On the heels of the "New Obstruction" we discussed here (the indictment of executives for alleged false statements made to the company's outside counsel which was conducting an internal investigation of possible financial fraud) comes a development that will no doubt cause great concern on the lawyer side of the internal investigation world. According to this article from Bloomberg, SEC staff recently notified a former Brobeck, Phleger & Harrison partner that the SEC may file an action against him for his role in an investigation at Endocare Inc. The article states:
Exactly what [the lawyer] did to provoke the SEC isn't clear. Endocare issued a press release last year saying the probe he conducted found no "intentional wrongdoing by management." About a month later, Endocare said it was under investigation by the U.S. Justice Department and the SEC, which has since threatened to sue the company and its former managers.
The article notes that in a Sept. 20 speech, SEC Enforcement Director Stephen Cutler said that he was "concerned" that some lawyers hired to investigate signs of fraud might have helped cover it up.
We will be watching with great interest to see if the SEC decides to pursue this case and, if so, what exactly the lawyer-investigator allegedly did (or did not do) to prompt action by the SEC. As noted in the article, if the SEC proceeds with this case, other lawyers may think very hard before taking on company investigations. As one former SEC assistant enforcement director was quoted in the article as saying, "There will be some firms who look at this and say we will never do another. They'll think this forces them to choose between being defense counsel and doing these investigations, which are very difficult and messy."