Challenges In Asserting The Advice Of Counsel Defense

Originally published in a New York Law Journal special section - White-Collar Crime

The post-recession increase in complex white-collar investigations and prosecutions1 may increase the chance that white-collar attorneys will encounter a vexing conflict that looms, often unexplored, in many corporate criminal investigations: What to do when an individual employee's defense to criminal charges rests upon her reliance on the legal advice she received from in-house or outside corporate counsel. As a recent U.S. Securities and Exchange Commission case makes clear, an individual employee may find herself hamstrung in her ability to defend against criminal fraud charges if her corporate employer determines that waiving its attorney client privilege on the issue would not be in its self-interest. The conflict between an individual's Sixth Amendment right to an effective defense and a company's right to the preservation of its attorney client privilege is one with astonishingly little developed case law and breathtakingly large implications for individuals, their corporate employers, and the government.

Recently, the conflict between an individual's right to assert a reliance on counsel defense and a corporation's right to refuse to waive its attorney client privilege and turn over its privileged documents essential to that defense, was the subject of a motion filed in the Southern District of New York by the SEC. In SEC v. Stoker,2 the SEC sought to compel Citigroup to produce documents relating to legal advice that one of its employees, Stoker, claimed was relevant to his defense of a securities fraud case the SEC filed against him. Citigroup identified those materials as protected by Citigroup's attorney client privilege and refused to turn them over. In its motion, the SEC requested that, in the event the court found that the documents the SEC itself described as "relating to legal advice" provided by Citigroup's legal counsel to its employees were covered by attorney client privilege, "the Court should preclude [Stoker] from asserting as a defense that he reasonably relied on advice of counsel and further preclude [Stoker] from presenting any evidence, documentary or testimonial, referring to reliance on advice of counsel."3

Unfortunately for this legal analysis, the SEC's underlying motion papers were filed and remain under seal, and in mid-April the parties resolved the issue in an undisclosed manner and the SEC withdrew the motion, without any decision by the court. This type of quiet, agreed-upon resolution appears typical of the manner in which this conflict is often handled, because these situations present dire consequences for all parties involved. The defendant may be prevented from fully defending herself, thereby increasing the chances that she will be convicted of a charge she did not have the intent to commit. The corporation may find itself subject to a privilege waiver that it does not want and has not caused, and that may be interpreted broadly by civil plaintiffs and the government. And the government may be thwarted in its ability to test the defendant's claims and ensure that any charges it brings against the defendant are appropriate. It is no wonder that parties strive to discover a resolution, rather than risk an adverse ruling in such situations.

Law on 'Advice of Counsel' Defense

The advice of counsel defense allows a party to show good faith and negate liability for any crime that requires fraudulent intent.4 To successfully assert advice of counsel, the defendant must show that she

sought the advice of counsel in good faith; made a complete disclosure to counsel of all relevant facts she knew; and reasonably relied on...