SEC Releases “Red Book” Providing Guidance On Investigations

SEC Enforcement Manual (“Redbook”) includes guidance on the waiver of the attorney-client privilege.

There have been a number of recent developments concerning the attorney-client privilege. First, last month, we provided an update concerning the U.S. Department of Justice’s new policy concerning the waiver of the attorney client privilege. Second, as we earlier noted, on September 19, 2008, the President signed legislation establishing FRE 502, a new rule of evidence entitled: “Attorney-client privilege and work-product doctrine; limitations on waiver.” On October 6, 2008, the Securities and Exchange Commission released its Enforcement Manual, sometimes called the“Red Book.” The manual is used by SEC staff as a reference for the investigation of violations of the securities laws. Among other topics, Section 4.3 of the manual addresses the waiver of the attorney-client privilege. The manual prohibits requests for waiver of the attorney-client privilege and imposes a review process for “[a]ll decisions regarding a potential waiver of privilege.” The manual lists the following factors in considering issues involving the waiver of the attorney-client privilege:


  • The SEC encourages and rewards cooperation by parties in connection with staff’s investigations. One important measure of cooperation is whether the party has timely disclosed facts relevant to the investigation. Other measures of cooperation include, for example, voluntary production of relevant factual information the staff did not directly request and otherwise might not have uncovered; requesting that corporate employees cooperate with the staff and making all reasonable efforts to secure such cooperation; making witnesses available for interviews when it might otherwise be difficult or impossible for the staff to interview the witnesses; and assisting in the interpretation of complex business records. The SEC’s policy with respect to cooperation is set forth in the Seaboard 21(a) Report, Sec. Rel. No. 44969 n.3 (Oct. 23, 2001), which outlines other numerous factors that may be considered in assessing whether to award credit for cooperation.
  • Waiver of a privilege is not a pre-requisite to obtaining credit for cooperation. A party’s decision to assert a legitimate privilege will not negatively affect their claim to credit for cooperation. The appropriate inquiry in this regard is whether, notwithstanding a legitimate claim of privilege, the party has disclosed all relevant underlying facts within its knowledge.
  • By timely disclosing the relevant underlying facts, a party may demonstrate cooperation for which the staff may give credit, while simultaneously asserting privilege. The timely disclosure of relevant facts is considered along with all other cooperative efforts and circumstances in determining whether and the extent to which the party should be awarded credit for cooperation. See id.

Exceptions re Assertion of Privileges:

  • In order to rely on advice-of-counsel as a defense, a party must waive the attorney-client privilege and work product protection to the extent necessary to enable the staff to evaluate the defense. Staff at the Assistant Director level or higher should attempt to explore the possibility of an advice-of-counsel defense with a party’s counsel at an early stage in the investigation. It is important to obtain all relevant documents and testimony at the earliest possible date.
  • Staff should consider whether there may be other circumstances that negate assertions of privilege, such as the crime-fraud exception and prior non-privileged disclosure. These and other such circumstances should be considered in analyzing the legitimacy of a party’s assertion of privilege.”

Federal Rules of Evidence