Internal Investigations: Seven Examples
At what point is it necessary to carry out an internal investigation? Exactly what is required during the investigation, and what are the possible results? Below are seven hypothetical situations that demonstrate the importance of doing timely and thorough investigations when problems (or potential issues) arise.
There are many issues that call for an internal corporate investigation. Although some of these issues are more prevalent than others, one fact they all have in common is that they can end up in substantial a great deal of liability exposure if no action is taken. The need for an investigation itself points to the depth of the problem at hand, and mistakes or oversights in the course of the investigative process can potentially raise the company’s risk of civil or criminal enforcement action or litigation.
Our law firm represents public and privately owned businesses, professional practices, and other clients in internal investigations. We provide services to corporate clients on a national scale, and our lawyers bring well over a century of combined experience to assisting our clients in making strategic moves based on complete and reliable information. If you have become aware of an existing or potential sitation that could put your company at risk, we can put our experience to work in conducting a thorough, confidential, and attorney-client privileged investigation that can get you with the details you need to protect your company’s best interests.
Trigger, Response, and Outcome – 7 Hypothetical Investigation Case Studies
Below are seven hypothetical examples of internal investigations. While our attorneys have represented clients in hundreds of investigations across the United States, we have selected these hypothetical examples for the purpose of illustrating particular concepts and principles. Each case study includes:
Trigger: The set up of the issue or allegations that triggered an investigation;
Response: An overview of specific steps that were taken during the investigative process; and,
Outcome: A sample outcome arrived at on the basis of the sufficiency (or insufficiency) of the hypothetical investigation.
Case Study #1: Employment Law
An Worker Accuses Her Supervisor of Sexual Harassment
Trigger: A female employee at the mid-management level lodges a complaint with the company’s human resources (HR) department to document the fact that she has been the victim of persistent sexual harassment at the hands of her supervisor.
Response: Any sexual harassment allegations in the workplace should be taken seriously, and a detailed investigation is necessary. The company immediately engages outside counsel, who liasis with the company’s leadership and the HR manager who took in the report so as to gather as much preliminary information as possible. The attorney interviews the complainant, the accused supervisor, and other female workers in the department who confidentially reveal that they have also been subject to harassment. On the basis of the information gathered, it comes to light that the accused supervisor has indeed been engaging in inappropriate conduct for a prolonged period of time.
Outcome: Based on the credible data gathered during the internal investigation, the management takes appropriate disciplinary action against the accused employee and mandates and carries out sexual harassment training for the entire supervisory team. They also ensure the affected employees that the company is committed to and is actively doing everything necessary to remedy the issue. Further legal action becomes unnecessary.
Example #2: Securities Fraud
A Red Flag Goes Up at The SEC Regarding the Company’s Public Filings
Trigger: The company’s in-house counsel is contacted by the Securities and Exchange Commission (SEC) with regards to apparent inconsistencies between the company’s prior and most-recent filings. This disparity implicates a potential securities law violation.
Response: As soon as they are contacted by the SEC, the company’s in-house lawyers engage outside counsel to oversee an independent internal audit of the company’s accounting records and public filings for each of the years that the SEC inquiry indicated. In addition to working with the heads of the company’s finance department to pinpoint where, when, and how the discrepancies arose, outside counsel also sustains close contact with the SEC, ensuring the agency that the business is handling the matter with the gravity it deserves and doing all it can to correct its public filings. After carrying out a thorough review, outside counsel figures out that a lower-level staff member made an unintentional error while putting last-minute adjustments into the numbers in the most-recent filing.
Outcome: Outside counsel explain the findings of the internal review to the SEC and assure the agency that the discrepancy was the result of an inadvertent error. The company duly updates its filing and conducts staff training on the federal law requirements and the importance of consistently carrying out complete reporting accuracy and transparency. On the basis of the company’s prompt reply and the information discovered, the SEC chooses not to pursue civil or criminal enforcement action.
Example #3: Health Care Fraud
A Determination of Liability Results from A CMS Audit Results
Trigger: The UPIC was permitted by a health care provider to conduct a “routine” audit without any oversight. The audit outcome was a determination that the provider has greatly overbilled Medicare by submitting inaccurate billing codes.
Response: On recepti of the UPIC’s audit determination, the health care provider quickly engages outside counsel to carry out an independent review. Outside counsel review the Medicare billing records at the company, interview doctors and staff members who work in billing, and thoroughly review the UPIC’s findings. The investigation uncovers the fact that although some inadvertent billing errors were made, the UPIC also greatly overstated the provider’s liability because of numerous mistakes and misplaced assumptions about the provider’s Medicare billings.
Outcome: Even though it might have been a wiser choice for the provider to consult counsel during the UPIC’s investigation, its decision to bring a law firm in to double check instead of simply accepting the UPIC’s determination was still wise. Outside counsel have the ability to successfully challenge many of the UPIC’s conclusions in the earliest stage of the audit appeals process. Also, by demonstrating that the limited number of real billing errors were inadvertent mistakes, outside counsel are capable of helping the provider evade enforcement action by the federal government.
Example #4: Government Contract Fraud
The Company Has Been Accused of Improper Billing by A Whistleblower
Trigger: An unidentified whistleblower lodges a complaint with the U.S. Department of Justice (DOJ) alleging that the company supplied substandard materials and falsified quality inspection reports.
Response: Upon receiving notification of the complaint, the company engages a law firm that has experience in federal whistleblower cases pertaining to government contracts. Outside counsel review the complaint and then quickly assemble an investigation team to have a closer look into the allegations. In tandem with the substantive investigation, outside counsel also work to reveal the identity of the whistleblower. Outside counsel liaise with the appropriate internal staff members to have a closer look at the whistleblower’s allegations and establish a proactive defense strategy focused on preventing government intervention.
Outcome: The investigation’s findings are that the whistleblower’s allegations lack merit, and outside counsel are also successful in identifying the whistleblower as an erstwhile employee who had been terminated for cause. On the basis of the information uncovered during the internal investigation, the DOJ declines to take any action on the case.
Example #5: Corporate Fraud
Evidence of Self-Dealing is Revealed by An External Audit
Trigger: External auditors draft a report that details evidence of possible self-dealing between a member of the company’s executive team and another company with which she is associated.
Response: An internal investigation targeting the executives team needs to be carried out with particular care in order to avoid the piling up of accusations of corporate complicity and attempts to cover up the allegations against the executive employee. External counsel are engaged to perform a covert investigation that is thoroughly documented. The investigation shows that the executive had in fact unscrupulously transferred funds to another company. The executive in question must be terminated, and the company is obligated to disclose the situation to federal regulators.
Outcome: Promptly terminating the executive and proactively reaching out to regulators before the issue had an opportunity to become public gave the company a chance to avoid a public relations hailstorm and a targeted federal investigation. At the end of the day, the company’s outside counsel are able to close the issue at the federal level in the absence of any civil or criminal liability for the company.
Example #6: Corporate Theft
Some Funds from the Corporate Account Have Gone Missing
Trigger: An emergency meeting is called by the Chief Financial Officer for the company’s leadership team and in-house counsel to attend. The reason for the meeting is that funds from the company’s corporate account have gone missing without any explanation.
Response: In matters involving apparent corporate theft, immediate action is usually necessary to preserve any hopes of getting back the stolen funds. Outside counsel are engaged right away to investigate. The company’s outside lawyers reach out to federal law enforcement and conduct a thorough internal investigation, during which they interview employees, meet with the institution where the monies were held, and examine all possible instances of unauthorized access to the company’s corporate bank account.
Outcome: The investigation uncovers that foreign hackers intercepted a corporate financial transaction and were able to breach the company’s bank account. The company’s outside law firm helps implement updated security controls and takes care of the company’s theft insurance claim while the Federal Bureau of Investigation (FBI) hunts down the hackers for prosecution by the DOJ.
Example #7: Cybersecurity Law
Hackers Gained Access to The Company’s Client Database
Trigger: Hackers breach the company’s client database. They access all personally identifying information (PII) and sensitive financial account data.
Response: Instead of hiring outside counsel to investigate immediately, the company’s management team decides to keep the breach quite. They conclude that if their clients found out, the likelihood is high that company would be forced into bankruptcy. Nevertheless, clients do indeed find out that their identities have been stolen, and shortly thereafter the issue is traced back to the data security breach that the company had recently suffered.
Outcome: Because the company neglected to deal with the issue head-on, clients retreated en masse and federal authorities had little choice but to pursue enforcement litigation. If the company had only investigated and complied with its breach notification requirements, both of these outcomes could more than likely have been avoided.
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