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Statements During Settlement Negotiations As Evidence in a Criminal Trial

By Michael E. Clark
November 28, 2005

Your client, a corporate executive, is being investigated in connection with whether the stock of her employer was artificially inflated. The company is in a “full cooperation mode” with the SEC and the DOJ, and is negotiating the terms of a consent decree. You learn that the company's attorneys have met with DOJ and SEC attorneys and have admitted (as they felt was necessary to maintain credibility) to certain wrongdoing by various corporate employees. Can the company's statements during negotiations be used against your client, or are they protected by Rule 408 Fed. R. Evid.?

In today's environment, since companies rarely will risk going to trial in federal criminal cases, even if factually innocent, these issues will be encountered most often during the prosecution of former employees. Business entities facing possible criminal prosecution have too many strong incentives not to cooperate with government officials when called upon to turn over evidence, waive privileges, and identify wrongdoers. They cooperate in the hope of avoiding criminal exposure, although doing so often means placing some individuals in harm's way. And, since businesses badly want to negotiate resolutions short of criminal charges, the circumstances for their counsel to make incriminating statements during negotiations have increased. See, eg, the Securities and Exchange Commission's “Seaboard 21(a) Report” (available at www.sec. gov/litigation/investreport/34-44969.htm.) (in which the Commission outlined its requirements about the quality and degree of cooperation necessary for publicly traded entities to obtain some latitude); Commodity Futures Trading Commission's Enforcement Advisory: “Cooperation Factors in Enforcement Division Sanction Recommendations” (available at www. cftc.gov/files/enf/enfcooperation-advisory.pdf) (identifying and discussing cooperation factors that the Enforcement Division may consider when recommending enforcement sanctions for violations of the Commodity Exchange Act); and, the Department of Justice's “Thompson Memorandum” (available at www.usdoj.gov/dag/cftl/corporate_ guidelines.htm) (addressing factors that federal prosecutors should consider in determining whether business entities deserve leniency for cooperating with prosecutors and investigators).

Proposed Amendments to Rule 408

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