panel provided the following rules of thumb to consider at the outset of an internal investigation:

  • If an employee has apparent “exposure” – especially exposure to the Department of Justice – the firm should provide individual counsel at the outset of the investigation.
  • If an employee has no apparent chance of exposure, joint representation is appropriate. Corporate counsel, however, must be sure to obtain an engagement letter with any and all appropriate waivers.
  • If an employee has no apparent exposure, but it is reasonable to believe that individual counsel may eventually be needed (due to the nature of the investigation), a firm should consider retaining “shadow counsel.” Shadow counsel would stay apprised of the investigation but would not appear on behalf of the employee. Thus, shadow counsel would accrue less legal fees than appearing counsel, but if needed, could seamlessly step in and provide an employee with meaningful advice and representation.

The SIFMA panel also addressed and emphasized the importance of Upjohn warnings post-Yates Memo. While the panel believed that Upjohn warnings were appropriate as-is, attorneys should be cautious in stating that they will not divulge any otherwise-privileged information “unless necessary.” The SIFMA panel also suggested documenting an employee’s acknowledgement of Upjohn warnings; providing an employee with written warnings, however, is neither necessary nor recommended.