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Dennis E. Boyle

The destruction of a profitable, thriving company or the beginning of a lengthy prison term starts with a subpoena, or, more specifically, the response to a subpoena.  From the government’s standpoint, a subpoena is a powerful investigative tool used to gather documents. For many businesspeople and senior managers, they are viewed as an administrative inconvenience and an expense.  Once they conclude that they must comply with the subpoena, they frequently assign a junior clerical person to gather the requested information and forward it to the government. 

This is a mistake.  It may seem expensive to retain an attorney to handle something as mundane as “responding to a subpoena”, but the costs associated with an unnecessary federal investigation, a criminal prosecution, or ruinous fines, civil penalties, or prison are much greater.

Understanding the Investigative Process.

To understand why subpoenas are important, one must first understand how the government investigates matters.  Usually, the government will receive a tip from someone, frequently a former employer, a competitor, or even a loyal employee talking too much to the wrong people.  When the government receives this tip, it will conduct a preliminary investigation to determine if there is reason to open a formal investigation.  If it decides to open a formal investigation, it will look into its various data bases, conduct open-source searches, and interview people with knowledge of the company’s operations.  An investigation may last for months or even years.

At some point, the government will make its investigation known.  One of the ways it does this is by sending a subpoena requesting records to a company.  This subpoena can come from any one of a number of investigative agencies, and it is usually hand-delivered to the business.  It may be either a grand jury subpoena, or it could be an administrative subpoena. It usually gives the company an unreasonably short period of time to respond.

Subpoenas may be served on targets, subjects, and witnesses. A “target” is the entity or person the government suspects committed a crime.  A “subject” is an entity or person the government believes has significant involvement in the alleged crime but is not the target.  A “witness” is an entity or person who is not suspected of criminal activity but has information the government deems relevant to its case.  The government does not identify how it views the recipient of the subpoena in the subpoena itself, and the categories are not set in stone.  A company may be a subject but later become a target based upon further investigation.

As a hypothetical example, a financial services company may receive a subpoena from the Department of Justice (DOJ) or the Securities and Exchange Commission (SEC) for all records related to a particular client.  It may be the government’s initial belief that a fraudster in an unrelated pyramid scheme is using the financial services company to launder funds and that the company is merely a witness.  However, upon further review of emails provided to the government, the government may determine that the financial services company may have been aware of the fraud (or was “willfully blind” to the fraud[3]), and the company may move from being a witness to being a target.

Responding to the Government Subpoena.   

What should the company do when a subpoena is received? 

First, the highest levels of corporate management should be informed of the subpoena.  This should include the owner of a small company, the general counsel in companies having inhouse legal counsel, and corporate officers in companies without inhouse counsel. 

Second, any and all documents, whether written or electronically stored, must be preserved.  It is a serious felony to destroy documents that could be relevant to a federal investigation after a company becomes aware of an investigation.  The receipt of a subpoena is frequently sufficient to provide notice of the investigation.  There are many instances where companies and individuals who were not initially targets of a federal investigation become defendants in a criminal prosecution because of mistakes they made in responding to the investigation.

Next, the company should have the subpoena reviewed by legal counsel familiar with federal investigations to determine what other action needs to be taken.  Counsel will then determine what documents need to be produced.  A company is normally not permitted to withhold documents because they are incriminating, but documents that are privileged because of the attorney-client privilege or some other legal privilege may be exempt from disclosure.  There is an established process for reviewing documents and documenting the documents not disclosed and stating why they have not been disclosed.

We frequently see cases where companies fail to understand the seriousness of a subpoena and assign a junior person to find and provide documents to the government.  When issues later arise and we are called upon to help, we often find that the person providing documents did not document what documents were provided and what were not.  Even worse, they may even waive the attorney-client privilege.  This hampers our ability to respond properly to the government, and hurt the company and its owners, officers and employees.

Sometimes, a company will be concerned about the tight timeframe it has been given to respond to a subpoena.  These timelines are normally flexible, and if counsel is retained by the company to conduct a review, then counsel can almost always be able to obtain an extension from the government to allow for a proper review of documents.  Counsel can also frequently narrow the scope of the subpoena thereby reducing the number of documents that actually need to be produced.

The important thing to remember, however, is that subpoenas are very serious matters and need to be treated as such.  In the absence of an order quashing a subpoena, the company must comply with its terms and provide the information requested.

Beyond the Subpoena.

Responding to the subpoena is important, but even more important to the company is understanding the government’s investigation and determining a company or person’s criminal or civil exposure.  Only an attorney well versed in white-collar defense will be able to determine what conduct the government is looking into and what risks are associated with the investigation and then take steps to begin to mitigate any risk that does exist.

It is possible that a white-collar defense attorney may discover evidence of one or more criminal violations.  If this is the case, there are actions he or she can take to help the company avoid prosecution.  Often times, violations result from a lack of understanding of the law.  In these cases, it may be appropriate to institute a compliance program and conduct training to inform employees of legal requirements of which they may not even be aware. 

For example, let’s say, hypothetically, that a medical practice has mischaracterized billings to Medicare and that the government has issued a subpoena for medical records from the practice.  This may point to treatment that was “not medically necessary” or services that were “unbundled” to obtain higher reimbursement.  If counsel discovers a violation, there are several actions it can take before the government makes a charging decision.  It may wish to calculate the amount of reimbursement it improperly received and then voluntarily self-report the violation arguing that the violation was inadvertent and pay back the reimbursement it improperly received.  It may also wish to implement a compliance program or strengthen an existing program to prevent violations in the future.  Actions like these, in the right circumstance, can reduce the risk of prosecution.     

Final Words.

A subpoena should be viewed as a warning sign to a company.  It needs to be taken seriously.  There is a lot that can be done to reduce or eliminate the potential adverse results of a subpoena, however, if proper steps are taken. One of the first things the company should do is contact an experienced white-collar defense attorney.

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