Not too long ago, a lawyer or firm getting hired to conduct an internal investigation into a company's possible securities law violations was the beginning of a usually lengthy, no-lose gravy train.  Get a team together, map out all the documents and witnesses from which to gather information, bill heavily while collecting all of this information (and then while writing up a brilliant report), collect a big check, and move on.

Lately, however, some downside seems to be emerging in the internal investigation business.  We first observed in November 2004 that prosecutors in the Computer Associates criminal case charged the former CEO of the company with obstruction of justice based on statements he made not to any government official but rather to the company's outside counsel (Wachtell Lipton), which was conducting an internal investigation of the matter.  In a sense, the prosecutors' "deputized" the lawyers conducting the internal investigation by taking the position that a false statement made to an outside lawyer conducting an internal investigation is  obstruction of justice when the outside lawyer is doing the investigation with the purpose of giving that information to the government.

Next, we discussed in this post the SEC's reported Wells call threatening enforcement action against a lawyer who conducted an internal investigation into possible financial fraud at Endocare.  The underlying article did not say exactly what the lawyer did to provoke the SEC, but the company had earlier issued a press release last year saying the probe the lawyer conducted found no "intentional wrongdoing by management.''  The article referenced a speech by then SEC Enforcement Director Stephen Cutler, in which he stated that he was "concerned'' that some lawyers hired to investigate signs of fraud might have helped cover it up.

As also discussed in the article, one former SEC assistant enforcement director noted that if the SEC proceeded with this case, other lawyers might think very hard before taking on company investigations and  "there will be some firms who look at this and say we will never do another...."   Notably, the SEC does not appear to have proceeded with any lawsuit against the lawyer in the nearly year and a half since the Wells call was reported.

Most recently, an article by Lynn Hume in today's Bond Buyer states that the San Diego city attorney intends to sue the law firm Vinson & Elkins for an internal investigation report that he says was a "whitewash" that failed to hold city officials fully accountable.  The city attorney claims that V&E was part of an effort to "help the people that were under investigation escape responsibility because that's where the money was."