The first indication that your business’s activities may come under the scrutiny of a state agency often is not a knock on the door or a phone call from an investigator or regulator. Frequently, your company will receive a warning in the form of a letter or email from a current or former employee alleging misconduct. Perhaps your business will notice a growing number of customer complaints either received directly or posted on the Internet. Or a routine audit may disclose what appear to be irregularities in the company’s books and records. The whistleblower may be a disgruntled employee, the consumer complaints may be a coincidence, or the audit may have merely disclosed sloppy recordkeeping. However, there may also be a real problem. Given the increasingly aggressive manner in which the state is policing businesses, advance warning may be an opportunity rather than an annoyance. Even in the absence of notice of possible violations, if your company transacts business in a field that is regulated, you should consider proactively creating policies to avoid regulatory problems and a compliance program. The cost of doing nothing may be substantial.
Florida’s Attorney General and the state’s regulators possess a statutory arsenal authorizing them to investigate businesses. Companies interacting with consumers and other businesses may be investigated based upon the Florida Deceptive and Unfair Trade Practices Act. Financial services companies such as banks, insurers, investment firms and mortgage brokers are heavily regulated as well. The Attorney General has investigative and enforcement authority over a wide range of business activities for the protection of the public. The Attorney General has the power to investigate and take legal action regarding mergers and acquisitions, securities offerings, advertising, pricing, consumer transactions, and the handling of electronic customer data to name a few. The Attorney General also has authority to investigate and take legal action against entities doing business with the state on allegations of presenting false claims for payment. Where such actions are filed by private citizens as a qui tam, the Attorney General can intervene. Investigations by the Attorney General include subpoena power and, in some healthcare matters, authority for on-site inspections.
In her long-range planning report to the Florida Legislature, Attorney General Pam Bondi stated that her office “expects to become more involved in qui tam actions.” She also emphasized continued pursuit of “complex civil matters” to “ensure that an illegitimate operation is put out of business for its unlawful conduct.” In describing the typical resolution of her investigations, she stated: “Many of these investigations, both multi-state and Florida only, produce large settlement agreements that direct substantial funds to the state or individual Florida consumers, while simultaneously putting a halt to improper trade activities.” The Attorney General cites to a “failure of the federal antitrust enforcement agencies to be as aggressive in enforcing the federal antitrust laws” as creating an “enforcement mandate” for increased involvement in this area by the nation’s state attorneys general. She further asserts: “This trend is also an important recent development with respect to multistate consumer protection enforcement, although it is not as apparent as with antitrust enforcement.” Consequently, enforcement actions by Florida’s Attorney General, indeed by state attorney generals throughout the country, will continue to rise. As an added incentive, Congress has granted state attorneys general authority to enforce certain financial industry rules promulgated by the Federal Consumer Financial Protection Bureau.
The Florida Department of Financial Services has recently expanded its criminal investigations to include false claims cases. This is in addition to its authority to investigate insurance companies for fraud on consumers, PIP fraud, workers’ compensation fraud, and unlicensed insurance activity. The Florida Office of Financial Regulation has a mission “to protect consumers from illegal financial activities” by investigating allegations of unlicensed activity and fraud by the businesses it regulates. The Florida Agency for Health Care Administration has implemented “enhanced data analytical subscription services” in order to better identify and prosecute Medicaid fraud and has plans to ramp up recoveries of overpayments. Virtually every state regulatory agency has identified the elimination or significant reduction of fraud, waste, and abuse as a part of their strategic plans for the next five years.
While no one can keep businesses out of the cross-hairs of the government, your business can be prepared for the day it comes under scrutiny. When the early warning signs of a problem appear, self-investigation is critical. However, if the investigation is undertaken internally, without counsel, the results of the investigation will not be confidential or protected by attorney-client privilege. In addition, management may not be aware of all applicable regulations and statutes.
Using an attorney to manage and oversee the investigation can ensure that the proper conclusions are reached. While management of an investigation by counsel does provide some attorney-client privilege and work product protection, such protection is not absolute. If in-house counsel manages the investigation, communications between lay employees in counsel’s absence may not necessarily be privileged. In addition, an investigation by in-house counsel may lack independence and the results may be subject to suspicion or greater scrutiny.
While using outside counsel to manage an investigation does not eliminate all these concerns, an experienced attorney can better assess the problems and propose potential solutions. Outside counsel can also assist your company in setting up compliance programs and policies even where there is no present violation. When the government does come knocking on the door, one goal is for the company’s advocate to be able to say, “Look at all the positive things we’ve done. If there’s a negative, we’ll fix it,” and, hopefully be held out as a model for other companies on how to do things right. Advocates can prepare their business clients for these events in several ways:
- Take consumer complaints seriously. Help make it a practice of your business to do so; help create a robust whistleblower and complaint hotline; train personnel on proper response protocols, including proper documentation.
- Where a complaint or internal audit reveals a risk of improper conduct, conduct a thorough self-investigation on behalf of your company with the assistance of counsel. Develop internal investigation protocols with a complete understanding of obligations in witness interviews (Upjohn warnings) and protection of work product, attorney-client, and trade secret privileges.
- Under appropriate circumstances, self-report to regulators. This strategy takes a careful consideration of both business and legal ramifications, and should only be undertaken with a full understanding of the risks. Clear communication with government agents and appreciation for the scope of their authority are keys to controlling the risks of self-reporting. In some cases, such as consumer data breaches, self-reporting is required; be sure the business is aware of the particular legal requirements.
- Have an emergency response plan in place (i.e. protocols for government subpoenas, search warrants, regulatory inspections) that includes a document retention policy.
- Consider a compliance check-up by an independent reviewer.
- Develop a plan to defend the private civil actions that frequently follow public announcement of the state’s investigation.
Fred O. Goldberg is a partner resident in Berger Singerman’s Miami office and practices on the Dispute Resolution Team. He can be reached at email@example.com. Melanie Ann Hines is a partner resident in Berger Singerman’s Tallahassee office and practices on both the Dispute Resolution and Government and Regulatory Teams. She can be reached at firstname.lastname@example.org.
By Fred O. Goldberg
and Melanie Ann Hines
1450 Brickell Ave., Suite 1900
Miami, FL 33131
South Florida Legal Guide 2015 Edition