Below are fifteen sample testing and review problems that Professor Buell has used over the years when teaching this course. At the end of each question, there is a link to notes on how each question might be approached.
Burns & Smithers (B&S) is a large brokerage firm doing business on Wall Street. Its traders work in a “bullpen” area that occupies an entire floor of the firm’s building in lower Manhattan. There are no walls or dividers on the trading floor, just desks, computer terminals, and phones. It is a noisy and hectic place during trading hours. The trading floor is equipped with a loudspeaker system through which the firm broadcasts dozens of messages to its traders every hour. These messages range from reports about news events relevant to securities prices—such as unemployment reports and public earnings announcements—to announcements of large block orders to buy or sell securities that have been placed by clients of the firm. (The purpose of announcing block orders is to see if there is a trader on the floor with a corresponding order for the same security in the same volume, allowing B&S to earn a commission on both sides of the transaction. The name of the relevant security, but not the names of any buying or selling clients, are identified in these announcements.)
The firm has determined that the loudspeaker system, though a bit old-fashioned, is the most efficient way to get its busy traders’ attention and quickly convey to them information that can be critical to the timing of transactions that often fluctuate in price, favorably or unfavorably, within seconds. B&S does not restrict access to its trading floor beyond how it restricts access to its building generally. Any B&S employee with an access badge can walk onto the trading floor, as can any client or guest of the firm with a visitor pass for the day.
Homer has been a trader at B&S for five years. When he joined the firm, Homer, like all B&S employees, was told that he had a duty to treat client information carefully and discretely. Homer also had passed the industry’s “Series 7” licensing exam for brokers, which requires knowledge of, among other things, the general duties of brokers to clients.
Homer’s friend Mo works as a trader on the trading floor of Patty & Selma (P&S), another large brokerage firm doing business on Wall Street. On one particularly busy morning, Homer accidentally “pocket-dialed” Mo while grabbing his cell phone from his pocket to place it down on his desk. (Homer was heading for the men’s room. B&S, like some other brokerage firms, has a rule prohibiting cell phones in its restrooms during trading hours.) Mo answered the call and quickly realized that Homer was not there and that he had received an accidental pocket dial from a cell phone. Mo could hear the activity on the B&S trading floor, including the loudspeaker announcements. Mo heard an announcement of a large order for the shares of Krusty, Inc., an entertainment company. Mo immediately purchased a sizable block of Krusty shares for the P&S firm’s account. Shortly thereafter, B&S purchased a major block of Krusty shares, the Krusty share price rose, and Mo sold the same number of Krusty shares that he had purchased for P&S’s account, recording a nice profit in his trading book for the firm.
Two days later, Homer and Mo were having beers at Duff’s Tavern in downtown Manhattan. Mo told Homer that he had made a nice profit for his firm on a trade from something he heard when Homer pocket dialed Mo from work. Homer laughed. Then he said, “I know, my hands are clumsy, I pocket dial all the time. Could happen anytime.”
Over the next several weeks, Mo’s cell phone rang on four occasions with calls from Homer’s cell phone. On each occasion, Mo answered and heard the same sounds of the B&S trading floor he had heard the first time, including the loudspeaker. The cell phone that dialed Mo’s phone sounded like it was sitting on a desk, and each time it remained connected for about five minutes. On each of these four occasions, Mo heard loudspeaker announcements of large block orders placed by B&S clients. On each occasion, Mo quickly executed buy and then sell trades in P&S’s account, and each time the P&S firm profited on Mo’s trading book from small rises in price that immediately followed the placement of the block orders of B&S’s clients in the same securities. The following summer, Mo took Homer on a golfing vacation in Scotland. Each time Homer asked Mo if he could pay for something, Mo just said, “It’s all on me, Homie. Thanks to you, my cheapskate days are over.”
Six months later, Homer and Mo were served on the same day with subpoenas requiring them to testify before the SEC. They talked and decided they better go see a lawyer. The next day, they arrive together at your office at the law firm of Lionel Hutz LLP and ask you to advise them. Based on interviewing Homer and Mo, you learn all of the above facts. Advise Homer and Mo about potential SEC and criminal liability, as well as defenses and defense strategies that might be pursued.
For five years, you have been an Associate General Counsel at Megabid, Inc., a large global construction firm headquartered in the Netherlands. You receive a call one morning from Gerrett, who is the company’s Vice President for Africa and Middle East Operations. Gerrett explains that he has just learned the following from Julius, a Nigerian general contractor who had been handling Megabid’s bidding process for a contract to build a large natural gas processing plant in Lagos, Nigeria for Xergy, the Nigerian power utility. Julius’ agreement with Megabid provided that Julius would receive a commission from Megabid if Megabid won the contract for the Lagos plant.
Julius reported that Megabid had obtained the contract to build the gas plant but things did not go exactly as expected. Xergy asked five construction firms to prepare “blind” bids for the project. None of the firms would be informed of the others’ bids until all were submitted, at which point Xergy would announce the bids and the contract would be awarded to the lowest bidder who satisfied all the terms and conditions for the contract that Xergy had published prior to the bidding process. When the bids were announced, all five firms had met all of Xergy’s required terms and conditions. It turned out that Megabid had submitted the lowest bid and thus was to be awarded the contract.
The project manager at Xergy met with Julius and informed him that the parties could sign the final contract and Megabid could commence work building the gas plant—as soon as Megabid provided a $50,000 cash “processing fee” to the Xergy project manager. Julius’ budget for the project, which he had cleared with Megabid management prior to bidding, would have allowed him to go $50,000 lower on the company’s bid than he did. So Julius decided that the extra $50,000 was “within budget” to get the job to build the Xergy plant and he paid it in cash to the Xergy project manager. Julius then informed Gerrett of the good news that the Lagos project could begin, and filled Gerrett in on all the details of the bidding and signing process.
Megabid is incorporated in the Netherlands. It is privately held and controlled primarily by a wealthy Dutch family. Megabid rarely does any business in the United States. In assembling the bid for the Xergy job, Julius traveled to the United States to meet with representatives of a company in the United States that manufactures parts for a kind of compressor that would be an important component in the new Lagos gas plant. Xergy is the sole power utility company with a license to operate in Nigeria. Pursuant to Nigerian law, five of the nine members of Xergy’s board of directors are appointed by the President of Nigeria.
In a few hours, you will be asked to brief your boss, the General Counsel of Megabid. What will you advise her about Megabid’s situation regarding the Nigeria project?
You are a partner at a small firm located in a big city that represents individuals in white collar criminal matters. Janet, who was referred to you by one of your partners as a potential client, comes into your office one day and tells you the following story:
“I worked in the Controller’s office of Remco, a large public company in the pharmaceutical industry. Recently I formed a strong belief, from my review of documents that came through our office, that a division of the company was engaged in ‘channel stuffing’— that’s the practice of pushing extra product volume down to retailers before the end of the quarter to enhance earnings results, even though it’s known that the extra product will not sell and later will be returned to the company under terms of our standard contracts with our retailers. I had heard that another company in our industry got into legal trouble for channel stuffing.
“I went to a friend in the General Counsel’s office and told her about my concerns. About a week later, lawyers from a law firm that sometimes does work for Remco started interviewing people in the Controller’s office. I met with them when they asked me to. They explained that I could get a lawyer on my own if I wanted but that the company would not pay for it. They also said that the company was trying to get out ahead of any potential legal issues and might talk to the government about its findings. I said it was OK, I would talk to them.
“My old friend who is your partner at this law firm said I should totally trust you. So I will admit that I didn’t tell the whole truth in that interview. I told the lawyers about my suspicions of channel stuffing in the one area where I first saw it. But I didn’t tell them that later I had seen the same suspicious pattern in reports from another division of the company. At the end of the interview, they asked if I was aware of any similar conduct at the company or any evidence of any potentially illegal actions by any Remco employee. I said no. I didn’t want them to look further because my friend’s husband is the manager of that other division.
“A couple of weeks later, the company offered me a severance package and the person from Human Resources said, ‘Trust me Janet, your best move is to take this deal now. It’s not getting any better for you here.’ I decided to take the severance package. Things were going to get ugly and I didn’t want to be around for it. A couple of weeks after that, the company’s lawyers called me and asked me to meet with them again. They said they were getting ready to make a presentation to the government about the matter and needed to follow up on some facts. I said I really didn’t want to get any more involved now that I had left Remco. They told me that the terms of my severance agreement required me to cooperate with any investigations related to work I did at the company and that if I refused to be interviewed, the lump sum and retirement payments provided for under my severance agreement could be terminated.
“So I met with the lawyers again—this was just earlier this week. Now I figured I really needed to get this thing behind me. So I admitted that in my first interview I had concealed the evidence of channel stuffing in the other division because I was worried about my friend’s husband. They said I could only hurt myself by lying again, so then I told them everything I knew.
“I asked to meet with you quickly because yesterday I heard from a friend at work that Remco’s lawyers might be going in to talk to the government about the channel stuffing really soon. I don’t know, I just have a bad feeling about this. I’m really worried I could be in trouble.” Advise Janet on her legal situation.
Headstrong Securities LLC is a large fund that invests monies on behalf of high net worth individuals. Its offices are located in Greenwich, Connecticut. Headstrong uses several Wall Street brokerage firms to execute its trades. Headstrong requires a minimum $10 million investment from each fund participant. The firm manages a total portfolio worth approximately $3 billion on behalf of approximately 150 investors. Stacy Corrigan is the chief executive and sole owner of Headstrong. She employs 45 people in the operation of Headstrong, all of whom she compensates through various combinations of salary and bonuses linked to the firm’s profits. Headstrong’s profits come from two sources: (1) its commissions from its clients, which consist of a 25% share of all client gains from investments through Headstrong; and (2) gains the company makes from trading for its own account. The firm’s proprietary account represents approximately 15% of all assets managed by Headstrong.
Mark Marcetoma, whose sole advanced degree is an MBA, is Chief Compliance Officer for Headstrong. He earns an annual salary plus a year-end bonus based on Headstrong’s annual net profit. Marcetoma reports directly to Stacy Corrigan and is the only compliance employee at Headstrong. (The firm also employs a single in-house lawyer.)
On October 1, 2012, Mark called his friend and business associate Fran Toupee, who works in the compliance department of the Shanghai, China office of Giant Fancy Bank (GFB), which is one of the world’s largest commercial and investment banking firms. Mark and Fran have known each other since they were undergraduates together at Endowment University (EU) in the early 2000s. Mark called Fran to ask her if people at GFB had formed a view about whether a new SEC regulation would apply to hedge funds as well as commercial banks.
During the call, Fran asked Mark if he remembered a student from China who lived on their dorm floor during their first year at EU. “You won’t believe who I ran into,” Fran said. “Remember Lidia from freshman year? I never knew this but her father is like a major guy in China’s sovereign wealth fund. I ran into her as she was coming out of a job interview here the other day. Anyway, she said her dad was at EU a couple of weeks ago for a big meeting with the people who manage EU’s investments. I guess EU’s endowment has done so well since the crash that the Chinese government wants to adopt our alma mater’s model! She said she really wanted the job at GFB so I told her I would put in a good word for her with the people in our commodities department who were deciding whether to hire her. I said the news about EU was really amazing and she should let me know if she heard anything else about it. So it turns out my little recommendation helped and Lidia and I are going to be colleagues—small world!”
After the call with Fran, Mark decided to do some research on EU’s investment management operation. He discovered that several analysts who specialize in the university endowment sector attributed much of EU’s recent success to a strategy of taking long positions in commodities markets, especially natural gas markets.
Mark called Wanda Burton. Wanda is the most senior fund manager at Headstrong and happens to be engaged to marry Mark. Mark told Wanda, “I know someone who knows someone who knows someone big in the China government fund. Go long on natural gas.” Wanda then instant-messaged Stacy Corrigan: “Gng lg big nat gas. Srce: go all in.” Stacy responded: “Source?” Wanda answered: “Lv it 2 me.” Stacy replied: “K.”
With Headstrong funds, Wanda then purchased $75 million in LongGas, a derivative securities product keyed to the price of natural gas. At about the same time, Mark called Martha Simpson, his personal investment manager at the Wall Street brokerage firm of BullStreet Partners, and instructed her to sell $1 million worth of securities in his account and invest the proceeds in LongGas.
Two weeks later, China’s sovereign wealth fund announced that it was repositioning a much greater share of its assets into the commodities sector, beginning with natural gas. China’s fund revealed that it had agreed to purchase several global natural gas production and distribution companies, worth billions of dollars. China’s move, coupled with the moves of investors who followed China’s lead, drove the price of LongGas up 10% over the next month.
At the end of the month, Mark instructed Martha Simpson to liquidate his holdings in LongGas, realizing a profit of $100,000. At about the same time, Stacy Corrigan instructed Wanda Burton to unwind Headstrong’s position in LongGas. Wanda then sold the entire position, realizing a profit of $7.5 million for Headstrong.
Mark’s call with Fran was recorded by a monitoring system at GFB. Mark’s call with Wanda was not recorded. Mark made a handwritten note about his call with Wanda. Two days after instructing Martha Simpson to purchase natural gas futures, Mark dropped the handwritten note in a bin in his office that his (unreliable) assistant empties from time to time into a container at Headstrong marked, “For pickup by ShredCo.” It is not presently known whether the note has been removed from Mark’s office and/or picked up by ShredCo.
A. You are a partner at one of the largest Manhattan law firms and one of the leading white collar and corporate crime defense lawyers in New York City. Mark Marcetoma’s mother is a partner at your firm. She asks you to meet with her son, who works at a hedge fund, and a couple of his business associates about a potential criminal and regulatory problem. You agree to do so, without making any commitment beyond having an initial meeting. The next day, Mark, Wanda Burton, and Fran Toupee arrive at your office and relate the above facts. Fran says that the SEC has been asking some questions about natural gas futures trading at GFB. Mark asks: “How likely is it that any of us could get prosecuted for anything here?” Respond.
B. Mark, Wanda, and Fran leave your office after Mark tells you that he will get back to you and let you know whether any of them wants you to represent him or her. The next day, you get a call from David Dunphy, who is the General Counsel at GFB. You have represented GFB in regulatory matters from time to time and you know Dunphy well. Dunphy relates the above facts. He wants to know: “What is the bank’s situation here?” Respond.
C. Dunphy says that he is going to talk to GFB management and its board of directors about whether they need to hire “an A-team” for this one and that, if so, he is likely to ask whether your firm wants to make a pitch for the representation. The next day, you get a call from Stacy Corrigan, whom you successfully represented ten years ago in an SEC enforcement action. Corrigan relates the above facts. She wants to know: “What is my situation here? Everything I have, personally and financially, is in Headstrong.” Respond.
D. You are an SEC enforcement lawyer who has been assigned to the Headstrong natural gas matter. You have access to the above facts. Your supervisor asks you: “Give me an idea of how you see this matter unfolding for us and how you think we should handle it.” Respond.
E. You are an Assistant U.S. Attorney in the Southern District of New York who has been assigned to the Headstrong natural gas matter. SEC personnel brief you and the United States Attorney on the above facts. After they leave, the U.S. Attorney asks you: “Give me an idea of how you see this matter unfolding for us and how you think we should handle the investigative and charging phases.” Respond.
F. You are still the Assistant U.S. Attorney assigned to the Headstrong natural gas matter. The matter has progressed substantially. The U.S. Attorney would like you to prepare a memorandum explaining what institutional and individual criminal penalties, if any, the government should seek and in what amounts— whether through litigation or settlement—and why. Draft the memo.
You have been out of law school for 10 years, practicing white collar and corporate defense at a major Washington law firm, where you are now a partner. Your friend Adele, whom you got to know well during her LLM year at your law school, calls you from Paris. Adele tells you the great news that she has been named CEO of LuxeBrands, a French public company in the business of manufacturing, marketing, and selling clothing and beauty products under several high profile fashion labels. Even better, Adele would like to retain you to provide LuxeBrands with legal advice.
Adele’s first question is this: “This is extremely confidential, of course, but I am considering options for moving our headquarters, place of incorporation, and stock market listing out of Paris. The cost of doing business in France is weighing us down. I would like to evaluate the U.S. as an option. A major concern is the prosecutors you have in your country, who seem to be mentioned in the business press more and more. What should I consider about the criminal law and enforcement situation in the U.S. as I weigh the decision where to move?” Write Adele an initial email responding to her question.
You are the Assistant Attorney General in charge of the Criminal Division at the U.S. Department of Justice. You must determine the appropriate resolution of the following three corporate cases. Explain your decision as to each case and what, if anything, you will require in the terms of any settlement; feel free to note any matters on which you will ask the line prosecutors for additional information and why.
(A) BankCo, a UK corporation with a branch office in New York, processed over $100 million in U.S. dollar clearing transactions for a client in Cuba between 2010 and 2013, in violation of regulations under the IEEPA statute relating to an embargo against business with Cuba that has since been lifted by presidential order. The conduct was limited to four employees who operated the bank’s Central American Client desk in London and one employee who processed the transactions in New York. The New York employee emailed a question to BankCo’s compliance department in 2011, asking about the permissibility of the dollar clearing transactions and never heard back. She took no further action and continued to process the transactions. In 2015, the government learned of the conduct through a whistleblower at BankCo; the whistleblower hired a lawyer who put the government in contact with her client.
(B) CasinoCo operates gaming facilities worldwide and is headquartered and incorporated in Nevada. CasinoCo’s facilities include a casino in Atlantic City, New Jersey. In 2014, a disgruntled kitchen employee opened fire with a semiautomatic rifle in the Atlantic City casino. Ten patrons of the casino and four employees were killed by the gunfire. In addition, the gunfire ruptured a fuel tank in a parking lot adjacent to a thin wall of the casino. Fuel from the tank flowed into a stream next to the parking lot, in violation of the Clean Water Act. Neither the exterior wall nor the fuel tank was constructed to the standards of local building codes—when built by another corporation from which CasinoCo purchased the facility in 2010. Investigation has revealed a memorandum in which CasinoCo’s outside security contractor recently recommended that CasinoCo ban firearms and install metal detectors at the entrances to all of its facilities.
(C) CellCo is a nationwide provider of cellular telephone services in the United States. In 2014, CellCo’s outside counsel contacted the Justice Department and reported that the company had discovered that at least 2,000 persons among CellCo’s sales staff—all of whom the company would fire—had engaged for several years in a process of “cramming” services on CellCo’s clients. These salespeople would sign up existing clients for additional monthly services charged on the clients’ bills that the clients did not request. The charges would be removed only if a client called CellCo to object to the additional services and request that the charges be refunded.
Explain whether or not Law Professor B could be prosecuted for mail and/or wire fraud in each of the following four scenarios:
(A) Prof B changes a student’s grade to give that student the highest grade in the class because that student is her research assistant and she is really rooting for the student to land a prestigious clerkship.
(B) Prof B changes a student’s grade to give that student the highest grade in the class because that student’s parents recently endowed a chaired professorship at the law school, which was conferred on Prof B and for which she feels immense gratitude. She also knows that this student had been struggling to land a job in the market and hopes the grade might help.
(C) Prof B changes a student’s grade to give that student the highest grade in the class so that the student will not follow through on a threat: to report Prof B for having changed grades in the past for improper reasons, unless she gives that student the highest grade in the class.
(D) Prof B changes a student’s grade to give that student the highest grade in the class because Prof B has fallen in love with that student, unbeknownst to the student. Four years later, the student has moved into the investment banking business, is doing very well, and feels sorry for an old, not rich professor. The student decides to drop an anonymous stock tip, based on material nonpublic information, in the mail to Prof B. Prof B does not know whom it came from but acts on it and makes a $500,000 profit on the trading.
Consider the following exchange among lawyers:
In-house lawyer: The FDA has sent us a preliminary letter request for “all documents relating to sales of Ablutex,” which is our new drug for anger management. We think they are beginning to investigate whether our salespeople marketed the drug for the off-label use of treating bipolar disorder. We have found slide decks that salespeople used that have slides about Ablutex but also slides about Bifidity, a drug for high blood pressure. Can we redact all of the Bifidity slides out of the decks before we produce the decks to the FDA? We don’t want the FDA to start digging into our marketing of another drug they are not even looking at.
Outside counsel: The request is for “all documents relating to sales of Ablutex.” I guess you could read that as either “only parts of documents that relate to sales of Ablutex,” or the FDA might take the view that it means “the entirety of any document that relates in any part to sales of Ablutex.” Your call, of course.
In-house lawyer redacted the Bifidity slides from the Ablutex decks before producing the decks to the FDA. Did he violate any federal statute relating to obstruction of justice? Analyze.
You are an associate at a large law firm that has been retained by HardwareCo to investigate allegations of foreign bribery in various of its operations in Asia. HardwareCo has not yet reported anything to the government. You are conducting a preliminary interview of Judith, an accounting employee who works at HardwareCo’s Seattle headquarters.
Judith explains that she supervises the booking of all payments connected to the company’s Asia facilities (and therefore her information makes clear that she will be an important witness in establishing any books and records violations in this matter). She says that 90 percent of the relevant records are kept in Excel files on the company’s servers that she accesses from both home and work. She further explains that she likes to work “old school” and do things by hand sometimes and that some of her calculations and backup work are on paper ledgers she retains for five years or so. Most of the paper ledgers are in her desk at the office but six or so are at her house, where she sometimes likes to work by hand in the late evenings.
Advise HardwareCo’s in-house counsel on whether any legal obstacles can be expected to prevent the government from gaining access to some or all of the records Judith describes.
Helen was a professor at X University Law School (XUL), a top-10 national school. XU is a large private research university located in North Carolina. Helen was an expert in corporate law who for many years had been teaching the courses in Business Associations and Securities Regulation at XUL. Helen had many devoted students who became associates and partners in the corporate law practices at large global law firms based in New York and Washington.
Early in the fall semester of 2017, Helen received a call from Roger, a former student who was now a partner at Drinkle & Casher LLP (D&C), a major corporate law firm in New York. “Hi Helen,” Roger said, “We are hemorrhaging associates these days and really need to show that we can hire the top students from the best schools. How about you put in the good word for D&C with a few of our 2L candidates who are currently holding offers. I’d really appreciate it. You did a great job on that last consulting gig you had with us. I’ve got another similar matter coming up and I’d love to have a good reason to throw it your way.” (Helen had billed $15,000 to S&C for her work on the last project.)
The next day in Business Associations class, Helen happened to be discussing a case in which D&C represented one of the parties. “That is the ultimate gold chip firm,” she said, “If I had an offer from them, I would jump at it.” Two students came to her office hours that afternoon and said they were weighing offers between D&C and several other comparable firms. In both meetings, Helen said, “Some people say all these firms are the same but it’s not really true. The people at D&C are just a level above everyone else.” Both students accepted their D&C offers.
One month later, Roger referred a consulting matter to Helen on which she ultimately billed $20,000 for her work. You are an Assistant United States Attorney in North Carolina. Will you prosecute Helen, Roger, X University, and/or Drinkle & Casher for wire fraud?
Generic Corp. is a pharmaceutical company incorporated in the United Kingdom with headquarters in London. Generic manufactures and sells Fentanyl spray, a prescription opioid drug approved by the U.S. FDA for the treatment of “breakthrough pain” in cancer patients—meaning pain that cannot successfully be controlled with other medications. (The drug is a “sublingual spray,” administered under the tongue, to be faster acting and more easily tolerated by patients who have difficulty swallowing.) Generic Corp. manufactures its Fentanyl spray at a plant located in Puerto Rico.
Generic designed and implemented a sales program in which the company’s salespeople offered honoraria to doctors who prescribed the Fentanyl spray in exchange for the doctors giving speeches at medical conferences in which the doctors would talk knowledgeably and positively about their experiences treating patients with Generic’s Fentanyl spray product. Generic implemented this program in both the United States and the United Kingdom.
In late 2016, when Generic’s sales of Fentanyl spray in the highly competitive opioids market proved disappointing, the company’s sales managers began applying greater pressure to the sales staff. As a result of management pressure and the response of the sales staff in the field, the program evolved so that doctors who were not top prescribers of the drug were cut off from speaking opportunities; doctors who became top prescribers were given more speaking opportunities. Salespersons were given budgets for honoraria, as well as the discretion to solicit doctors of their choosing to speak at conferences sponsored by Generic.
Bart is a doctor who operates a successful pain management practice in a large city, where he sees patients undergoing cancer treatment, as well as those with other painful conditions. Between 2011 and 2015, Bart received an average of eight speaking invitations, with honoraria, per year from Generic. In early 2016, Bart—frustrated with the slow insurance pre-approval process involved in prescribing Generic’s Fentanyl spray—began to switch to other companies’ opioid products. Bart received no more speaking invitations in 2016. In the first half of 2017, Bart moved back to treating patients with the Fentanyl spray and became a top prescriber of Generic’s product. Bart prescribed the drug to many of his patients, including many who were not in treatment for cancer. In the second half of 2017, Bart received eight speaking invitations and was paid $80,000 in honoraria by Generic.
You are part of a team of lawyers at a large law firm that has conducted an internal investigation for Generic Corp. into the above matter. Advise the corporation on its potential criminal liability in the following two scenarios:
(a) Under the Foreign Corrupt Practices Act if Bart is a London physician whose regular salary is paid by the United Kingdom National Health Services (a “single-payer” government health care system).
(b) Under the UK Bribery Act if Bart is a Los Angeles physician whose practice is located at the University of California at Los Angeles Medical Center, where he both treats patients and teaches courses in the UCLA Medical School, an arm of a public state university.
At State University, a major football school in U.S. State Q, an anonymous tip landed on the desk of Susan Swanson, the University’s General Counsel. The tip conveyed that an unidentified witness had seen a former assistant football coach, who ran a charitable organization that gave disadvantaged kids access to some of the activities of the university’s football program, showering in the football locker room with a young boy. According to the tip, the witness reported that both the former coach and the child were naked and the witness may have seen the former coach fondle the child’s genitals.
Swanson decided to conduct an internal investigation to determine whether any criminal conduct had occurred that could expose State University to liability. She identified two athletic administrators (Admin A and Admin B) and the University’s President (Pres) as three key individuals whose awareness and involvement, or lack thereof, might be pivotal to the University’s liability. She arranged to interview each of the three in sequence.
At the outset of each interview, Swanson explained that she was the University’s lawyer and that the witness could arrange to retain personal counsel if desired. She then conducted a brief factual interview with the consent of each. Admin A, Admin B, and Pres each denied having been informed of anything suggesting potential criminal activity on campus and stated that they recalled, at most, that there might have been concerns about “horseplay” with children in the locker room that led them to agree to bar the former coach from further activities on campus.
Swanson determined that there was no conflict between the University and the three witnesses. When a prosecutor in State Q later subpoenaed Admin A, Admin B, and Pres to testify before a grand jury, each witness asked Swanson if she could accompany them to the grand jury. Swanson agreed to do so, reminding the witnesses that they were also free to retain counsel. (Under the law of State Q, counsel is permitted to be present in the grand jury room but may speak only to the witness.) During the grand jury testimony, Admin B testified that he had been told by an eyewitness that the activity in the shower had been “sexual in nature” and that the former coach “may have fondled a child’s genitals.”
In addition, the three witness were questioned based on documents, including University Q internal communications, that tended to show that each witness was warned more specifically about the activities of the former coach than they admitted in the initial interviews with Swanson— interviews in which the witnesses also had denied knowing of any documents relevant to the matter. When each of the three grand jury witnesses was asked the routine question by the prosecutor, “Do you have a lawyer with you today?” each responded, “Susan Swanson.”
Some months later in its continuing investigation of both potential sex offenses and potential obstruction of justice, the state prosecutor subpoenaed Swanson to the grand jury as a witness. Swanson was asked many questions in the grand jury about her initial interviews with Admin A, Admin B, and Pres. In answering those questions, she disclosed the contents of those interviews, including the witnesses’ various denials.Admin A, Admin B, and Pres were indicted for offenses relating to failure to report a sexual offense against a child and obstruction of justice. State University’s legal situation remains subject to further investigation and negotiations. Provide a comprehensive assessment of Swanson’s conduct, including by analyzing whether she violated any rules or principles of attorney professionalism that covered in the textbook.
Some smaller professional and industry conferences are conducted pursuant to “Chatham House Rules,” which are designed to encourage participants to candidly share information, experiences, and expertise without fear of the potential for adverse professional and business consequences that might result from later attribution. Under the Chatham House Rules, “participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed.”
Alice, Chief Financial Officer (CFO) of a company that designs, builds, and markets blood testing devices, attended a biotech conference at a hotel in Boston that included 35 attendees. At the outset of the conference (and in the conference agenda and publicity), the moderator stated that the conference would be held pursuant to Chatham House Rules and read aloud the language above.
The first morning session included a discussion of promising developments in research on the use of a genetic engineering technology to slow the progress of Alzheimer’s disease. During the coffee break following this session, Alice was chatting with Bruce, CFO of Lucidity, one of the companies working on the technology discussed in the morning session. (Those who spoke during the morning session included a scientist employed by Lucidity.) Bruce said to Alice, “The breakthrough and marketing on this even closer than it might have sounded like in the talk. It’s incredibly exciting.”
One week after the conference, Alice was having coffee with Clara, a friend from business school who had recently lost her job in the financial industry. Alice said to Clara, “If you have anything left, you might want to put it long on Lucidity. Don’t tell anyone else this but they are a lot closer on that Alzheimer tech than they’ve been saying publicly.” Through a broker, Clara purchased $140,000 worth of Lucidity shares on the New York Stock Exchange. Three weeks later, Lucidity announced that it would be ready within six months to be the first company to go to market with the new Alzheimer’s technology. Lucidity’s stock immediately rose in value by 50%. Clara then sold all of her Lucidity shares, realizing $70,000 in profit.
You are a white collar defense lawyer in private practice. Alice has retained you to represent her and informed you of the above facts; she has further told you that Clara believes Clara’s trades are now under investigation by the Securities and Exchange Commission. Advise Alice fully on her legal situation and her options.
Maximo is a lawyer in the General Counsel’s office of Mycash, a rapidly growing California-based company that provides an app-based platform for personal money transfers among individuals. Mycash has attained high user popularity in the United States, Canada, and Mexico. Recently, Mycash began working hard to place its money transfer platform in Brazil. This effort, as in all countries, required passing several regulatory hurdles in the banking sector that would allow Mycash to offer transfers of Brazilian currency (reals), and to link the app to the bank accounts and credit cards of users in Brazil.
Juliana, a Mycash employee in Brazil, informed Maximo that she had succeeded in retaining one of Brazil’s most effective lobbying firms to assist Mycash with its regulatory efforts. The lobbyists told Juliana, she said, that the regular practice in the federal capital of Brasilia required that, once the company secured all of the necessary regulatory approvals, she would bring smart phones loaded with the company’s product (and a little cash preloaded into the Mycash app on the phones) to a final meeting at which licenses would be signed and issued. The phones would be given to the regulatory employees after the signing, as a token of the company’s gratitude for a smooth approval process. Juliana wanted to know if Maximo could approve this, and explained that the company risked running into costly hassles with officials later if it didn’t follow local practice.
Maximo told Juliana to go ahead with the phones. He told her to use cash from the Mycash local office’s petty cash account to buy the phones at a local shop instead of ordering them through any of the company’s regular suppliers. He further said, “If anyone happens to ask about any of this down the road, you know you don’t have to answer, right? Say you are relying on your Fifth Amendment right under U.S. law, which you have every right to do.” Juliana replied, “Thanks Maximo, really appreciate you giving me the comfort I needed on this. We are going to do great things for Mycash in Brazil.”
You are a partner at a major U.S. law firm. When another Mycash employee in Brazil was charged with a crime in an unrelated matter, Mycash retained you and your firm to conduct an internal investigation of all its operations in Brazil. You discovered the above facts in your investigation. Advise Mycash’s General Counsel on the company’s potential liability and its options.
During the internal investigation concerning Mycash’s operations in Brazil described in Question 14 above, the company’s U.S. outside counsel encountered an obstacle. Maximo fully cooperated with the internal investigation. But when the U.S. lawyers arrived in Brazil to interview Juliana, she asked to meet at the offices of a Brazilian law firm, where she appeared with personal counsel.
The U.S. lawyers explained that they represented Mycash and that their communications with Juliana were protected by the attorney-client privilege but that the privilege belonged to Mycash and the company could waive the privilege if it chose to do so. When questioning of Juliana commenced, she stated, “On advice of counsel, I will decline to answer any of the company’s questions today unless the company promises not to waive the privilege in its dealings with any American prosecutorial authorities as to any contents of today’s discussions with me.”
The U.S. lawyers excused themselves from the meeting for a break and placed a conference call to the lead partner on the investigation in New York and the Mycash General Counsel. They explained the situation and asked what to do. The General Counsel said, “I can’t promise no privilege waiver as a condition of interviewing our own employee about a potential crime—the government, if this comes to that, will hold that sort of thing severely against us. Tell this employee that, and that our hands are tied: regrettably, she will be fired immediately if she doesn’t answer your questions.” The lawyers informed Juliana of the General Counsel’s statements. She agreed to proceed “under protest that my rights are being violated.” A complete interview establishing the facts described in Question 2 followed.
You are a prosecutor in the Fraud Section of the United States Department of Justice (DOJ). Mycash disclosed the findings of its internal investigation in Brazil to DOJ and the matter was assigned to you. Based on the facts in Questions 2 and 3, provide your analysis of whether DOJ can and should charge Juliana individually.