Sutherland has advised and defended clients facing numerous challenges on various fronts, including parallel civil litigation and criminal investigations, multi-district proceedings, putative class actions, Congressional investigations and hearings, regulatory investigations, internal investigations, shareholder direct and derivative claims, and corporate disclosure issues.
Issue: 2010 Gulf of Mexico Oil Spill.
Crisis: Within hours of the April 20, 2010 explosion on the Deepwater Horizon, numerous state and federal agencies began investigating the accident, and the company was inundated with inquiries from media, customers, investors, and other stakeholders. The client worked to help stop the spill and salvage the wreckage while answering the inquiries, complying with investigators, and helping its injured employees and the families of the missing and dead. The accident was followed by civil charges, civil litigation, and intense international media scrutiny.
Sutherland’s Services: Sutherland leads the client’s defense in all matters arising from the spill and advises the company’s executives and board on managing the crisis. Sutherland has counseled the client through inquiry by the media, Congress, civil litigants, state attorneys general, and multiple regulatory agencies. For example, Sutherland:
Issue: Antitrust claims of alleged collusion with principal competitor to allocate customers.
Crisis: Client was faced with a dawn FBI search, and it soon became evident that the company was facing a coordinated investigation in the United States and Canada, that its competitor was cooperating with the government, and that the crisis threatened the company’s financial viability as well as its long-term customer relationships.
Sutherland’s Services: Sutherland provided immediate assistance on compliance issues during the FBI search and continued to represent the company throughout the U.S. and Canadian investigations, including:
Issue: Multi-year short-selling campaign led by activist hedge fund alleging portfolio overvaluation.
Crisis: A well-known hedge fund manager gave a speech to a large institutional investor audience at a private evening conference about shorting the client’s stock – alleging improper valuation practices, improper accounting and disclosure, and fraudulent lending activity at the company’s largest portfolio company, which was itself a small business lender regulated by the Small Business Administration. The following day, the company’s stock experienced huge selling pressure with significant price drop, and the company was inundated with media attention, multiple class action suits, a three-year SEC enforcement action, a four-year DOJ investigation, and an SBA investigation.
Sutherland’s Services: Involved from the first day, Sutherland served as primary counsel to the company and was involved in every aspect of the crisis for more than eight years, including ongoing corporate disclosure, media management, investor relations, board communications, litigation, and regulatory investigations.
Issue: Six weeks prior to the scheduled release of year-end earnings, the company’s auditors flagged multiple instances of revenue recognition irregularities affecting subsidiary and parent company financials, crossing the company’s operations in Europe, North America, and South America.
Crisis: Auditors threatened to withhold certification of the annual financial statements unless satisfied that the issues were not material and did not impact the internal controls and the integrity of company management.
Sutherland’s Services: A rapid response team from Sutherland investigated the issues, determined individual responsibility, addressed accounting and internal controls issues, and quantified the impact of problematic transactions to the satisfaction of the auditors, resulting in timely release of the company’s financial statements.
Issue: Parallel investigations stemming from the subprime mortgage crisis launched by the SEC, FINRA and five U.S. state securities offices.
Crisis: As a result of the subprime mortgage crisis and questions concerning certain sales practices and fair valuation of mortgage-backed and other asset-backed securities owned by certain mutual funds, the client faced inquiry from the SEC, FINRA, and the states of Mississippi, Alabama, Kentucky, South Carolina, and Tennessee. Among other charges, the SEC alleged violations of the anti-fraud provisions of the Securities Act, the Securities Exchange Act, the Investment Advisers Act, and certain books and records violations. The SEC requested sanctions of more than $700 million.
Sutherland’s Services: Sutherland defended and guided the client through three years of investigations, ultimately settling all claims on the eve of trial for far less than the regulators had demanded, and for significantly reduced charges. The SEC dropped claims related to the Securities Act and the Securities Exchange Act, and the parent company was not charged with aiding and abetting or causing violations of sections of the Advisers Act. Additionally, all five states dropped all charges of fraudulent conduct as part of the combined settlement. Although FINRA alleged violation of its advertising rules, Sutherland’s strategies forced FINRA to withdraw its complaint, resulting in the parties signing an unrelated settlement. During the course of the investigations, Sutherland assisted the client with production of more than 1.8 million e-mails and attachments, 200 gigabytes of e-mail data, and 800,000 pages of documents. Sutherland negotiated the extent of privilege during investigations to protect client information, and prepared and defended 29 witnesses who gave testimony to investigative agencies.
Issue: Large series of related regulatory matters, class actions and arbitrations concerning investments that were alleged Ponzi schemes.
Crisis: The SEC filed federal court actions against our client concerning Regulation D alternative investments and the sufficiency of the client’s due diligence process. The investments were alleged to be Ponzi schemes that fraudulently raised more than $1 billion from thousands of investors.
Sutherland’s Services: Sutherland’s representation of this client has led to nationwide settlements of the class actions and related settlements of hundreds of arbitrations, resulting in significantly less exposure to the client. We also settled a state regulatory action brought by the Massachusetts Securities Division after four months of trial, resulting in the State abandoning all its fraud claims against our client.
Issue: An internal investigation and subsequent external investigation by the SEC into allegedly unlawful payments to foreign officials under the Foreign Corrupt Practices Act (FCPA).
Crisis: The SEC alleged that our client made a payment to a foreign official in Italy in exchange for favorable consideration in the selection of contracts for supplies and equipment. The SEC also claimed that the company’s COO approved a false invoice, claiming the payment was for consulting services in Switzerland. The company and the COO also were subject to a criminal investigation by the authorities in Italy. The company’s auditors threatened to withhold certification of the company’s financial statements, pending the resolution of the allegations into violations of books and records and internal controls provisions.
Sutherland’s Services: Sutherland guided our client through the internal investigation as well as the related SEC investigation, and the company settled all issues for $50,000 without admitting or denying the SEC’s allegations. Further, DOJ declined prosecution of the company.
Issue: Indictment of executives on criminal charges related to government construction and supplier contracts.
Crisis: The local district attorney executed search warrants at various office locations with no notice. The board immediately was inundated with media requests.
Sutherland’s Services: Sutherland serves as general counsel for the board, and in this crisis the representation involved the delicate separation of the board’s best interests from those of the former executives, who retained separate counsel. Sutherland established a crisis management team to coordinate with the client to address media issues, subpoena responses, employee concerns, and ongoing operational challenges.
Issue: Chemical Spill Response
Crisis: While the client’s chemical products were being shipped by rail, multiple railcars experienced integrity failures and released hydrofluoric acid.
Sutherland’s Services: Sutherland advised the client as to its immediate environmental reporting obligations, and coordinated with all governmental and private party interests to preserve evidence and conduct a comprehensive failure analysis. The firm also advised the client on the subsequent federal and California state administrative investigations, filed a lawsuit against the responsible party for the spills, and ultimately recovered a significant percentage of the client’s out-of-pocket expenses.
In the wake of the Deepwater Horizon trial, oil spill liability and compensation issues are being re-examined throughout the world. Sutherland partners David Baay and Peter Rodgers will speak on a panel at the upcoming ACC Energy Practice Group luncheon
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