The government guaranteed lending industry is subject to high degree of regulatory oversight. All the participants are subject to the scrutiny of the Small Business Administration and the Office of Inspector General of the SBA. Lenders are also likely subject to the scrutiny of the Office of the Comptroller of Currency, the FDIC, the FSLIC, or offices within the Treasury Department. Remaining informed of the constantly evolving regulatory framework in the government guaranteed lending industry is a difficult job. It is likely that any company that is in the government guaranteed lending industry for a period of time will come under some level of scrutiny by some government agency.
What should a company do if it learns that there is a government inquiry into its regulatory compliance obligations, or its role in the regulatory compliance obligations of others? What should a company do if there is an internal "whistleblower" complaint to the effect that the company is not in full compliance with its regulatory obligations? What if there is threatened or actual litigation that may expose regulatory mistakes of the company or those for whom it provides services?
To adequately address the situation, the company's decision makers must know all of the facts. To assimilate all of the relevant facts, the company likely needs to conduct a comprehensive internal investigation of both witnesses and documents. The investigation's results need to be shared with the company's decision makers who are assigned the task of remediating the problem. However, an investigation carries the risk of creating a "road map" to the evidence that discloses the problem, which in the hands of the government or plaintiff's counsel could prove to be devastating. So, why even conduct an investigation if, in the end, it may do more harm than good? How can the company's decision makers learn the facts of alleged internal misconduct without necessarily shooting itself in the foot?
One answer to this dilemma is for the company to take advantage the attorney/client and attorney work product privileges in the conduct of the internal investigation. The attorney-client privilege maintains the confidentiality of communications between an attorney and the attorney's client, which communications are for the purpose of obtaining legal advice. A primary purpose of the privilege is to encourage frank disclosure by the client to the lawyer who is then able to provide candid advice and effective representation. The privilege belongs to the client, meaning that absent waiver of the privilege by the client, the lawyer is duty bound to maintain the confidences of the client. The privileged communications are not limited to those between counsel and company management; communications between company counsel and non-management employees are also protected by the privilege. Moreover, the privilege extends to communications between the client and persons engaged by the attorney for the purpose of assisting the attorney in advising the client, such as accountants, investigators and experts. So, if the internal investigation is conducted by the company's counsel, the communications between the company and its counsel are privileged and are not discoverable by third parties such as government investigators or opposing counsel.
The attorney work product doctrine protects from discovery those materials prepared by company's counsel in anticipation of litigation. This includes materials prepared by persons working with company counsel such as investigators and consultants, and includes the results of the efforts of these persons including interview reports, sworn statements, audits and mental impressions. The threat of litigation must be realistic. If there is a government inquiry or an internal whistleblower complaint, this provides a basis for the company's realistic belief that it anticipates litigation.
The successful conduct of the investigation requires vigilance throughout the course of the investigation to be sure that the protections afforded by the attorney/client and attorney work product privileges are maximized. This requires that from the very beginning there should be documentation of counsel's being engaged to develop factual information for the purpose of providing legal advice to the company. The anticipation of litigation should be documented during the course of the internal investigation. If the company anticipates litigation, it should consider sending an appropriate document "hold" notice to those company employees who may have relevant information, including the company's IT professionals. Under the guidance of counsel, the company may want to image the server files and the pc hard drives of individuals likely to have information relevant to the investigation. The caution here is that when there is a government inquiry, often the inquiry results in the government punishing the company for its improper conduct during the course of the investigation rather than for the conduct that was the subject of the investigation in the first place.
The company should appoint a management level person for counsel to work through. If the company is publicly held, this person could be an independent member of the audit committee of the company's board. Ideally, this person should not be anyone whose conduct is within the scope of the investigation.
At the conclusion of the investigation, the company's decision makers should have the facts at its disposal which, with the assistance of counsel, should enable the company to chart a path to address the reason the investigation was conducted in the first place, and resolve the problem without creating even more problems.
