In this timely post, White Collar Crime Prof Peter Henning notes a recent Fourth Circuit decision that bears on an increasingly knotty issue in this post-Enron era of criminalizing business — that is, an employee’s waiver of the attorney-client privilege for statements made during a conference with an employer’s attorneys.

In this particular case, the employees contended that their employer’s lawyers led them to believe that they had entered into an attorney-client relationship with the employer’s lawyers so that the employer’s subsequent waiver of the privilege did not affect their personal right to maintain the confidentiality of their statements made to the lawyers. At the outset of the employees’ interviews with the employer’s lawyers, each of them received the following reassurance — er, I mean “warning” — from the employer’s lawyers:

“We represent the company. These conversations are privileged, but the privilege belongs to the company and the company decides whether to waive it. If there is a conflict, the attorney-client privilege belongs to the company. We can represent [you] until such time as there appears to be a conflict of interest, [but] . . . the attorney-client privilege belongs to [the employer] and [the employer] can decide whether to keep it or waive it.”

As Professor Henning notes, the second part of the above instruction is incorrect in that a client under a valid joint representation continues to hold the privilege and another party to that joint representation cannot waive it unilaterally. At any rate, after completing its investigation, the employer waived its attorney-client and attorney work product privileges in attempting to obtain a deferred prosecution agreement and avoid the fate of Arthur Andersen (see also AIG, Berkshire Hathaway and KPMG for recent examples of this dubious corporate trend).

At any rate, the Fourth Circuit rejected the employees’ argument that they had entered into an attorney-client relationship with the employer’s lawyers by reasoning essentially that a statement that the employer’s lawyers “can” represent the employees is not the same as actually representing them.

Thus, employees beware. Even though the assertion of the Fifth Amendment privilege in connection with an employer’s internal investigation will likely result in the employee being fired, the alternative could be far worse — that is, your employer giving prosecutors of questionable judgment your statements to use in prosecuting you for an alleged crime that you performed while performing your job for your employer.

The sad case of Jamie Olis is a stark example of the damage to employees’ lives and their families that can result from an employee unwittingly waiving his attorney-client privilege.

As noted in earlier posts here and here, New York attorney general Eliot Spitzer does not take kindly to other governmental agencies infringing on his various crusades to demonize wealthy business interests in his seemingly unending quest to promote his political career. But at least he previously maintained the public front of cooperation with other governmental investigators.
But now, as this Washington Post article notes, the Lord of Regulation is no longer maintaining even the pretense of cooperation with other governmental investigators. Apparently, the interagency squabbles were intensified by news leaks from Mr. Spitzer’s office of a high-profile April 11 interview of Warren E. Buffett. Mr. Buffett’s Berkshire Hathaway, Inc., is the parent of General Re Corp., which is the company that — along with AIG and other insurers — is the subject of a criminal investigation into structured finance transactions known as finite risk reinsurance. Here are the previous posts on the various investigations into AIG and Berkshire’s General Re.
Mr. Spitzer did not help relations with his federal counterparts when, as a part of his usual propaganda campaign that parallels his various criminal investigations, he blasted the Department of Justice in a speech on May 2 for failing to investigate allegedly illegal practices in the insurance industry. Now, the feud between Mr. Spitzer’s office and federal investigators has heated to the point where prosecutions of various targeted executives could be compromised.
It would be sweet justice if Mr. Spitzer’s ambition and pride undermines criminal investigations and prosecutions of business executives that never should have been inititated in the first place.

In a development that is intriguing by its timing, Andrew Weissmann is resigning as director of the Justice Department’s Enron Task Force, reportedly to enter private practice, although that report has not been confirmed. Another Task Force prosecutor — Sean Berkowitz — replaces Mr. Weissman as the director of the Task Force. Mary Flood’s Chronicle article on Mr. Weissman’s resignation is here.

Mr. Weissman joined the Task Force three years ago to lead the prosecution team in the Task Force’s controversial prosecution of Arthur Andersen, which led to the giant accounting firm’s demise and the loss of 30,000 jobs in the United States alone. He has been head of the Task Force since early March, 2004 when he replaced Leslie Caldwell, who resigned to enter private practice.

Since its inception in early 2002, the Enron Task Force has been particularly adept at generating propaganda demonizing Enron and bludgeoning former Enron executives into plea bargains. Such bludgeoning is most commonly carried out through the Task Force’s threat of seeking absurdly long prison sentences for former Enron executives if they elect to defend themselves in a highly-charged atmosphere against anything having to do with Enron that the Task Force has flamed to its advantage.

The Task Force has been much less effective at actually proving its charges against former Enron executives in court, as only one former Enron executive — a mid-level manager in the Nigerian Barge case — has actually been tried and convicted of a crime in the Task Force’s three and a half year existence. The only other former Enron executive prosecuted in that trial — former mid-level accountant Sheila Kahanek — was acquitted.

The timing of Mr. Weissman’s resignation is unusual because it was announced as jury deliberations are ongoing in the first trial involving primarily former Enron executives, the Enron Broadband trial. That trial has not gone well for the the Task Force and that unexpected turn of events has occurred against a backdrop of recent setbacks and several troubling incidents of apparent prosecutorial misconduct within the Task Force.

The first blow to the Task Force came in the sentencing hearings of the four former Merrill Lynch executives and one former Enron executive who were convicted of fraud and conspiracy in the Nigerian Barge trial, a trial in which the Task Force chilled dozens of defense witnesses from testifying by its questionable tactic of fingering the witnesses as either unindicted co-conspirators or targets of the Enron criminal investigation.

During the sentencing hearings, U.S. District Judge Ewing Werlein, Jr. firmly denied the Task Force’s dubious arguments for draconian sentences against the barge defendants based on the alleged market effect of the relatively small transaction involved in that case. Judge Werlein was clearly disturbed by the fact that the Task Force’s arguments on the market effect of the transaction contradicted the position that the Justice Department had taken before the U.S. Supreme Court well before the Nigerian Barge sentencing hearings in the case that the Supreme Court later decided in Dura Pharmaceuticals v. Broudo.

The second setback for the Task Force came in the Supreme Court’s stunning reversal in a unanimous decision of the Task Force’s conviction of Arthur Andersen, which brought into clear focus the dubious nature of both the Task Force’s decision to put Andersen out of business and the specious arguments that the Task Force used in criminalizing Andersen’s legitimate docket retention policy.

Next, during the Enron Broadband trial, a series of almost brazen examples of prosecutorial misconduct began to to unfold. First, the Task Force elicited false testimony from its key witness, former Enron Broadband co-CEO Ken Rice. Then, after that mistake, two witnesses (Beth Stier and Lawrence Ciscon) testified that, based on discussions with the Task Force before their testimony, they both felt threatened by a possible indictment if they testified on behalf of the Broadband defendants.

Finally, toward the close of the trial, U.S. District Judge Vanessa Gilmore sharply rebuked an Enron Task Force prosecutor for asking a question on cross-examination of Broadband defendant Kevin Howard that, if not in direct violation of a pre-trial order directing attorneys not to refer to certain subjects during the trial, at least violated the judge’s prior instructions to the Task Force prosecutors.

Finally, in arguably the most serious indication of prosecutorial misconduct within the Enron Task Force, U.S. District Judge Sim Lake recently issued an ex parte order in the Task Force’s “legacy case” against former Enron chairman Ken Lay, former CEO Jeff Skilling and former chief Enron accountant Richard Causey based on an ex parte motion that Messrs. Lay, Skilling and Causey had filed filed with the court under seal.

Without revealing the contents of the ex parte motion, Judge Lake ruled that he had concluded that the defendants had established a prima facie case of entitlement to subpoena under Fed. R. Crim. P. 17(c) all evidence relating to communications between the Enron Task Force and the 15 former Enron employees who have pled guilty under plea arrangements with the Enron Task Force.

Although the contents of the ex parte motion is a closely-guarded secret of the defense teams of Messrs. Lay, Skilling and Causey, speculation is rampant among Houston attorneys involved in the Enron case that the defendants had provided Judge Lake with compelling evidence that the Enron Task Force was threatening potential defense witnesses in the Lay-Skilling-Causey trial with criminal charges that could result in long prison sentences if the witnesses testified on behalf of the defendants. In a separate recent court filing, the Skilling defense team observed that “[t]he Task Force has taken control of the witnesses in this case to an unprecedented and impermissible degree. Witnesses will not meet or speak with us for fear of reprisal.”

Consequently, count me as tad skeptical of the “official” reason given for Mr. Weissman’s resignation during jury deliberations in the Broadband trial. In view of the foregoing setbacks and prosecutorial misconduct it would not be surprising if the Task Force’s superiors at the Department of Justice had simply decided that Mr. Weissman’s removal was advisable and that any further delay in naming a new director could adversely affect the Task Force’s preparations for its legacy case against Messrs. Lay, Skilling and Causey.

If that move results in a more judicious Task Force approach to the remaining Enron-related prosecutions, then perhaps at least a small part of the serious injustice that the Enron Task Force’s demonization of Enron has heaped on innocent businessmen and their families can still be corrected.