Conducting Internal Investigations in Whistleblower Litigation

Conducting Internal Investigations in Whistleblower Litigation

Your general counsel walks into your office with a problem: a whistleblower complaint. Maybe it’s internal – an employee reported suspected fraud through your compliance hotline. Maybe it’s external – the DOJ just notified you that someone filed a qui tam lawsuit under the False Claims Act, currently under seal. Either way, you’re facing an internal investigation that will determine whether you report a violation, self-disclose to regulators, face massive penalties, or demonstrate compliance and close the matter. Every decision you make in the next 48 hours affects whether your investigation protects you or becomes evidence against you.

Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience representing corporations in federal white-collar cases – including False Claims Act matters, SEC investigations, and DOJ prosecutions triggered by whistleblower complaints. When a whistleblower allegation surfaces, companies face a ticking clock: conduct a thorough investigation quickly enough to demonstrate good faith, but carefully enough to preserve attorney-client privilege and avoid creating documents that prosecutors will use against you. Here’s what actually happens during these investigations, how privilege protections work in practice, and what choices you face when deciding whether to disclose your findings.

The First 48 Hours

Establish communication with the whistleblower immediately – failing to respond within days creates the appearance you’re ignoring credible allegations. But “immediate response” doesn’t mean hasty investigation. In-house counsel must develop a plan ensuring the investigation will be thorough, objective, and credible – because if this ends up before DOJ or SEC, they’ll scrutinize not just what you found, but how you looked for it.

First decision: who leads the investigation? If the allegation involves senior executives, in-house counsel creates conflict problems. External counsel provides independence regulators respect, but costs more and lacks institutional knowledge. Most companies use outside counsel to direct the investigation and preserve privilege, while in-house counsel provides operational support. Establish at the outset that the investigation is being conducted to obtain legal advice – this frames everything that follows as privileged communication rather than routine business documentation.

Document preservation comes next. Issue a litigation hold immediately – before anyone involved knows they’re subjects of investigation – covering emails, text messages, internal communications, and financial records related to the allegation. Courts have sanctioned companies that waited too long to preserve evidence, interpreting the delay as spoliation. Simultaneously, you’re making a strategic choice: do you notify the whistleblower that you’re investigating, or conduct it quietly? Notification demonstrates good faith and cooperation, but it also tips off potential wrongdoers who might destroy evidence or coordinate their stories.

Privilege Protection Under Pressure

Here’s the paradox: you want your internal investigation to demonstrate compliance and cooperation with regulators, but you also need to protect the findings under attorney-client privilege in case the investigation reveals serious violations. These goals conflict. Attorney-client privilege shields communications between an attorney and client made in confidence to obtain legal advice. Work product protection applies to materials prepared in anticipation of litigation. If you conduct your investigation primarily for business purposes – to fix operational problems, satisfy auditors, or prepare public disclosures – courts may find it wasn’t primarily for legal advice, destroying the privilege.

DOJ and SEC have become increasingly aggressive probing privileged information, emboldened by court decisions ordering disclosure. They’ll argue your investigation was conducted for business purposes, not legal advice. They’ll point to compliance officers – not lawyers – directing the investigation. They’ll note you shared findings with auditors or in SEC filings, arguing these waived privilege. One circuit court found an investigation wasn’t privileged when it was conducted because the auditor wouldn’t sign the 10-K, rather than because of anticipated enforcement action.

To preserve privilege: have outside counsel visibly lead, document at each stage that you’re seeking legal advice in anticipation of litigation, limit distribution to attorneys and essential personnel, mark all documents as privileged, and create separate non-privileged factual summaries for business purposes. None of this guarantees protection, but it positions you to fight disclosure demands.

Interview Strategy

The bulk of your investigation consists of document review and employee interviews. Interview strategy determines what information you uncover and whether your investigation withstands later scrutiny. Start with the whistleblower if possible – understanding their specific allegations, what evidence they have, and who else might have knowledge shapes the entire investigation. Some whistleblowers provide detailed, specific allegations with documentary support. Others offer vague concerns based on suspicion rather than evidence. Frontline managers often discount whistleblower credibility merely because they lack documented support, but that’s a mistake – allegations that initially seem unfounded could be the tip of the iceberg.

Next comes the accused. If the whistleblower complaint names specific individuals, you need to interview them – but with careful attention to their rights and your potential liability. Give Upjohn warnings: explain that you represent the company, not them personally; that the conversation is privileged but the privilege belongs to the company and can be waived; and that they should consider retaining personal counsel. These warnings protect the company from claims that you created an attorney-client relationship with the individual, but they also tip off subjects that they’re under investigation, potentially prompting them to lawyer up and refuse cooperation.

Witness interviews follow. Identify everyone with knowledge of the alleged misconduct – not just those the whistleblower named, but those who worked in the relevant department, had access to the systems involved, or might have observed the conduct. Interview them before they can coordinate stories with the subjects. Ask open-ended questions, avoid leading them to conclusions, and document contemporaneous notes – because if this case proceeds to litigation, defense lawyers will demand your interview notes, and any indication that you steered witnesses or predetermined conclusions undermines your credibility.

Disclosure Decisions

Your investigation concluded. You found evidence of violations – maybe billing errors that implicate the False Claims Act, maybe securities fraud that triggers SEC reporting obligations, maybe something that doesn’t rise to criminal conduct but represents serious compliance failures. Now what? Self-disclosure to government authorities earns cooperation credit under DOJ and SEC guidelines, potentially reducing penalties and avoiding criminal prosecution of the entity. But self-disclosure also hands prosecutors a roadmap to your violations, waives privilege over investigation materials, and commits you to a cooperation posture that may require you to provide evidence against your own executives.

Calculate the risks: what’s the likelihood regulators will discover these violations independently? The DOJ recovered over $2.9 billion in False Claims Act cases in fiscal year 2024, with whistleblowers filing close to four new FCA cases every day courts were open. If there’s already a qui tam complaint under seal, the whistleblower has presumably provided detailed evidence to DOJ – they know about this already, making non-disclosure futile. If it’s an internal complaint not yet reported externally, you might have time to implement corrective measures, conduct restitution, and strengthen compliance before regulators learn of the issue.

Some companies split the difference: implement corrective measures without formal self-disclosure, gambling regulators won’t discover the issue independently. This works when violations are isolated and fully correctable. It fails when violations are systemic or likely to be discovered – then you’ve lost cooperation credit while still facing full liability.

When Your Investigation Becomes Evidence Against You

The worst outcome: conducting an internal investigation that uncovers serious violations, failing to self-disclose, and then facing prosecution where your own investigation materials become the centerpiece of the government’s case. Courts have ordered companies to produce investigative materials when companies voluntarily disclosed portions of the investigation to regulators – courts found that selective disclosure waived privilege over related materials. The more time that passes between an event and initiation of investigation, the less likely courts will agree it was conducted in “anticipation of litigation” and thus protected as work product.

Companies also face the “taint” problem: if your investigation identified specific evidence or witnesses, and you later claim attorney-client privilege over investigative materials, prosecutors can often obtain that same evidence independently through subpoenas and develop the same witness testimony through their own interviews. Your privilege claim prevented them from seeing your analysis and conclusions, but it didn’t prevent them from finding what you found. In that sense, the privilege protected your strategic thinking but not the underlying facts – which is exactly what privilege is supposed to do, but it means investigations don’t shield you from liability when evidence of wrongdoing exists.

At Spodek Law Group – we’ve represented companies facing whistleblower complaints that triggered internal investigations, defended executives implicated by those investigations, and represented whistleblowers whose complaints led to major recoveries. Investigations conducted properly provide roadmaps for remediation, cooperation strategies with regulators, and defensive positioning if prosecution follows. Investigations conducted improperly create documents that prosecutors will read in court while asking juries whether your company knowingly ignored fraud. The difference between these outcomes comes down to planning, privilege protection, and understanding that every investigation document you create could end up as an exhibit in a criminal trial. If your company is facing a whistleblower complaint or considering whether to launch an internal investigation, we’re available 24/7 at 212-300-5196 to guide you through the process before you create evidence that can’t be undone.