It always comes when you least expect it – a government inquiry to investigate your business. While it may instill a sense of panic, there are steps you can take to make sure you’re in the best position possible when the investigation begins.

This blog series developed by Chrysty Esperanza, Litigation Counsel at Square, Inc., will address this main question: When you receive a subpoena, CID, or informal request from the government, how should you respond?


Cooperation and Voluntary Disclosure Issues – Benefits + Risks of Self Reporting

The Foreign Corrupt Policies Act (FCPA) unit at the DOJ recently enacted its Corporate Enforcement Policy. According to the policy, if a company self-reports an FCPA violation and cooperates fully and timely, there is a presumption of declination of prosecution.  However, there is an exception – the presumption will not apply if there are aggravating circumstances that warrant a criminal investigation, Continue Reading Battling Government Investigations Series – Cooperation and Voluntary Disclosure

It always comes when you least expect it – a government inquiry to investigate your business. While it may instill a sense of panic, there are steps you can take to make sure you’re in the best position possible when the investigation begins.

This blog series by Chrysty Esperanza, Litigation Counsel at Square, Inc., will address this main question: When you receive a subpoena, CID, or informal request from the government, how should you respond?


When Civil and Criminal Investigations Collide

Civil and criminal investigations are not as separate as you may think, and it is quite possible they may blend together.  While an internal investigation may be launched in response to a civil request from a government agency, the degree of cooperation between civil and criminal government agencies means an open civil investigation can easily trigger a criminal inquiry. When parallel civil and criminal investigations occur jointly, the government agencies may share the work and information from their respective investigations.  For example, a subpoena from the Securities and Exchange Commission (SEC) will always note that information discovered during the investigation can be shared with multiple agencies, like the Department of Justice (DOJ).  Continue Reading Battling Government Investigations Series – Civil and Criminal Investigations

It always comes when you least expect it – a government inquiry to investigate your business. While it may instill a sense of panic, there are steps you can take to make sure you’re in the best position possible when the investigation begins.

This blog series developed by Chrysty Esperanza, Litigation Counsel at Square, Inc., will address this main question: When you receive a subpoena, CID, or informal request from the government, how should you respond?


How do you find the right lawyer to conduct an internal investigation?

When an issue arises that requires an internal investigation, determining who handles the investigation may have a significant impact on the investigation itself. There are basically two options:  use in-house resources or hire outside counsel.  Usually, it is preferable to hire outside counsel, especially where the issues being investigated are serious or involve concerns as to management integrity.  Doing so conveys to the government that you are taking the investigation seriously.  Engaging outside counsel also provides more credibility where senior management are being asked to provide information, and demonstrates your appreciation and understanding of the complexity of the investigation.  It also conveys to senior management internally the seriousness of the matter.  In addition, outside counsel can provide a fresh and objective perspective on your internal practices and may even provide an opportunity to benchmark your business with industry standards and best practices of other companies. Continue Reading Battling Government Investigation Series – Find the Right Lawyer

At a recent panel organized by San Francisco’s Federal Bar Association, the San Francisco Regional Director of the Securities and Exchange Commission (SEC), Jina Choi, confirmed that the agency continues to focus on investor fraud in the pre-IPO private market space. Highlighting enforcement actions against the non-public Zenefits, Credit Karma, and Theranos[1], Ms. Choi reiterated the SEC’s commitment to aggressive oversight over “unicorns,” or privately-held companies valued over $1 billion. The SEC first announced its intent to step up enforcement in this space in a March 2016 speech by previous SEC Chairwoman Mary Jo White, and Ms. Choi reported that the current SEC leadership, led by current Chairman Jay Clayton, is equally committed to policing this “beat.”

The Compliance Gap has been closely tracking SEC compliance enforcement at privately-held companies, which began in earnest last fall when the SEC announced that the non-public human resources company Zenefits and its founder, Parker Conrad had agreed to pay a combined $980,000 to settle claims that the company intentionally misled the company’s Series B and C investors. The SEC alleged Conrad and the company had misled investors about the degree to which Zenefits complied with state licensing laws, resulting in a lowered valuation when the compliance failures were revealed.

In March of this year the SEC reported a first-of-its-kind settlement with Credit Karma, in which the company agreed to pay $160,000 to settle claims that it failed to provide its employees with the disclosures required by Rule 701(e) of the Securities Act.  Rule 701 requires that a company compensating its employees with stock options provide detailed financial and risk disclosures before the date of sale. The SEC alleged that Credit Karma sold approximately $13.8 million in stock options to its employees without providing the information required by Rule 701.

Just two days after announcing the Credit Karma settlement, the SEC also filed a complaint against health care company Theranos, company founder Elizabeth Holmes, and former President and Chief Operating Officer Ramesh “Sunny” Balwani. In the complaints the SEC alleged that the company, Ms. Holmes, and Mr. Balwani made false claims about the capabilities of the company’s proprietary blood-test analyzers, regulatory approval of the proprietary blood-test analyzers, and the company’s business relationships with the U.S. Department of Defense.  Theranos and Ms. Holmes agreed to settle the claims made by the SEC, but Mr. Balwani has chosen to litigate what will surely be a closely watched case.

Ms. Choi also highlighted the SEC’s new approach to devising inventive ways to punish investor fraud in the private space. For example, Ms. Choi noted that the agency required both company and individual settlement payments in the Zenefits and Theranos resolutions (Ms. Holmes agreed to pay $500,000 and Mr. Conrad agreed to pay nearly that amount).  Ms. Holmes was also required to forfeit her ownership interest in Theranos, and was permanently banned from serving as an officer or director of any publicly-traded company.  Ms. Choi indicated that these remedies were arrived at through significant consultations with allegedly defrauded investors.  This approach indicates a shift towards creative remediation schemes that reflect the wishes of alleged victims, and the perceived need for individual punishments in the privately-held company space where founders can be interchangeable with the companies they build.

[1] Farella, Braun + Martel, LLP represents an individual in connection with the Theranos investigation. This report contains only publicly available information.