Government Investigations

Business leaders and members of the business team should understand how government agencies begin investigations. At the start of most investigations, neither business leaders nor front-line staff will know that agencies have taken an interest. Despite a lack of knowledge on the company’s part, investigators may be gathering evidence to build a case against the company.

For more insight, we can turn to an article that Mark Eichorn published. In his article, If the FTC Comes to Call, Mr. Eichorn, an FTC administrator, wrote:

“All of our investigations are nonpublic. That means we can’t disclose whether anyone is the subject of an investigation… FTC staff typically begins with an informal investigation, usually by reviewing publicly available information or even reaching out to the company directly… What we learn may lead us to conduct a full investigation….”

Mr. Eichorn’s statements, taken directly from the FTC website, confirm that government agencies begin their investigations in secret. 

Other readily accessible information suggests that all government agencies operate in the same, clandestine way. The agencies gather information until they choose to file a case. By the time an agency files a case, the investigators have an abundance of evidence that they believe will allow them to prevail in a lawsuit. They may sue the company or an individual in a leadership position. They may also bring charges against people working in the company.

Leaders of the Securities and Exchange Commission reveal that they begin investigations in the same way as the FTC. SEC investigators may notice unusual trading activity on public exchanges, or something in the media may perk their interest. Another pathway to an investigation may start with a whistleblower-type complaint from a customer or from an employee who wants to cash in on a reward that follows a settlement. 

Any of those scenarios could lead to a government investigation. The target of the investigation may not know about the investigation until the day of a subpoena, raid, or arrest. By that time, the agency will have gathered mountains of evidence.

If an investigative agent or officer of a government agency gets a hint of potential illegal activity, either by a whistle-blower, via another active case, or through various data mining techniques, the agent will begin to investigate further. Once an investigation begins, investigators within the agency, together with government attorneys, will decide whether or not to proceed. If they choose to proceed, they may identify witnesses, subjects, or targets. None of those people will typically be aware that government officials have begun making inquiries.

Business owners would be wise to remember that government investigators advance their careers by bringing people or businesses down. They tend to view evidence from a light that is unfavorable to the business or target.

Once government investigators identify a potential witness, subject, or target, they accumulate evidence that will sustain a finding of guilt. It’s less likely that investigators would value evidence that tends to exonerate a person.

I’ve spoken with thousands of businesspeople that have gone through government investigations; in fact, every member of our team has gone through an investigation. When investigators found evidence that would weaken the government’s case, many people said the agents would purposely ignore it. For these reasons, we encourage people to keep accurate records that may help them defend against charges of wrongdoing.

Like sales leaders train their teams to overcome objections, investigative teams train their staff to look at all evidence with a suspicious eye. Unethical government investigators may even try to hide exculpatory evidence. All business leaders should remember the perspective, or framework that investigators bring to their work:

A government investigator prepares for promotions by identifying deception, or noncompliance with regulations. With the growth of our government, legislators and administrative agencies have many laws and regulations that lead to fines, injunctions, disgorgement, and potentially criminal prosecutions. Investigators advance their careers when they find wrongdoing.

For these reasons, every team member grows stronger with a better understanding of how to comply with regulations. Training team members may serve as a great preemptive measure to help a business save the enormous expenditure of defending against a government investigation.

The Investigative Phase:

Generally speaking, many investigations begin with some type of complaint. The complaint may come from disgruntled customers, competitors, suppliers, or the business community.

Employees, too, may alert government officials to what they perceive as wrongdoing by acting as internal whistleblowers.

In the macro sense, we know that high-pressure prosecutorial tactics lead to many government investigations. Every year, our nation spends more than $100 billion to maintain our nation’s jails and prisons.

To keep those jails and prisons full, and keep the ecosystem growing, investigators work to bring charges against more people and businesses for white-collar crimes. Although some people have a criminal mindset and begin businesses with an intent to deceive or defraud victims, many people commit “crimes” without any intention or knowledge that they are violating laws. For example, the crime of cash structuring has led many people to prison, despite those people not having had any intent to break the law.

Cash structuring makes it a federal crime for any person to make cash deposits in certain circumstances. If prosecutors can prove that a person made a series of deposits that were under $10,000 for the specific purpose of evading the requirement to file a currency transaction report (whether that was actually the intent or not), the prosecutors may bring criminal charges.

As an example, let’s say a car dealer sells cars for $9,000. Let’s say that the car dealer sold five cars each day. Each time the dealer sold a car, the dealer brought the money to the bank and made a deposit. If the person filled out a currency transaction report, the person would be in compliance with the law—even though he did not deposit $10,000. If the person did not complete the cash transaction report, that individual could be liable for a felony conviction, because authorities may accuse him of making a pattern of deposits that amount to less than $10,000 in order to avoid completing a cash-transaction report.

The person in the example above did not intend to violate the law. He completed an invoice system and he paid appropriate tax. The money lawfully belonged to him. Yet if prosecutors allege that he “structured” the deposits to avoid filing cash-transaction report, prosecutors could bring felony charges; a judge could sentence him to prison. I served time in prison alongside several people because they violated cash structuring laws. Those people did not intend to violate the law; they did not know laws restricted the way they could access or deposit money they lawfully earned.

In the law-and-order system of the United States, investigators have massive power. They may question individuals and government attorneys may depose them under oath. The answers those witnesses give during government investigations can lead to further problems. Government investigators may incentivize people to cooperate with them. Prosecutors may offer immunity in exchange for testimony, thereby putting more people under scrutiny and bringing more people into the system.

A hypothetical example may help to illustrate how a government investigation can begin. Let’s say a businessman gets into some type of criminal problem. He faces a significant amount of time in prison. The businessman may offer to provide information to prosecutors in exchange for a lighter sentence. The information the businessman provides can spawn an entirely new and unrelated government investigation.

Investigators with various government agencies, including the FBI, the SEC, the FTC, the DHS, the ICE, or any other agency will make an initial determination on whether to advance an investigation. They may choose to proceed with a civil investigation, or they may work with law enforcement to launch a criminal investigation. Agencies have the authority to conduct civil investigations on their own. Criminal investigations, however, require prosecutors; those prosecutors may work with either with the US Attorney’s Office, or with the state Attorney General’s office.

Both civil and criminal investigations bring enormous pressure on a person. A case may begin with a civil investigation, but as evidence surfaces, the investigation may turn criminal, which brings more stress, more expense, and higher levels of risk.

Once investigators choose to advance, they subpoena documents related to the suspected activity. They may want to review bank and brokerage accounts, phone records, email records, social media etc.  They can also request warrants to listen in on phone calls and review electronic activity in real time. Again, targets may or may not know that they’re being investigated.

Investigators typically do not want a potential target to know anything about the investigation at the outset and will ask people they interview to be discreet and not mention anything. In some cases, investigators make their investigations obvious. They may want to push the target to act inappropriately, while the investigators gain or create additional evidence or charges.

At some point, a target becomes aware or suspicious that an investigation is underway. Whether investigators identify a person as a potential witness, subject, or target, the person would be well advised to understand his or her options. People can take specific actions to minimize potential exposure. 

The earlier a person can persuade investigators or prosecutors that a crime did not take place, the more likely a person would be to get a better outcome. As investigators and prosecutors spend more time on a case, they become more vested in getting the “win,” which doesn’t always equate with justice. They want a finding of guilt.

The Prosecution Phase:

If an investigative team feels it has sufficient evidence, then the government agency will bring public charges. In civil investigations, the agency may bring either an administrative proceeding, or it may file a lawsuit in federal court. With criminal charges, the prosecutor may file a criminal information or complaint.

In either civil or criminal investigations, investigators may request a judge to issue a search warrant to raid a person’s home or place of business. Citizens should expect that investigators will seize everything possible to help them build a case. They will take computers, cell phones, and all paper records that the warrant authorizes. The investigation will result in significant disruption to a person’s life; it could also obliterate prospects to continue business operations.

Later, government lawyers will schedule interviews and depositions. They will subpoena bank records and question third parties. They do not spare any expense in gathering evidence that will help them build a case. In order to lessen exposure to risk, many people within the organization will offer evidence to assist the investigation—sometimes crawling deeper into an investigative trap.

Investigators typically coordinate a strategy to undermine the business and personal life at every level. Remember the nature of a government investigator. Perhaps an analogy is in order. I’ll paraphrase an analogy from Aesop’s Fables:

The scorpion wants to cross to the other side of the river, but it does not know how to make it across. When the scorpion sees an otter in the water, it requests to ride across the river on the otter’s back.

The otter responds, “but if you ride on my back, you’ll sting me and I will die.”

The scorpion responds, “why would I do that? I am asking you to help me.”

The otter agrees and transports the scorpion across the river. Just before the scorpion climbs off the otter’s back, the scorpion stings the otter.

The otter whimpers, “But why did you sting me? I helped you by bringing you to the other side of the river. Now I’m going to die.”

The scorpion responds, “It’s in my nature.”

Remember that it’s in the nature of everyone on the investigative team to convict people and businesses. People that build careers as government investigators want high profile convictions.

For this reason, business leaders and team members should adhere to best practices at all times.

Some of the fallout from a government investigation includes reputational damage. Local and potentially national media will offer salacious details, fed by investigators. Internet searches may place a government’s press release at the top of a search result. Such reputational damage can lead to enormous complications for a business, and for the individuals identified in the media report. Blogs and posting boards may follow, leading to further stress.

A government investigation will likely lead to the loss of clients, business associates, and abandonment from friends. To avoid being tainted by the investigation, people will scatter and sever ties.

Our team has numerous examples that show how government investigators will taint unrelated parties. We know of a medical office that terminated a woman’s employment because authorities brought an indictment against her husband; investigators did not allege that she had anything to do with the crime. Investigators will use every tool in their arsenal to pressure people to cooperate with an investigation. As a result of their Grand Inquisitor tactics, collateral damage will follow. 

Much like business owners crave favorable press for the services they provide, investigators welcome the shock and awe of a well-publicized investigation. For this reason, they frequently favor:

  1. the pre-dawn raid at a target’s home, with dozens of agents sporting massive firepower, and
  2. the blitzkrieg arrest at a corporate headquarters, where scores of agents will come in with windbreakers emblazoned with initials branding the government agency.

Investigators use such aggressive tactics routinely, for strategic reasons. Investigators want targets to act irrationally. They want people to protest innocence, or to lie.

Although the target may be new to the proceeding, the investigator knows and understands that with a show of force, some people will lie to the investigators. When those people lie to a law-enforcement officer, they commit a federal criminal offense, under Title 18 of the United States Code, Section 1001. Investigators will use those lies as leverage, threatening imprisonment and other problems, to induce further cooperation.

The more business leaders and advisors know, the more effectively they will be able to lay groundwork to minimize vulnerability to a government investigation, or to qualify for leniency—including deferred-prosecution agreements, or potentially non-prosecution agreements.