To Settle or Not to Settle – That is the Question
“Most regulatory enforcement actions result in
pretrial settlement,” said Mark Sullivan, Grant
Thornton’s Fraud and Investigations Services
leader. “These cases almost always settle - very
few actually go to trial.”
The reasons supporting a decision to settle can
be complex and diverse. In many cases, it is simply
the least painful option. As one roundtable attendee
put it “…it’s become a risk mitigation process.”
The members of the roundtable cited a number
of reasons that companies are reluctant to fight
regulatory enforcement actions:
• Boards of directors are risk averse. The safest
strategy is to settle and move on. While
settlements are expensive, boards understand
that uncertainty roils markets and are not willing
to fight. Additionally, pushing back often requires
going “over the head” of lower-level investigators,
which risks creating enemies who could make
things difficult for the company later. As this is
evident in the comment of one of the roundtable
participants who stated, “…my board will not
take a chance unless we are sure of a quick win.”
• Expense, time and energy. Defending against an
investigation is expensive and time-consuming.
Driving this point home, Fitzgerald mentioned
that the expense of consulting and legal fees at
times approaches or equals the resulting fines
and penalties.
• Focus. As one attendee remarked, “It’s appropriate
for senior management to focus on regulatory
enforcement, but it absolutely does take some focus
away from other C-suite issues.”
• Being perceived as a bad actor. According to
Fitzgerald, the main thing prosecutors want to
know is, “Does the company ‘get it ’? Do they
buy into the fact that compliance is important?
S2 AUGUST 2013
for a position without being labeled as “…a company
that doesn’t get it.”
Advocate for Yourself Thoughtfully
and Professionally
The consensus among the roundtable participants
was that when a company believes it has done all
the right things, it is important to fight back – in
the right way. Work with regulators to limit the
scope of an investigation to substantially reduce
the time and cost of building a defense.
Roundtable members also discussed when to bring
in outside counsel during an investigation and
noted that it is important to retain a lawyer who will
be upfront with you, not one who tells you what you
want to hear. Fitzgerald added, “It can sometimes be
better to use outside counsel to take the government’s
temperature on key issues. It is important, to the
extent appropriate and possible, to make the discussions
with the government positive and not adversarial, even
where there is significant disagreement.”
Get ahead of the story rather than react
to it, as “the narrative is key.”
— Patrick Fitzgerald
Partner, Skadden, Arps, Slate, Meagher & Flom LLP
During the roundtable, Fitzgerald described some
steps that companies can take to effectively deal
with regulators during an investigation.
• If your company finds out about an issue, one
question to ask is whether there is a legal obligation
to report it arising out of a government contract,
regulation or other legal basis. If not, it is important
to ask whether the government is likely to find
out about it anyway—in which case self-reporting
gains credit for disclosing what the government
was already going to discover. But whether or not a
decision is made to self-report, it is critical that the
underlying issues be fully addressed. A company
never wants to be in the position of not having
remedied an issue.
