The Good, The Bad And The Ugly: The Triangular Contest Over Privileged Information Relevant To Securities Litigation
Originally published in the Fall 2008 PLI Securities Law handbook
With SHIRLI FABBRI WEISS
The penultimate scene of Sergio Leone's classic The Good, The Bad And The Ugly (1966) portrays an existential conflict. Three characters-Blondie, or the Good (played by Clint Eastwood); Angel Eyes, or the Bad (Lee Van Cleef); and Tuco, or the Ugly (Eli Wallach)-are armed and dangerous, and at the climax of their long search for buried Civil War gold. The Good, who knows the name of the grave in which the gold is buried, apparently writes the name on a rock. He places the rock in the center of a stone circle, then slowly moves away, always looking at the other two contestants. Compelled by the invisible calculus of geometry, the three men each retreat to a vertex of an equilateral triangle formed in the circle, now transformed into an arena. Each man, equidistant from the other two, looks from one to the other, wondering who will shoot first, and whom, in order to eliminate a competitor for the ostensible rock of knowledge. Finally, after an interminable and tense wait, the triangular standoff ends: two of the men (the Good and the Ugly) confirm their status as conspirators and fire at the third man (the Bad), one (the Good) successfully and the other (the Ugly) in futility (as the Good has secretly removed the bullets from his gun). The victors exploit their access to the rock (and the fact that it has been denied to the loser) and divide the spoils, although not the Good demonstrates his leading role in the conspiracy and in so doing teaches the Ugly a lesson.
Leone's triangular standoff provides a metaphor for a contest in contemporary securities litigation that is more genteel in tactics, but with no less at stake: the contest for access to arguably privileged information relevant to an alleged securities fraud. In this metaphor, the contestants are the Government, primarily the Securities and Exchange Commission (the "SEC"); the Company, in our experience a public company; and the Officer, either a current or former officer of the Company. The rock is a composite, formed by two main categories of potentially privileged information: attorney communications contemporaneous with the events underlying the litigation, which may be evidence of a fraud or a defense to fraud ("contemporaneous privileged information"); and information developed by the attorneys representing a Special Committee or a Special Litigation Committee of the Company's board of directors, charged with investigation of the alleged fraud after the fact ("investigation privileged information"). This information is put up for contest when the Company produces the information to the SEC, and the Officer seeks its production.
In this contest, as between the Government, the Company, and the Officer, who is the Good, who is the Bad, and who is the Ugly? Of course, it depends on your perspective. In this article, we consider the perspectives of each contestant, and the arguments (in lieu of bullets) they bring to the metaphorical standoff.
The Government has taken and explained its positions on attorney client communications and work product produced to the government, from time to time, both in litigation and in policy releases, and hence there is objective evidence of its perspectives. We draw on that material as well as our inferences in commenting on its perspective here.
In the context which we address, the Government is most often the SEC, but the issues addressed here do not arise exclusively with the SEC. The SEC's inquiry into possible violations of law may be initiated with an informal or formal investigation and in fact may cease at the investigation stage, without further action, or the SEC may commence a civil lawsuit or administrative proceeding. A lawsuit increases the possibility of the metaphorical conflict over privileged materials, because it increases the stakes to the parties and provides an arena (the court) in which a contest may be fought. On occasion, the Department of Justice ("DOJ"), through a United States Attorney, decides that conduct potentially crosses the diffuse line that separates "civil" from "criminal" and also acts, by means of a criminal prosecution. Even where the DOJ does not prosecute, until and unless it has decided not to do so, the possibility that it will act is a factor the other parties to the contest must take into consideration. Hence, we focus on the SEC, but occasionally refer to the DOJ as well.
The SEC's perspective undoubtedly is that it represents the government and has only the interests of justice, in this context, the enforcement of the federal securities laws, at heart. The agency, of course, was created by statute-the Securities Exchange Act of 1934-to enforce the federal securities laws. The SEC has little direct monetary interest in the outcome of an investigation or litigation, although it may collect civil penalties, to be distributed either to the U.S. Treasury, investors (through the Fair Funds provisions), or the Company (through Section 304 of the Sarbanes Oxley Act). Monetary penalties are not its primary motivation, however, and hence, the SEC may contend, with some basis, that not only is it the Good: its motives are purer than Blondie's motives in Leone's classic tale, inasmuch as it searches for the existentially right outcome and not the buried gold.
If, hypothetically, the SEC is the Good, is it also (like Blondie) a "conspirator" or joint venturer with another contestant in this context, and if so the dominant partner in their joint venture? By policy, the answer to the former question is "yes." Once a potential fraud has been disclosed and an investigation has been commenced, the SEC historically has expected, if not demanded, cooperation from the Company. Indeed, the SEC encourages and rewards a Company that not only cooperates by waiving privilege and work product, but identifies and terminates alleged individual wrongdoers. The key word here is "alleged" which in this case means individuals believed by the Government or the Company to be, but have not been proven to be, wrongdoers. This perspective is reflected in a 2001 report of administrative action commonly known as the Seaboard Release, in which the SEC encouraged and rewarded an issuer's termination of the former Controller and the issuer's characterization of her as the "wrongdoer (without trial)." It also was reflected in the former internal guidance of the DOJ, the so-called Holder Memorandum (1999) and Thompson Memorandum (2003), which counted cooperation from the company, waiver of privilege, and a willingness to punish alleged internal wrongdoers are factors weighing against a decision to criminally prosecute a business.
It is understandable why the Government wants cooperation from the Company, up to and including production of privileged documents and work product analyses. The Company likely is the sole source of any privileged information contemporaneous to the events investigated. In addition, the Company, if the matter is sufficiently serious to warrant an internal investigation, also is a relatively unique source of after-the-fact investigation privileged information. Obtaining this information from the Company saves the Government time and effort, and may assist the SEC and DOJ in deciding whether to pursue claims or a prosecution in the matter. Hence, historically the SEC has been so willing to obtain the fruits of cooperation that it will enter into agreements with companies it is investigating which state that it agrees that production, to the SEC, by the Company, of ostensibly attorney-client privileged or work-product protected information, does not waive the protections of the privilege or work product doctrine as against third parties. This agreement sets the stage for the Company to have a colorable basis on which to contend that it retains protection of the information against production to any third party, that the production to the Government effected only a so-called selective waiver (discussed further below) that operates in favor of the Government but results in the preservation of protection from all others. If the Company and the Company enter into the selective waiver pact-as seen in the next section, the balance of incentives weigh in favor of the pact-the two parties become joint venturers, if only in the sense of sharing information and a common outlook as to third parties.
Once the joint venture has begun and the SEC obtains privileged information (the rock) to assist its investigative and prosecutorial efforts, what are the weapons in its arsenal if it decides to go forward? As the primary police force of the cadre of current and potential professionals who operate and monitor public companies: officers, directors, accountants, and (increasingly) attorneys, The SEC possesses unique weapons to fulfill this role. Unlike the Company, it can seek an order barring someone from serving as an officer or director of a public company in the future. The potency of this weapon may have been boosted in this decade, as the Sarbanes-Oxley Act amended the bar statute to change the standard from "substantial unfitness" to "unfitness." Also unlike the Company, the SEC may seek to enjoin someone from violating the federal securities laws. If the injunction pertains to the antifraud provisions of the securities laws (such as Section 10(b)), this has special effects on both the Officer and the Company. Issuers must disclose whether any executive officers or current or proposed directors were the subject of an injunction in the previous five years. This provides a disincentive for issuers to hire enjoined persons. Companies enjoined from violating the antifraud provisions lose the benefit of the statutory safe harbor for forward-looking statements for three years. The DOJ also holds the power to seek imprisonment and restitution, if it proves a violation of the securities laws. .
As between the SEC and the Company, the SEC, (like Blondie), also has effective and unique bullets if it decides that the Officer is the target, or if the Company balks at cooperation and the SEC instead decides to punish the Company by antifraud injunction or penalties. The DOJ has further powers, inasmuch as the power to prosecute quickly becomes the power to shut down a business, if and when applied to the Company. While enforcement of the law is assumed to be the primary motivation of the Government, it is not unreasonable to say that fairness to the objects of its interest is not necessarily (or perhaps even commonly) its goal. Fairness, hopefully, is imposed by the legal system in which it operates. The Government's goal, once it decides to sue, is to win
In one sense, the Company stands in the role of the Good in the metaphorical conflict of this article: it possesses knowledge, which is power. Like Blondie, the Company knows what is written on the rock, or at least thinks that it does. The Company has unparalleled, if not unique, access to privileged information created contemporaneously with the event under investigation. (The only other source would be former employees who recalled communications with an attorney, or for some reason retained attorney communications.) Beyond this, if the potential fraud is significant-for example, if the events have already been put at issue by a private class action or derivative lawsuit, or if questions raised by the potential fraud must be answered in order to conduct ongoing operations (such as the publication of financial statements)-the Company has an incentive to go beyond the historical record and develop investigation privileged information, either through a Special Committee or the regular company counsel. If the Company undertakes this internal investigation step, it may compel cooperation in the investigation from current officers and employees, and it has unique access to the employees and the corporate records. Conversely, the Company may deny access to information (or discourage it from being promulgated) to whomever it chooses to exclude.
All these advantages are real. In another real sense, however, the Company probably does not think of itself as being in a position of power. The possibility that a company has engaged in fraud, perhaps through its officers or directors rather than at lower levels of the organization, is not usually regarded as a favorable development or an opportunity. If there is the possibility of litigation, it should be addressed before an actual lawsuit is filed. If litigation has already commenced, it should be resolved as quickly and cheaply as possible, and on a global basis if possible. If litigation cannot be resolved cheaply or quickly, the Company's involvement should be minimized. For example, if the SEC sues the Officer, the Company should not take a position unless necessary.
It is due to its vulnerabilities, and to the unique weapons possessed by the Government (as discussed above), that the Company has a strong incentive to cooperate with the SEC-up to and including waiving privilege as to that agency. There usually is no upside for the Company to fight the SEC, and considerable downside in doing so. The Company assumes that it is not about to fall by the wayside a la Enron, and hence that it will continue as a repeat player in the public securities markets. The SEC surely will be there when the Company makes its next move in the game. Can the Company really be certain that if it tilts with SEC Enforcement, word of the tussle will not affect SEC Corporate Finance? If it does, will the Company's Forms 10-K (which are required), Forms S-3 (should it attempt to register additional shares), or Schedules TO-I (should it attempt a merger) be subject to greater scrutiny than they otherwise would merit? Doesn't the Company want to continue to use the safe harbor? Does the Company, by fighting the SEC in open court, want an adversary to develop discovery that will assist private plaintiffs? As the answer to all these questions is likely "no," we cannot think of a recent case in which a substantial, publicly traded company (as distinguished from over-the-counter companies) decided to fight the SEC rather than cooperate. Most companies rationally will decide to cooperate with the SEC, and end up as the Ugly, the relatively powerless member of the information-sharing conspiracy.
At the same time, however, the Company has independent interests that may be jeopardized by its cooperation. While the Company may not think of itself as the holder of power, it definitely conceives of itself as the holder of privilege. The attorney-client privilege is a significant element of corporate governance-indeed, it is significant to any person, natural or otherwise, who needs legal advice. All other things being equal, the default is to protect, not waive, privilege. And in the type of factual situation that gives rise to a Special Committee investigation and interest from the SEC, all other things are not equal: the same facts often give rise to a private class action or derivative lawsuit. If the contemporary privileged information is relevant to the underlying lawsuit, the Company has an incentive not to disclose it to private litigants. If investigation privileged information has been created, the Company not only wants to protect its privilege, it does not want to give its adversaries a head start, and a peek into its defense, by disclosing the results of the attorney investigation.
For these reasons, when the Company is compelled by the logic of its position to cooperate with the Government, it seeks to hedge its position and maximize its flexibility by the selective waiver agreement. The legal effect of this hedge, however, is tenuous at best. All but one of the Circuits that have reached the issue have rejected selective waiver. While some district courts have upheld selective waiver if it is based on an agreement, other courts-including the only appellate courts to squarely rule on the topic-strongly disagree. One cannot say that these decisions are counter-intuitive: it is a longstanding principle that the attorney-client privilege cannot be used as a sword and a shield; and if a Company is cooperating with the SEC in order to obtain lenient treatment, the parties appear to be adversaries, which strengthens the case for waiver of work product protection. Moreover, some courts have held that where the results of an investigation are disclosed to the Government in an attempt to win leniency, this effects a broad subject matter waiver, and calls into doubt whether the documents were privileged or work product in the first place.
Thus, the Company runs a risk that it will not be successful in its policy of submissive cooperation with the SEC that includes production of privileged material. If it is going to run that risk anyway, it is but a short step for the Company to increase the potential rewards of the strategy. A Company may be tempted to obtain a benefit from its alliance with the SEC by attributing blame to a high ranking officer., as SEC and DOJ pronouncements referenced above seem to suggest that finding a high ranking officer on whom to fix blame might be rewarded in cooperation credit. In considering whom to blame, there is the danger that the Company, through its board of directors, may be incentivized to protect its current officers and directors to the detriment of its former officers and directors. To add to the complexity, there are some legitimate circumstances under which under Delaware law, for example, current management may be favored over former management: the value of current management is a factor directors may consider in exercising their business judgment in deciding whether to sue management after a derivative lawsuit has been filed. Moreover, it is not entirely a surprise from an emotional perspective that a Company, if forced to choose, will stand by current management and directors rather than former management or directors. In other words, personal considerations matter.
However, the effect of all of these factors may be to make it more likely that a Company will attribute blame for an alleged violation of law to a former officer or director. It is at this point that cooperation with the Government may turn to something less savory, and the Company turns into the Bad, when viewed from the perspective of the Officer.
While many attorneys undoubtedly have considered the contest over privileged information from the perspective of the Government and the Company, few have considered how the Officer perceives the parties' respective roles.
From the Officer's perspective, the starting point is the unfairness of the process itself. The adjudication of a defendant as liable for securities fraud or "willful misconduct" for false or misleading securities filings is trusted by law only to juries, and where a defendant waives jury, to judges, both specifically empowered by law. Of course, the right to jury is a jealously protected constitutional right, and federal judges are isolated (in theory) from partisan influence by Article III of the Constitution. Despite its seemingly august title, a Special Committee of a Company (or other investigative body empowered by the Company) has no authorization under law to do anything. At the same time, however, it has the de facto power to ruin an individual, especially where it enlists the media and utilizes its special access to the Government via the type of "cooperation" discussed above. As Malcolm Gladwell has explained (to great acclaim), the first, instant impressions of a thing are often the ones that stick, even if the totality of the evidence would lead to a different conclusion. The Supreme Court long ago recognized that even the filing of a securities fraud lawsuit imposes reputational injury. This is even more true today, where the criminal penalties for securities fraud, and its perceived wrongfulness, have increased by nearly an order of magnitude.
Apart from these considerations, a Special Committee investigation, even if undertaken in good faith, has undeniably has limitations that can impede or prevent access to truth. It has no subpoena power, and cannot compel the appearance of witnesses or documents. Witnesses do not testify under oath. The rules of evidence are ignored, and innuendo and bias substitute for rationality, both in terms of testimony and when it is time to draw conclusions. Judges trained in the rules of evidence are the gatekeepers, and are expected to preclude innuendo, speculation, characterizations, argument and irrelevant evidence from reaching the trier of fact; the Special Committee process has none of these protections. An Officer targeted by an investigation cannot cross-examine witnesses in the process, a right which, in our system of justice, has been considered essential to ferret out truth and motive for well over 300 years. In the final analysis, even if the Officer has not been pre-targeted by the Company (as a result of the factors discussed above), he bears the risk of factual error in the process. In light of this risk, the Officer may well consider himself in contention for the role of the Good, because he knows what he did; he has the rock of knowledge.
The Officer's concerns about fundamental fairness do not stop with the Company. The Government, too, is not only a potential adversary: it is an adversary that may overreach, and in ways that affect the Officer's ability to defend himself. We referred to the Thompson Memorandum above, in discussing the DOJ's former policy on obtaining cooperation (including privilege waivers). The Thompson Memorandum was replaced as official DOJ policy in December 2006, by the so-called McNulty Memorandum. According to a leading commentator, the two key policy shifts outlined in the McNulty Memorandum are that federal prosecutors: (1) must obtain written approval before seeking a waiver of the attorney-client privilege and work product protection; and (2) generally may not consider a corporation's payment of legal fees to employees in determining a company's cooperation. The Government hardly had a choice in the latter policy shift: it had been excoriated by a district court for interfering with the Fifth Amendment and Sixth Amendment rights of former employees subject to a criminal prosecution as a result of their work for a major business (a national auditing firm) when the DOJ, following the guidance of Thompson Memorandum, pressured the business into abrogating its pre-existing policy of advancing legal fees to such employees.
The Officer's concerns with the Government are magnified by the prospects of an officer and director bar. Unless firmly committed to retirement, he has an interest in future service. As explained by a leading author on the topic of officer and director bars, this is a legitimate interest, and the SEC should not be able to deprive a person of his livelihood without showing good reasons why. The Officer's interests are not weakened by the change in the bar statute. According to the case of first impression on the statute, Congress "provided no guidance on the meaning of the term 'unfitness,' and has even failed to instruct courts regarding whether its deletion of the word "substantial" was meant to increase or reduce the government's quantum of proof." The only evident legislative history is that the change was made to address the SEC's concern that bars were not ordered even in egregious cases.
In sum, from the Officer's perspective, if the Company's investigation points a finger at the Officer and leads to an SEC lawsuit in which the Officer is cast in the role of the Bad, this is due to the collusion between the other two parties, not due to the merits of the case. An important corollary-not to be minimized in significance-is that if and once injury to reputation has resulted from this collusion, the Officer cannot recover his reputation unless he prevails, in some manner, in at least one of the lawsuits, and some believe that even prevailing will not recover his reputation.
SEC v. Schroeder: the contest is joined
Many of the factors considered by an Officer were (and remain, as of this writing) present in SEC v. Schroeder. In that case, the Company (here, KLA-Tencor) convened a Special Committee to investigate publicly disclosed suspicions of stock options backdating. Private class action and derivative lawsuits followed, and remain pending as of the date of this article. The Special Committee concluded and announced that intentional backdating had occurred, and that the retired CEO of the Company, had been "involved in the past retroactive pricing of stock options...." The Company produced both contemporaneous privileged information and investigative privileged information, including the final versions of interview notes, to the SEC, under a selective waiver agreement. In July 2007, the SEC sued Mr. Schroeder, based in substantial part on the Special Committee's conclusions. Mr. Schroeder has answered the complaint and denied all material allegations. In its Rule 26(a) initial disclosures, the SEC produced potentially privileged documents it had received from the Company, which includes documents created by its Special Committee.
To this point, SEC v. Schroeder was not that atypical of a Government vs. Officer case. What pushed the triangular contest over potentially privileged information to the forefront was something the Government may or may not have foreseen when it agreed to selective waiver: alleged documents on which the Company claimed privilege were cited and (partially) quoted in the SEC's Complaint (as well as in its press releases) and are integral to its claims. Moreover, counsel for Mr. Schroeder have argued that other communications with attorneys concerning the subject matter of the case are significant to Mr. Schroeder's defense. The Company, however, after having produced privileged documents to the SEC under the selective waiver agreement, asserted privilege over the contemporaneous privileged information, and privilege and work product protection over investigative privileged information. Hence, although Mr. Schroeder has all documents in the former category and some documents in the latter category, the Company's privilege assertions mean that he cannot ask any questions about those documents-including documents so integral to the SEC's case that they are referenced in the complaint. Mr. Schroeder also does not have access to all of the documents prepared by the Special Committee, in a case in which this type of investigative privileged information is especially significant, given the confluence between the SEC's case and the findings of the Special Committee.
Thus, the normally routine joint venture between the Government and the Company produced, in this case, a situation in which the Officer needs to see the metaphorical rock; that is, needs access to contemporaneous privileged information and investigative privileged information in order to prepare a defense. Defense counsel's initial response was to prepare to move to compel discovery, challenging the validity of selective waiver in this case. Upon further consideration, however, it became apparent that the barrier maintained by the Company to the defense's obtaining information vital to the defense was merely the final step in a process that had long been fundamentally unfair to Mr. Schroeder's defense. The SEC had gained the fruits of the Company's cooperation, and used it to draft a complaint against Schroeder. With the SEC's tacit approval, the Company was preventing the defense from obtaining discovery on which to defend the claim the Company effectively had precipitated against its former officer.
It was but a short step from the conclusion that the process embodied a fundamental unfairness to our client, to the contention that it rose to the level of a Due Process violation. On this basis, the defense moved to dismiss the case. In support, we drew an analogy to State secrets cases, in which cases are dismissed where the government's assertion of barriers to discovery prevents the defendant from inquiring into matters vital to his defense. We also drew guidance from California State court decisions which dismissed malpractice claims against attorneys, on the basis that the attorneys could not defend themselves without disclosing privileged information from their representations, which they could not do. While the SEC was not asserting the privilege in this case-the Company was-the SEC, by its selective waiver agreement, had knowingly created the conditions by which it alone could exploit privileged information. We argued that this amounted to an abuse of privilege and infringement of Due Process, equivalent to using privilege as a sword and a shield. The SEC had to choose between abandoning the privileged information in its case or waiving privilege in its entirety, yet it had had foreclosed the latter by agreeing not to assert that there had been a waiver, which in turn enabled the Company to claim no waiver. In this situation, Mr. Schroeder had been denied an "opportunity to present every available defense," in violation of Due Process.
The Court, the Honorable Judge James Ware, denied the motion to dismiss, but without prejudice. The Court recognized that the contemporaneous privileged information was vital to Mr. Schroeder's defense, and that he would be prejudiced if denied access thereto. The Court also agreed that the SEC, by the selective waiver agreement, was estopped from arguing that there had been a waiver; hence, only the Company could argue that there had not been a waiver. However, the Court agreed with the SEC's contention that before the case could be dismissed on the basis of Due Process, Mr. Schroeder had to exhaust his other remedies, by bringing the originally contemplated motion to compel. If, however, that motion (which will be heard in the first instance by the Magistrate Judge) is denied, the motion to dismiss can be considered again.
The standoff continues
The metaphorical standoff over privileged information relevant to a securities case in SEC v. Schroeder is far from over. We have now filed the motion to compel suggested by the Court. Barring a change of position, the standoff remains acute, as the Company and Mr. Schroeder have opposing positions on the scope of discoverable information. One difference, however, is that at this stage, SEC is now a passive actor; it cannot argue that there has been a waiver. In effect, in our playful metaphor, it is the Ugly, without real bullets to fire in the upcoming stage of the contest.
In the larger picture, SEC v. Schroeder renders the tensions inherent in the contest for privilege information in sharp relief, and may change the way parties conduct business. An Officer's initial attempt to bypass the conflict entirely by moving directly to a dismissal was unsuccessful. However, the Court's order leaves the possibility of dismissal very much alive, should the motion to compel be denied. If the motion to compel is denied and the motion to dismiss is granted, the SEC will undoubtedly reconsider its policy of agreeing to selective waiver agreements. This, in turn, may mean that the Company will be forced to choose between cooperating (including waiving privilege) without a selective waiver agreement, not cooperating at all, or something in the middle. If the motion to compel is granted, it will further call into question the viability of selective waiver, rendering the cooperation option perhaps riskier to companies. We also note that even if the long-standing efforts to endorse selective waiver by statute are finally successful, such a statute would not and could not remedy the Due Process issues caused by the use of potentially privileged information obtained through selective waiver against an Officer denied full access to that information. Finally-and we admit, hopefully- SEC v. Schroeder could raise questions about the appropriate limits of the mandate and discretion of Special Committees, in light of their power to shape public perception and the contours of SEC cases. In short, casting for the roles of the Good, the Bad and the Ugly is still open.
* Shirli Fabbri Weiss and David Priebe are partners in the San Diego and Silicon Valley offices, respectively, of DLA Piper US LLP. The opinions expressed in this article are not necessarily those of DLA Piper or any of its clients. The authors thank Jeff Coopersmith, Bradley Meissner, and John Clarke, Jr. for their assistance.
 No. C 07-3798 JW (N.D. Cal.).
 "The Government" may also include Congress, where an alleged fraud is of nationwide importance due either to its magnitude or as part of a category of frauds common to many issuers. Congress' perspective is beyond the scope of this article.
 15 U.S.C. § 78u(3); 15 U.S.C. § 78u-2.
 See Official Committee of Unsecured Creditors of Worldcom, Inc. v. Securities & Exch. Comm'n, 467 F.3d 73 (2d Cir. 2006) (challenge to SEC Fair Funds distribution plan rejected in connection with settlement of SEC case against bankrupt telecommunications company).
 See Securities and Exchange Commission, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 etc. Release No. 44969 (Oct. 23, 2001).
 See Larry D. Thompson, Deputy Attorney General, U.S. Dept. of Justice, Principles of Federal Prosecution.
 15 U.S.C. § 78(d)(2).
 15 U.S.C. §§ 78u(1)(d)(1), 78u(2).
 See Regulation S-K, Item 401(f)(3), 17 C.F.R. § 229.401(f)(3).
 15 U.S.C. § 77z-2(b)(1)(A)(ii); id. § 78u-5(b)(1)(A)(ii).
 See United States v. Cummings, 189 F. Supp. 2d 67 (S.D.N.Y. 2002).
 Contrast this to the IRS, where companies can and do protest tax decisions.
 Selective waiver was rejected in In re Subpoenas Duces Tecum, 738 F.2d 1367 (D.C. Cir. 1984); United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997); In re Steinhardt Partners, L.P., 9 F.3d 230 (2d Cir. 1993); Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414 (3d Cir. 1991); In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988); In re Columbia/HCA Healthcare Corp., 293 F.3d 289 (6th Cir. 2002); and In re Qwest Communications Int'l Inc. Sec. Litig., 450 F.3d 1179 (10th Cir 2006). The sole exception is the Eighth Circuit. Diversified Indus. Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1988) (en banc).
 In re Cardinal Health, Inc. Sec. Litig., 2007 WL 495150 (S.D.N.Y. 2007); In re Natural Gas Commodities Litig., 232 F.R.D. 2008 (S.D.N.Y. 2005); In re McKesson HBOC, Inc. Sec. Litig., No. C-99-20743 RMW, 2005 WL 934331 (N.D. Cal. Mar. 31, 2005).
 In re Columbia/HCA Healthcare, 293 F.3d at 302; In re Qwest Communications Int'l, 450 F.3d at 1184; In re Initial Public Offering Sec. Litig, No. 21 MC 92, ___ F. Supp. 2d ___, 2008 WL 400933, *7 (S.D.N.Y. Feb. 14, 2008).
 In re Syncor ERISA Litig., 229 F.R.D. 636, 645 (C.D. Cal. 2005); United States v. Bergonzi, 216 F.R.D. 487, 493 (N.D. Cal. 2003).
 See Cramer v. General Telecommunications & Elecs. Corp., 582 F.2d 259, 279 (3d Cir. 1979) (corporation may consider the harm to the relationship between it and the potential defendant if a lawsuit was pursued).
 See, e.g., Katheryn Hayes Tucker, Ex-Prosecutor Dishes Up Advice to GCs on Government Probes, Fulton County Daily Report, Oct. 19, 2007 ("Get friendly with the investigators. . . . Find out what they're looking for, whom they suspect, and when they think it happened. 'Your goal is to find out those individuals, separate them and if necessary toss them under the bus.'").
 See Malcolm Gladwell, Blink (Little Brown & Co., 2005).
 Of course, this is from Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975).
 See Broc Romanek and Dave Lynn, eds., Welcome Waiver Relief via DOJ's "McNulty" Memorandum, TheCorporateCounsel.net Blog (Dec. 15, 2006) (https://www.thecorporatecounsel.net/blog/archive/001322.html).
 See United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006).
 See Jayne W. Barnard, Rule 10b-5 and the "Unfitness" Question, 47 Ariz. L. Rev. 9 (2005).
 See Securities & Exch. Comm'n v. Levine, 517 F. Supp. 2d 121, 144 (D. D.C. 2007).
 Id. at 144-145, quoting S.Rep. No. 107-205, at 27 (2002).
 All references in the case are taken from the public record. The authors of this article represent the defendant in the matter.
 As of this writing, all parties have settled the class action case, and the settlement has been given preliminary court approval. The Company, speaking through a Special Litigation Committee, has reached settlements with four former Officers in the federal derivative case, and determined that claims should not be continued as against the other individual defendants. The settlements and request to terminate the lawsuit also are subject to court approval, which is being contested by lead plaintiffs.
 In particular, the complaint avers to an alleged memorandum discussing stock options ostensibly from the Company's General Counsel to Mr. Schroeder, and Mr. Schroeder's alleged reply. The SEC contends that the colloquy shows that Mr. Schroeder was aware of the consequences of alleged options backdating. Mr. Schroeder has denied all material allegations.
 Indeed, taking the Company's position to its logical extreme, Mr. Schroeder cannot testify as to those documents, lest he infringe upon the privilege held by a Company of which he was the CEO.
 See, e.g., Kasza v. Browner, 133 F.3d 1159, 1166-67, 1170 (9th Cir. 1998) (affirming grant of summary judgment against private plaintiff based on government's assertion of state secrets privilege; stating that "if the privilege deprives the defendant of information that would otherwise give the defendant a valid defense to the claim, then the court may grant summary judgment to the defendant") (quotation omitted); Fitzgerald v. Penthouse Int'l, Ltd., 776 F.2d 1236, 1243 & n.11 (4th Cir. 1985) (affirming dismissal of action between private parties on basis of state secrets privilege where "proof required by the parties to establish or refute the claim" encompassed privileged information, so merits of controversy were "inextricably intertwined with privileged matters").
 Solin v. O'Melveny & Myers, LLP, 89 Cal. App. 4th 451, 463-64 (2001) (a defendant "is entitled to present to the jury all relevant information consistent with whatever strategy best serves its interests," and it would be "fundamentally unfair" to prevent the defendant from presenting all "competent, relevant evidence to defend the malpractice claim," even though that evidence was subject to a privilege held by a non-party); McDermott, Will & Emery v. Superior Court, 83 Cal. App. 4th 378, 385 (2000) ("We simply cannot conceive how an attorney is to mount a defense in a shareholder derivative action alleging a breach of duty to the corporate client, where . . . the attorney is foreclosed, in the absence of any waiver by the corporation, from disclosing the very communications which are alleged to constitute a breach of that duty.").
 See Bittaker v. Woodford, 331 F.3d 715, 719 (9th Cir. 2003) (en banc) ("The court thus gives the holder of the privilege a choice: If you want to litigate this claim, then you must waive your privilege to the extent necessary to give your opponent a fair opportunity to defend against it.").
 American Surety Co. v. Baldwin, 287 U.S. 156, 168 (1932); Nelson v. Adams USA, Inc., 529 U.S. 460, 466 (2000) (reversing judgment against defendant on basis of Due Process Clause where district court proceedings "did not provide an adequate opportunity to defend against the imposition of liability"