Government Once Again Sidesteps Ruling on its Role in Internal Investigation
The government (yet again) avoided having a district court rule that it had turned a private company into an arm of the state. The defendant, Anthony Blumberg, a former executive at ConvergEx Group LLC (“ConvergEx”), argued that ConvergEx should have to search for and give him any exculpatory documents uncovered or created during an internal investigation into securities fraud allegations based on the government’s alleged involvement in that investigation.1 Before the district court could decide on his request, Blumberg entered into what appears to be a sweetheart plea agreement. Because the government regularly works with companies during their internal investigations, this settlement avoided a possible ruling by the district court that other defendants could have used to require cooperating companies to turn over their (arguably privileged) investigation materials.
Blumberg, who originally was charged with eight counts of securities fraud, moved the district court to require the government to search for and produce any exculpatory material in ConvergEx’s files. As Blumberg highlighted in his motion, ConvergEx had received a deferred prosecution agreement following its internal investigation, in which the government extolled the company’s “extraordinary” cooperation and the company’s disclosure of misconduct that the government had not been aware of.2 Blumberg argued that ConvergEx’s extensive cooperation with the government during its internal investigation rendered the company’s files within the constructive possession of the government and therefore subject to searches for exculpatory material (i.e., a Brady search).
The district court held several days of evidentiary hearings to determine the nature of the relationship between ConvergEx and the government. Following those hearings — and before the court could rule on Blumberg’s motion — the parties reached an agreement under Federal Rule of Criminal Procedure 11(c)(1)(C), in which Blumberg would plead to a single count of securities fraud, the other seven counts would be dropped, and the court would be limited to a sentencing range between zero and eighteen months. The district court accepted the agreement and sentenced Blumberg to one day in prison, three years of supervised release, and no fine or restitution whatsoever.
As this case underscores, extensive participation by the government during internal investigations could result in companies and their outside counsel being saddled with discovery obligations that could require them to turn over their investigative memoranda in follow-on indictments as if they were government actors bound by the same discovery obligations the government has. Suggestions for best practices during internal investigations can be found in our prior post regarding another incident whereby the government sidestepped a potential adverse ruling about its relationship with a company in the investigations context.
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2 Id. at *17 (quoting ConvergEx’s Deferred Prosecution Agreement).
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