Personnel Aspects of the Investigation : A Polite Letter - Kabuki with Loaded Guns

1. Jeffrey M. Sone 901 Main Street, Suite 6000 Dallas, Texas 75202 (214) 953-6107 (214) 953-5822 (fax) jsone@jw.com Personnel Aspects of the Investigation:A Polite Letter - Kabuki with Loaded Guns Albon O. Head Jr. 301 Commerce Street, Suite 2400 Fort Worth, Texas 76102 (817) 334-7230 (817) 334-7290 (fax) ahead@jw.com

2. November 13, 1852 GREAT AND GOOD FRIEND: I send you this public letter by Commodore Matthew C. Perry, an officer of the highest rank in the navy of the United States, and commander of the squadron now visiting Your imperial majesty's dominions.

3. November 13, 1852 These are the only objects for which I have sent Commodore Perry, with a powerful squadron, to pay a visit to your imperial majesty's renowned city of Yedo: friendship, commerce, a supply of coal and provisions, and protection for our shipwrecked people. . . . Your good friend,MILLARD FILLMORE

4. Why An Investigation? • SECTION 10A (b) • 1. If, in the course of conducting an audit pursuant to this title to which subsection (a) of this section applies, the registered public accounting firm detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have a material effect on the financial statements of the issuer) has or may have occurred, the firm shall, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the Commission--

5. A. i. determine whether it is likely that an illegal act has occurred; and ii. if so, determine and consider the possible effect of the illegal act on the financial statements of the issuer, including any contingent monetary effects, such as fines, penalties, and damages; and

6. B. as soon as practicable, inform the appropriate level of the management of the issuer and assure that the audit committee of the issuer, or the board of directors of the issuer in the absence of such a committee, is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of such firm in the course of the audit, unless the illegal act is clearly inconsequential.

7. The Kabuki Begins • Audit Committee retains Independent Counsel • Why Independent? • Credibility • Consider basic Conflict Rule – Rule 1.06

8. Rule 1.06 • a lawyer shall not represent a person if the representation of that person: • (1) involves a substantially related matter in which that person's interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer's firm; or • (2) reasonably appears to be or become adversely limited by the lawyer's or law firm's responsibilities to another client or to a third person or by the lawyer's or laws firm's own interests.

9. What do they want from you? • Electronic Media • Physical Media • Interviews of employees, officers

10. Ethical Context – Rule 1.12 (a) A lawyer employed or retained by an organization represents the entity.

11. Legal Context • Sarbanes • Section 303 – Improper Influence on Auditors • Section 307 – Up the Ladder Reporting • Section 802 – Criminal Penalties for Document Destruction

12. Legal Context – cont. • Section 806 – Whistleblower protection • Section 1102 – Criminal Penalties for Impeding Investigation • Section 1107 – Criminal Penalties for Retaliation

13. WhistleblowersSection 806 Protects employees of companies with registered securities or who file reports under the securities laws who lawfully provide evidence or assist in the investigation of conduct that the employee “reasonably believes constitutes” federal mail, wire, bank or securities fraud laws, the regulations of the SEC or any other federal law relating to fraud against shareholders.

14. Employers, officers, employees, contractors, subcontractors, and agents may not “discharge, demote, suspend, threaten,harass or in any other manner discriminate” • Against any employee engaged in a “protected activity”

15. A “protective activity” is defined as providing information concerning a protected subject matter to: • a federal law enforcement or regulatory agency • a committee or member of Congress • a person with supervisory authority over a subject employee or such other person retained by the employer who is authorized “to investigate, discover or terminate [for] misconduct.”

16. Impeding an InvestigationSection 1102 • "(c) Whoever corruptly — • "(1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding; or • "(2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so, shall be fined under this title or imprisoned not more than 20 years, or both.".

17. RetaliationSection 1107 • e) Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both.

18. What do they want from you, again? • Electronic Media • Physical Media • Interviews of employees, officers

19. They also want • Coordination • Cooperation • No leakage

20. Document Preservation • Remember Section 1102 – no destruction • Document Preservation Memo to All Employees • Best Advice – keep it all, until the end

21. Electronic Media • Company Servers/shared drives • Laptops – Check Policy Manual • Personal Information • Information about competitors

22. Physical Media • Access to Accounting Records • Access to Personnel

23. Employee Interviews • Critical source of information • Issues for Company • Privilege • Sections 806 and 1107 – No Retaliation • Morale • Confidentiality

24. Employee Interviews - Politics • Leakage – Management • Leakage – Employees • Leakage – External

25. Prepare the employee • Pre Interview Meeting • Why? • Sections 303, 806, 1107 • Terms of Employment • Morale – set the tone • Message to the government, third parties

26. What to say • Talk to Regular Counsel – not investigation • Follow the Script • Keep your records • No debriefing!!!

27. Admonition You will be meeting in a few minutes with attorneys for the Audit Committee of our Board of Directors. They have been asked to inquire into revenue recognition issues that gave rise to the restatement of our first quarter results. They have been asked by the Audit Committee to gather information and to develop the legal advice that the Audit Committee has sought and to prepare for possible governmental investigations or litigation involving this matter.

28. These attorneys do not represent you. They only represent the Audit Committee and the corporation. We ask that you be completely truthful with them. They will use the information that you give them as they see appropriate. The report that they make may be shared, in part, with our auditors. The law provides penalties for persons who provide false or misleading information to auditors. You are being asked to meet with these attorneys because you may have information that they need to advise the Audit Committee.

29. Please do not hesitate to provide information to the attorneys, especially if you believe it may related to any wrongdoing by anyone. If you yourself have done anything wrong, you should consider speaking about that matter with your own counsel. Remember, the attorneys you are meeting with do not represent you and can not give you advice. Please let me know if you would like to postpone the interview until you have spoken to your own counsel.

30. You will not be punished, nor will your job status be affected, because you reveal any wrongdoing, or evidence of possible wrongdoing, by anyone to the attorneys in your interview or afterward. The law encourages you, and we encourage you, to be truthful, particularly under circumstance such as these. It is very important to the future of this company that complete, truthful information be obtained.

31. If you believe that anyone is trying to pressure you to be untruthful, or has or ever does retaliate against you for being truthful in these interviews or providing any evidence of wrongdoing, please contact me or ________________ immediately. This is very important. We will not tolerate any retaliation or other negative consequences for truthfulness or for providing evidence of wrongdoing in these interviews or otherwise. The law provides penalties for retaliation against persons who provide evidence or wrongdoing.

32. Do you have any questions before you speak to the attorneys?

33. These are the only objects for which I have sent Commodore Perry, with a powerful squadron, to pay a visit to your imperial majesty's renowned city of Yedo: friendship, commerce, a supply of coal and provisions, and protection for our shipwrecked people. . . . Your good friend,MILLARD FILLMORE

34. Recap – what is achieved? • What is going on? • Upjohn • Truthfulness is a condition of employment • Truthfulness is required by the law – 303, 1102 • Fair warning to retain personal counsel • Auditors will rely on information given – 303, 1102 • We will not tolerate retaliation – 806, 1107