Federal Court Upholds Attorney-Client Privilege for Internal Investigations
The United States Court of Appeals for the D.C. Circuit has held that materials from an internal investigation directed by in-house counsel with a primary purpose of seeking legal advice are subject to the attorney-client privilege. The ruling overturned the District Court, which rejected privilege because the investigation was designed to comply with regulatory requirements rather than to seek legal advice. The Circuit Court explained: (i) the internal investigation was not less privileged just because it was required by regulation; (ii) obtaining legal advice must only be a primary purpose of the investigation, not necessarily the only purpose; (iii) outside counsel need not be involved so long as inside counsel directed the investigation; and (iv) interviews can be conducted by non-lawyers so long as they are acting as agents of the legal department.
OUR TAKE: Investment firms can assert privilege for materials arising from internal investigations required by the firm’s compliance manuals mandated by the securities laws. However, if a firm does want to assert privilege, the investigation should be managed by either inside or outside counsel. Regardless, it is less clear how the SEC could attack claims of privilege in administrative proceedings.