Managing Parallel Criminal and Civil Proceedings: Beware of Waiving Privilege

Companies and attorneys should be wary when turning documents over to a governmental entity while in an adversarial relationship, even when a signed confidentiality agreement is in place. The risks associated with doing so took center stage last summer in a civil defamation case, Gruss v. Zwirn, when United States District Judge Paul Gardephe ruled that Zwirn Entities waived the attorney-client privilege when it disclosed portions of witness statements to the SEC as part of an internal investigation.

Beginning in 2006, the hedge fund Zwirn Entities launched an internal investigation following allegations of financial impropriety, which ultimately focused on the fund’s CFO. Outside counsel leading these investigations interviewed 21 witnesses and prepared privileged and confidential memoranda summarizing those statements. Those findings then were voluntarily reported to the SEC in the form of various PowerPoint presentations pursuant to a signed confidentiality agreement.
The fund’s CFO subsequently brought breach of contract and defamation claims against his former company alleging that statements made to investigators and regulators implicated him while minimizing the culpability of others within focus. After receiving the PowerPoint presentations in discovery, he sought the underlying attorney notes and interview summaries from defendants; defendants refused to produce them on the basis that they were protected by the attorney-client privilege and work product doctrine. A magistrate judge agreed, citing the confidentiality agreement with the SEC and the fact that the underlying interview memoranda – unlike the PowerPoint slides – never were produced.
District Judge Gardephe reversed the magistrate’s ruling, finding that production of the PowerPoint presentation did constitute a waiver of the underlying source material: “Excerpts of Defendants’ attorneys’ work product – the interview notes and summaries – were deliberately, voluntarily, and selectively disclosed to the SEC via the PowerPoint presentations. As a result, any work product protection associated with the factual portions of the interview notes and summaries was forfeited.”
Judge Gardephe’s opinion rejected strategic and manipulative assertions of privilege, and found that the confidentiality agreement at issue provided no meaningful protection to Defendants because it essentially granted the SEC discretion to selectively disclose materials at any time and to serve its own interests or gain tactical or strategic advantage. Thus, according to the court, through their voluntary disclosure to the SEC, defendants had waived any attorney-client privilege and work product protection that may have insulated the notes and summaries from discovery.
The takeaway from this case is that companies and attorneys must recognize the risks involved in disclosing findings of an internal investigation to the government. A delicate balance exists between confidentiality interests and successful defense of wrongdoing, and practitioners must exercise due caution in discovery production.
As seasoned attorneys who have handled numerous internal investigations as well as parallel civil and criminal/regulatory enforcement proceedings, Silverman Thompson Slutkin & White is well-versed in successfully walking the narrow tightrope that such proceedings often present. If you would like to learn more, please visit our Web site at or call Andrew C. White or William N. Sinclair at (410) 385-2225.

Contact Information