Alison Frankel

In Gupta case, U.S. must disclose Blankfein deposition prep

Alison Frankel
Mar 28, 2012 14:19 UTC

Jed Rakoff has bounced back quite nicely, thank you, from his appellate smackdown in the Securities and Exchange Commission’s collateralized debt obligation case against Citigroup. In the unlikely event you’ve forgotten, earlier this month the 2nd Circuit Court of Appeals stayed the SEC’s case before Rakoff, finding a strong likelihood that the government and Citi would prevail in their argument that the judge overstepped his bounds when he rejected their proposed $285 million settlement. Despite the notably critical language in the three-judge panel’s per curiam ruling in the Citi case, Rakoff, a U.S. Senior District Judge in federal court in Manhattan, seems undaunted in his determination to hold the SEC accountable. On Tuesday, he ruled that the agency must disclose documents used to prepare Goldman CEO Lloyd Blankfein for his deposition in the Rajat Gupta insider trading case.

Rakoff’s 10-page ruling, issued on the same day that he said the government can use wiretap evidence in the parallel Gupta criminal case, rejects the SEC’s argument that work-product privilege protects its preparation of Blankfein. The judge pointed to a 1993 case from the 2nd Circuit, In re Steinhardt Partners, and a 2003 ruling from the same appeals court, In re Grand Jury Subpoenas, in holding that the government waived its privilege claim when it voluntarily shared materials with Blankfein, a third-party witness. Rakoff said that Blankfein doesn’t have a “common interest” with the government in the Gupta case, so disclosures to him amount to “‘deliberate, affirmative, and selective’ use of work product [that] waives the SEC’s ability to now assert the privilege against the defendants.”

Here’s the fascinating backstory. At Blankfein’s deposition on Feb. 24, Gupta’s lawyers at Kramer Levin Naftalis & Frankel asked him standard questions about how he prepared to testify. Blankfein, according to Kramer Levin’s March 1 brief, revealed that on two occasions leading up to the deposition, he met with SEC lawyers, an agent from the Federal Bureau of Investigation, and prosecutors from the Manhattan U.S. Attorney’s office. At those two sessions, he said, prosecutors asked him 75 percent of the prep questions; the SEC asked the other 25 percent of the questions. Blankfein’s own lawyers at Sullivan & Cromwell, according to Kramer Levin, didn’t ask him questions at the two prep sessions with government lawyers. Blankfein also disclosed that government lawyers showed him 10 or 12 documents in advance of his deposition testimony.

The SEC cut off Kramer Levin’s questioning when Gupta’s lawyers tried to follow up with more questions about Blankfein’s preparation, claiming privilege. According to Kramer Levin’s brief, Blankfein’s S&C lawyer, who was also at the deposition, “made plain that the objections were the SEC’s alone and were not being asserted by the witness or Goldman.” Kramer Levin then took the matter to Rakoff, who asked for briefs after a joint phone call on the issue.

In Tuesday’s decision, the judge ruled that Kramer Levin may ask Blankfein follow-up questions about the government-led deposition prep sessions — and that the government must turn over to the defense any documents Blankfein was shown. (Interestingly, Rakoff disregarded one of his own old rulings, Morales v. United States, a 1994 case in which he upheld a privilege claim by prosecutors. The judge said he hadn’t considered Steinhardt when he ruled in Morales.)

Decoding Lloyd Blankfein’s retention of Reid Weingarten

Alison Frankel
Aug 23, 2011 18:34 UTC
The market assumed the worst Monday after Reuters’ great scoop on Goldman Sachs CEO Lloyd Blankfein bringing in Reid Weingarten of Steptoe & Johnson to represent him in the Justice Department’s investigation of the bank. Goldman’s share price fell almost 5 percent on the fear that Weingarten’s entrance signals that DOJ is getting serious about its follow-up to the April 2011 Senate subcommittee report on the financial crisis. In one sense, that’s reading way too much into the mere fact that Blankfein has brought in his own lawyer. It’s standard operating procedure for corporate executives at companies under investigation to have separate counsel. Consider the example of other alleged villains of the financial meltdown. Richard Fuld of Lehman, Joseph Cassano of AIG, Angelo Mozilo and David Sambol of Countrywide, John Thain of Merrill Lynch, Kenneth Lewis of Bank of America: they all have their own lawyers, and none of them have faced any criminal charges. Only Mozilo and Sambol even had to answer to the SEC.
Lawyers who represent corporations — Sullivan & Cromwell, in Goldman’s case — have a duty to the company. And though CEOs and other high-ranking executives often think their interests are exactly the same as the corporation’s, lawyers have to anticipate a divergence between what’s good for the company and what’s good for its leaders. A company under investigation might be best served by cooperating with prosecutors and turning over (for instance) its lawyers’ interview notes; execs may have conflicting interests. Even if they don’t, lawyers are supposed to avoid even the appearance of a conflict, so as soon as it’s clear that investigators are interested even in just interviewing an individual executive, white-collar defense lawyers will typically advise bringing in separate counsel.

A couple of cases from the last few years drove home that lesson. Proskauer Rose represented Allen Stanford’s Stanford Financial as the Ponzi scheme collapsed. Proskauer partner Thomas Sjoblom was in the room with Stanford Financial’s chief investment officer, Laura Pendergest-Holt, when she was interviewed by the SEC in 2009. Sjoblom told the SEC that he was representing the company, not Pendergest-Holt. But she ended up indicted for lying to investigators and obstructing justice based on that SEC interview. Pendergest-Holt turned around and sued Sjoblom and Proskauer, asserting that she was never told the firm wasn’t representing her. Sjoblom subsequently resigned from Proskauer. (Proskauer’s spokesman didn’t return my call.)

In another case, Irell & Manella represented Broadcom in an internal investigation of its stock options backdating practices. As part of that investigation, Irell lawyers interviewed Broadcom CFO William Ruehle. Irell was simultaneously representing Ruehle in two securities suits, and, he later said that he believed Irell was his counsel. But it wasn’t: when Broadcom decided to cooperate with prosecutors, Irell turned over its notes of the Ruehle interview. Ruehle was indicted and (among other things) blamed Irell for misleading him. The trial judge in Ruehle’s case, Cormac Carney, blasted Irell for breaching its duty to Ruehle, though the U.S. Court of Appeals for the Ninth Circuit later cleared the firm of wrongdoing. (Judge Carney eventually tossed charges against Ruehle for other reasons.)

So Sullivan & Cromwell and Blankfein are both better off now that the CEO’s interests are protected by another lawyer, even if Blankfein only brought in counsel for an interview with DOJ investigators. In that regard, we shouldn’t assume that Weingarten’s entrance necessarily bodes ill for Goldman or Blankfein. Goldman told Reuters Monday that this is entirely routine: “As is common in such situations, Mr. Blankfein and other individuals who were expected to be interviewed in connection with the Justice Department’s inquiry into certain matters raised in the PSI report hired counsel at the outset,” the bank said.