|  | | 2006 News and Press Releases | | |
HEADLINE NEWS:
This Waiver Rule Is Unfair: Companies Turning Over Material To Government Investigators May Boost Their Risk Of Shareholder Lawsuits
Staff Writer - Business Week Online
Securities Mosaic. December 4, 2006
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EXCERPT: At issue: Qwest had turned over reams of material to the SEC and Justice Dept., which were conducting investigations of the company's accounting practices. Shareholder plaintiffs suing Qwest gained access to that material through an appeals court ruling, and Qwest was asking the High Court to overturn that appeals court decision. Investigation Targets in a Tough Spot The plaintiffs' argument? Once Qwest turned over those documents to the SEC and the Justice Dept., the company then couldn't use the defense of "selective waiver" to keep the documents from being produced to future third parties. In other words, the court agreed that Qwest had waived key confidentiality privileges once it produced the documents to the federal agencies conducting the investigations. Therefore, it could not resurrect these privileges under the selective waiver doctrine to prevent these documents from being produced to third parties. For Qwest and many other companies, it's a "damned if you do, damned if you don't" scenario. Qwest's dilemma: Cooperate with federal enforcement agencies to try and avoid prosecution, and you run the risk of open season on corporate data. Alternatively, the company could try to protect corporate information, refuse to waive legal privileges, and, as a result, it would face potentially lengthy and costly legal battles with the government that distract from bottom-line efforts. Ultimately, the market and shareholders want prompt resolution to such legal woes. Qwest is not the only company affected by the High Court's refusal to settle the issue. Thousands of public companies are conducting internal audits in wake of the options backdating scandal. More than 130 probes have been opened into stock option grant processes at U.S. public companies. As many as 2,200 companies may have backdated options, leaving them vulnerable to regulatory review and the threat of shareholder litigation. If these companies conduct an internal investigation to assess potential exposure, do they share their findings with the SEC or Justice Dept. to minimize their prosecutorial risks? If they do, the current case law means they are knowingly exposing themselves to shareholder class-action suits. It's the proverbial dilemma of being between a rock and a hard place. |
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