Responding to Investigations by Regulators

Kelly Bowers Hector Gonzalez Michael Quinn Thomas Zaccaro May 9, 2008

Responding to Investigations by Regulators

• The Current Regulatory Environment & Important Regulator Initiatives

• Steps To Take In Response To Government Investigations

• Key Issues in Internal Investigations

• What To Do When Responding To Subpoenas & Issues Unique To Multi-Agency Investigations

The Current Regulatory Environment & Important Regulator Initiatives

• Regulators investigating/bringing action in connection with subprime issues

• Joint enforcement initiatives

• Scope of resources dedicated to subprime issues

• Who is being investigated?

• What conduct/practices are being investigated?

Who Is Being Investigated?

• Mortgage lenders

• Mortgage brokers

• Real estate brokers

• Investors

• Borrowers

• Closing attorneys

• Appraisers

• Securitizers

• Credit rating agencies

What Conduct/Practices Are Being Investigated?

• Lender product design

• Lender product marketing

• Underwriting

• Marketing fraud

• Origination fraud

• Reliance on unsupervised brokers

• Compensating brokers’ misconduct

Steps To Take In Response To Government Investigations

• The current enforcement climate demands cooperation

• Potential pitfalls of cooperation

The Current Enforcement Climate Demands Cooperation

• Statements On Cooperation

• The Securities and Exchange Commission

• New York Stock Exchange

• National Association of Securities Dealers

• United States Sentencing Commission

The Current Enforcement Climate Demands Cooperation

• Waiving Attorney-Client Privilege

• The Thompson Memorandum

• The McNulty Memorandum

Potential Pitfalls of Cooperation

• Considerations when waiving privileges

• Deputizing corporate counsel to conduct internal investigations

• Payment of attorneys’ fees

• Deferred prosecution agreements

• Selection of counsel

• Determining scope of investigation

• Joint defense agreements

• Implications of an amended Rule 408 for settlement offers made in the context of civil negotiations

Key Issues in Internal Investigations

• When should an internal investigation be conducted?

• Who should conduct the internal investigation?

• Who should control the investigation?

• Should in-house counsel be involved in conducting the internal investigation?

• How should an internal investigation be organized and initiated? How should privileges be maintained?

Key Issues in Internal Investigations (cont’d)

• Should notice of the internal investigation be given to employees?

• How should documents and other materials be preserved?

• How important are e-mails?

• When and how should interviews be conducted?

• Should interviews be recorded?

• Can an employee have a lawyer present at an interview?

Key Issues in Internal Investigations (cont’d)

• Should a company pay for lawyer for an employee?

• Should employees be offered the opportunity to submit a “white paper” or similar materials?

• Should a written report be prepared?

• Should the company or employees be allowed to review the report before it is finalized?

What To Do When Responding To Subpoenas & Issues Unique To Multi-Agency Investigations

• Issues unique to multi-agency investigations

• The appropriate response to investigators

• Practical tips for responding to document subpoenas

The Appropriate Response To Investigators

• Public and private responses

• Interacting with investigators

• Assemble legal team

• Do not abandon or forego any valid legal defenses