July 28, 2020

Watershed White Collar Decision? Assessing the Impact of U.S. v. Connolly One Year Later

A year ago, the talk of the white collar bar was the decision in United States v. Connolly, 2019 WL 2120523 (S.D.N.Y.). Presiding over the case in the Southern District of New York on May 2, 2019, Judge Colleen McMahon’s decision discussed the boundaries between the role of independent counsel and the government in internal investigations — and led some to speculate that it might fundamentally alter how companies conduct internal investigations, particularly as it pertains to cooperating witnesses.

Case Background

In 2010, Deutsche Bank retained a law firm to conduct an internal investigation into its role in London Inter-bank Offered Rate (LIBOR) manipulation, which was under investigation by the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). From the beginning, the government made clear to independent counsel that it expected regular updates on the internal investigation. The firm met the government’s expectations and provided detailed, weekly updates, and allegedly interviewed specific individuals at the government’s request. One such individual was Gavin Black. Black later claimed he had no choice but to agree to the interview, as he was forced to choose between termination by Deutsche Bank and cooperating with the investigation.

The information developed during the firm’s investigation eventually was submitted to the government in a White Paper, which laid out the findings and what amounted to a roadmap of a case against Deutsche Bank. Deutsche Bank later entered into a deferred prosecution agreement, earning extensive cooperation credit for the breadth of information provided to the government.

District Court Decision and Reaction

In 2016, a grand jury indicted Black on charges of wire fraud, conspiracy to commit wire fraud, and bank fraud in connection with the LIBOR manipulation. Before trial, Black argued that his statements to investigators could not be used against him because they were compelled by the government. The government did not end up using his statements at trial. Black was convicted and then challenged the conviction. Black argued that the bank’s independent counsel compelled him to answer their questions and, because of its close working relationship with the government, the government in essence compelled his statements in violation of his Fifth Amendment right against self-incrimination. Black argued that his prosecution was “predicated on and infected by those statements” because the firm and the government relied on his statements for investigatory leads.1 Judge McMahon agreed that the statements were compelled by conduct attributable to the government. Nevertheless, Judge McMahon upheld the conviction on the basis that the government did not use his statements and “they had no effect on the course of events leading to his indictment and conviction.”2 

Despite the fact that the conviction was ultimately upheld, this ruling sent shockwaves through the white collar bar. In seminar after seminar, panelists questioned whether the decision changed how to seek out information during an internal investigation and, perhaps more importantly, how to coordinate with the government while seeking cooperation credit on behalf of corporate targets.3 Legal publications have suggested the decision could lead to “meaningful changes” and a “shift” in the way companies conduct internal investigations.

One Year Later: Assessing Connolly Impact

So far, Connolly has not turned out to be such a watershed decision. To date, no other court has reached the same conclusion Judge McMahon reached in Connolly concerning statements given by an employee in an internal corporate investigation. To the contrary, other courts have rejected similar arguments.4 And, corporate targets have continued to coordinate with the government in order to seek cooperation credit. The government has continued to demand such cooperation. Although there is no doubt that cooperation with federal enforcement authorities remains a thorny issue, the Connolly decision has not materially impacted this balancing act.

Cooperation with federal authorities can yield substantial concessions and benefits in reaching a resolution. The Justice Manual, which guides the Department of Justice’s enforcement principles, contains an entire section on “The Value of Cooperation.” At the same time, though, the goal of the independent investigation should be to uncover the truth and identify a root cause so that a company can make the right decisions about remediation and, yes, even whether to cooperate with the government. Ultimately, while there can be value to cooperation, the goal is not simply to act at the government’s behest. Skilled white collar practitioners, including former prosecutors and enforcement attorneys, are well-positioned to avoid the pitfalls of interacting with the government and guiding clients through the attendant challenges.

  1. Id. at *1.
  2. Id. at *24.
  3. Id. at *14.
  4. As of this writing, very few courts have cited, let alone discussed Connolly. See e.g., United States v. Vorley, No. 18 CR 00035, 2020 WL 1166185 (N.D. Ill. Mar. 11, 2020) (addressing claim that statements were compelled, violating his Fifth Amendment privilege and rejecting defendant’s Connolly argument); United States v. Petit, 19-cr-850 (JSR), 2020 WL 582752 (S.D.N.Y. Feb. 6, 2020) (referencing Connolly, and requesting an order compelling DOJ to produce all correspondence and documents between the corporation and its counsel and government concerning the internal investigation as a precursor to a potential Connolly motion); United States v. Sharma, No. 18 CR. 340 (LGS), 2019 WL 3802223, at *5 (S.D.N.Y. Aug. 13, 2019) (rejecting defendant’s request for a taint hearing to determine whether the government received privileged information in the course of its investigation and the company’s cooperation).

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