Sonnenschein regularly conducts internal investigations of potential misconduct at the request of corporations, partnerships, boards of directors, independent board committees, and audit committees. These investigations cover a wide spectrum of substantive areas, which include securities, health care, Foreign Corrupt Practices Act (FCPA), money laundering, options timing and backdating, accounting, commodities, tax, banking and insurance. In addition, we advise clients seeking to implement or update compliance programs, ranging from records retention policies to specific regulatory requirements under the Foreign Corrupt Practices Act, securities laws and Sarbanes-Oxley.
How and when a company responds to allegations or evidence of internal wrongdoing can, quite literally, permanently alter the company’s future. These situations call for experienced and efficient advisors, counselors and investigators to guide companies through and around the many pitfalls they will encounter. Sonnenschein’s team of former federal prosecutors, government regulators and seasoned investigators and advocates fits that bill precisely.
Representative Engagements
- We represented a Fortune 500 electronic component manufacturer in an accounting internal investigation and SEC enforcement investigation. In the accounting internal investigation matter, the company’s auditor resigned after a dispute with the company’s CEO and CFO. The company restated five years of financial statements and went through a NASDAQ delisting proceeding. With respect to the SEC enforcement investigation, we represented the company through the internal investigation conducted by the board and defended the company before the SEC Enforcement Division and NASDAQ.
- We were asked to conduct an internal investigation for a client who suspected that the manager and assistant manager were violating company policies by reviewing other employees' email and computers without authorization from HR or the legal departments. There were multiple other allegations of violations of company policies. The investigation required multiple interviews and the review of information from employee computers. Because this industry is highly regulated, the investigation had to be done quickly and in confidence. We were able to find the information the client needed.
- We represented the special committee of the board of Biomet, Inc., investigating allegations of stock option back-dating. The investigation followed shareholder suits alleging misdating and took place against the backdrop of a $12 billion privatization.
- We advised an independent board committee of a manufacturing company investigating alleged accounting improprieties.
- We served as national coordinating and lead trial counsel to Prudential Financial in one of the most complex investigation, litigation and regulatory matters in American corporate history involving the company’s life insurance sales practices. We counseled the company’s board of directors and senior management in navigating more than two dozen putative nationwide class actions, a federal multi-district litigation in New Jersey, multiple state regulatory investigations (including a 35-state task force effort plus individual investigations by several other state DOIs and Attorneys General), a Southern District of New York U.S. Attorney’s Office inquiry, a formal NASD-R probe and multi-year negotiation, more than 1,300 individual federal and state court actions, and dozens of NASD agent arbitrations. The successful resolution of all of these investigations and suits enabled Prudential to proceed with the company’s demutualization plans.
- Our lawyers represented a financial advisor at UBS in an investigation by the Security Exchange Commission and the Attorney General of the State of New York into allegations that the advisors disclosed false information to customers who purchased Auction Rate Securities. We were able to achieve a very favorable result for our client.
- As part of a special committee investigation for a bank, we investigated alleged pressure on a loan officer to re-classify real estate loans.
- We investigated allegations of improper accounting practices and financial reporting on behalf of the audit committee of the Fleming Companies, Inc.
- We conducted an internal investigation for the audit committee of a major utility company with respect to alleged irregularities in reporting certain investments. The allegations had been made by the outgoing controller of the company.
- We conducted an internal investigation for the Prudential board relating to whistleblower allegations of value manipulation of real estate assets involving the chief appraiser of the company.
- We represented the board of First Merchants Acceptance Corporation, a NASDAQ traded corporation, in conducting an investigation relating to alleged financial fraud, and in connection with the related SEC investigation.
- We represented an independent committee of the board of directors of another NASDAQ listed company, CCA Industries, in connection with the proposed buyout of the CEO’S and COO’s respective employment agreements and equity interests in the face of a challenge by an activist hedge fund.
- Our lawyers represented an independent committee of a board of directors of a private company investigating allegations of improper self-dealing in the approval of a financing round.
- We represented a large public advertising firm in a Sarbanes-Oxley auditor independence inquiry conducted by the client’s audit firm and the SEC Enforcement Division. Following our own internal investigation, we persuaded SEC Enforcement, the Division of Corporation Finance and the Office of the Chief Accountant not to pursue action.
- We did an internal investigation of a major chemical manufacturing company and represented the company in a subsequent federal investigation of alleged false claims made in connection with a government contract.
- We conducted an internal investigation for a health care grant recipient regarding an employee’s misappropriation of federal grant funds and disclosed the misappropriation to affected federal agencies.
Cost Effectiveness
One of the biggest and most costly mistakes made in internal investigations is defining the scope of the inquiry too broadly. Such overbreadth results in not only excess professional fees, but substantial additional distraction of executives and critical company personnel. At Sonnenschein, our seasoned and experienced professionals isolate, hone in on, and refine the scope and nature of the critical inquiries. This results in efficient, timely and effective results. Of course, we also remain flexible and able to react to findings and evidence in the manner most beneficial to the client and its goals.
