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H,F # 3972973v1 SURPRISE GOVERNMENT INTERVIEWS – A CASE STUDY David M. RosenfieldJoseph P. Dooley CounselManaging Director Herrick, Feinstein LLPKPMG LLP.

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Presentation on theme: "H,F # 3972973v1 SURPRISE GOVERNMENT INTERVIEWS – A CASE STUDY David M. RosenfieldJoseph P. Dooley CounselManaging Director Herrick, Feinstein LLPKPMG LLP."— Presentation transcript:

1 H,F # v1 SURPRISE GOVERNMENT INTERVIEWS – A CASE STUDY David M. RosenfieldJoseph P. Dooley CounselManaging Director Herrick, Feinstein LLPKPMG LLP 2 Park Avenue345 Park Avenue New York, New York New York, NY (212) (212) April 16, 2008 Presentation to the Greater New York Chapter of the Association of Corporate Counsel

2 H,F # v1 Valuable tool designed to obtain critical evidence –May catch employee in a lie – employee is unprepared and facts may either be inculpatory or embarrassing Simultaneous surprise interviews prevent employees from “getting their stories straight” Minimizes the likelihood that the company can intervene and stop the interview The Purpose of the Surprise Interview

3 H,F # v1 What to Expect in a Surprise Interview Carried out by either criminal investigators (FBI agents) or regulators (securities, banking) Usually at employee’s home –Embarrassment factor may tempt employee to just get it over with If by phone, may seem less confrontational May also be attempted at the office during the execution of a search warrant or during a surprise regulatory examination 2

4 H,F # v1 What to Expect in a Surprise Interview (cont.) No Miranda warning required because not a custodial interrogation Normally two agents; notes are taken –No witness to support employee’s recollection of interview if it differs from agents’ recollection –Report will be prepared If no search warrant, agents may seek voluntary consent to search premises and/or computer Pocket subpoena may be served whether or not the employee submits to the interview 3

5 H,F # v1 Critical Legal Rights and Legal Concerns Employees are not legally required to participate in the interview –Unlike a subpoena where testimony is compelled –But some regulators can impose sanctions for failure to cooperate Employee is entitled to retain personal counsel or speak to a supervisor or company attorney 4

6 H,F # v1 Legal Rights and Concerns (cont.) Any statements made are not “off the record,” and can later be used against the company and/or the employee Lying to a federal agent is a crime –There are 1001 reasons not to lie, as 18 U.S.C. §1001 prohibits lying to or concealing material information from a federal official –Federal obstruction of justice statutes may also apply 5

7 H,F # v1 Case Study FBI Price-Fixing Investigation of Indiana Ready-Mixed Concrete Companies 6

8 H,F # v1 Background Beginning in July 2000, five of the largest ready-mixed concrete companies in the Indianapolis area entered into an illegal price-fixing conspiracy Secret meetings took place (including two inside a horse barn) at which company representatives agreed to fix prices 7

9 H,F # v1 Background (cont.) In October 2003, a manager of another concrete company who had been pressured to participate in the price-fixing conspiracy notified the FBI, and then cooperated This case became the Justice Department’s largest domestic price-fixing investigation ever Ten executives were sent to prison and fines totaling $35 million were levied A class action complaint was filed which is still pending 8

10 H,F # v1 The Raids and the Surprise Interviews On May 25, 2004, FBI and other law enforcement agents simultaneously executed search warrants at the offices of the five concrete companies, and conducted surprise interviews –Conspirators could not “get together and either destroy evidence and/or concoct a story to protect their culpability” Many conspirators lied to FBI agents and one even destroyed incriminating evidence –John Blatzheim invited agents into his home, shutting the door to a screened-in porch to avoid alarming his wife; Blatzheim then lied to the agents about his knowledge of price-fixing meetings 9

11 H,F # v1 The Raids and the Surprise Interviews (cont.) –Chris Beaver of Beaver Materials also lied to the FBI: Beaver... invited investigators in and offered them refreshments. He was calm and talkative, but he repeatedly denied any involvement. His wife was getting their children ready for school. Beaver... later said he had hoped authorities would leave without hauling him away in handcuffs as his children watched from atop the staircase. –Ricky Beaver also lied to the FBI during his interview at Beaver Materials’ offices, later recalling, “there were a lot of things racing through my mind – everything but the truth” 10

12 H,F # v1 The Deals, Pleas and Fines The first company in the door to cooperate was to receive amnesty Shelby Materials won the race, fully cooperated, and received amnesty for itself and two of its officers The largest company that participated in the conspiracy, Irving Materials, also cooperated and was given amnesty in markets other than Indianapolis –As a result of its actions in Indianapolis, however, Irving Materials pled guilty to a price-fixing conspiracy and paid a record $29.2 million fine; additionally, 4 Irving executives pled guilty The remaining companies and conspirators each had to either plead guilty or face a criminal trial –Company counsel need to recognize the potential consequences a company faces from a guilty plea 11

13 H,F # v1 The Indictment of Chris & Ricky Beaver and Beaver Materials On April 11, 2006, Beaver Materials, Chris and Ricky Beaver and John Blatzheim were indicted –Each defendant was charged with conspiracy to violate the Sherman Act (15 U.S.C. §1) by engaging in a price-fixing conspiracy –Blatzheim and the Beavers were also charged with having made materially false statements to agents in violation of 18 U.S.C. §1001, in that each had falsely denied knowledge of the price-fixing conspiracy 12

14 H,F # v1 The Indictment (cont.) On November 2, 2006, Blatzheim entered into a plea agreement with the government –Blatzheim pled guilty to the Sherman Act price-fixing charge against him, and the false statements charge was dismissed –Blatzheim was sentenced to nine months in prison 13

15 H,F # v1 The Trial, Sentencing & Appeal of Chris & Rick Beavers and Beaver Materials After a three-day trial that began on November 13, 2006, the jury found the defendants guilty on all counts –On February 9, 2007, the district court sentenced Chris and Ricky Beaver to identical 27 month prison terms and $5,000 fines –Beaver Materials was fined $1.75 million Chris Beaver appealed to the 7 th Circuit Court of Appeals, but the appeal was denied on February 4,

16 H,F # v1 Key Issues in Chris Beaver’s Appeal of his False Statements Conviction Chris Beaver argued that the government had failed to establish that his statements met the materiality requirement of §1001 –The 7 th Circuit held that to be material Beaver’s statements must have “had the tendency to influence, or were capable of influencing, the FBI’s investigation” Beaver argued that his false statements could not have influenced the FBI because his attorney had sent a letter to the government 3 days after the interview correcting Beaver’s misstatements 15

17 H,F # v1 Chris Beaver’s Appeal (cont.) The 7 th Circuit upheld the jury’s determination that Beaver’s false statements were material: –The attorney’s letter’s “vague language perpetuated Christopher’s lies by implying that someone else [at Beaver Materials] had misled the FBI” –Beaver could not avoid a §1001 conviction by correcting his false statements days after making them, as “§1001 contains no recantation defense” –The materiality of Beaver’s false statements had to be assessed as of the time he made them 16

18 H,F # v1 Conclusion As this case study demonstrates, the decision by a company employee as to whether or not to submit to a surprise interview during a criminal investigation is a critical one for both the employee and the company. Declining to do so, so that the employee has a chance to carefully review the facts and speak to an attorney, is usually the best choice. 17

19 H,F # v1 SURPRISE GOVERNMENT INTERVIEWS – A CASE STUDY David M. RosenfieldJoseph P. Dooley CounselManaging Director Herrick, Feinstein LLPKPMG LLP 2 Park Avenue345 Park Avenue New York, New York 10016New York, NY (212) (212) HF


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