Examination Tools Part 2: How Privilege Protections Can Be Waived
Providing firm personnel with an understanding of their role in protecting attorney-client privilege is a critical requirement to enact effective technology and communication policies. Firms should not attempt to casually exercise their privilege when they might later seek to enforce the confidentiality of the sensitive report or examination being discussed.
Counsel should be involved at all levels of this discussion, or a firm may risk waiving their attorney-client privilege. Though the rule says that privilege can only be waived by a responsible person acting for the organization, or even only by top management, in practice, these limitations provide little defense.
Social Media: Regulatory Compliance and Attorney-Client Privilege
As firm compliance staff and principals have no doubt become aware, posts on social media have been an area of regulatory scrutiny, and they also can be used to set aside the protections of attorney-client privilege. Public posts on social media that are relevant to the claims or defenses in a legal action, even if restricted to “friends-only,” can lead to a mandated turnover of posts and account passwords. They may even expose attorneys to being called as trial witnesses against their clients.
A firm’s best defense against these purposeful posts is to teach staff to prevent such accidental waivers and to control declared employer affiliation through its annual social media reviews. Even just discussing legal strategies with a third party in a private chat can result in a waiver of attorney-client privilege! SMS text chats or instant messenger logs can be requested by the government, searching for a casual slip-up with which the attorney-client privilege could be breached. If at all possible, firms should hold privileged discussions in person, over landline, or via encrypted email.
Personal Communications on the Firm's Domain
All associated persons of a broker-dealer and access persons of an investment advisor should be aware that if they choose to utilize the regulated entity’s email domain for their personal communications, they are opening those conversations to both their firm and to its regulators. Because the regulated entities’ emails are required to be captured, monitored and retained, individuals who use their work email for personal business or communications need to understand that there are limits to their right of privacy within their employer’s domain.
FINRA has taken the position that any claim to privilege over communications that a registered person has with their personal attorney via a member firm’s email domain will be challenged in the event of a regulatory action. No different than if the registered person had invited their personal attorney into the firm’s conference room and had a loud, easily overheard discussion. This waiver, by exposing the discussion to a third party, can be avoided by the use of personal email accounts to hold these non-firm-related discussions.
This example of a third-party waiver is also instructive for firms in a co-working space or those that employ an office-share arrangement. Care for your electronic discussions in the same way you would not have public discussions of a delicate legal topic.
Preemptive Use of Counsel and the "Zone of Silence"
Some firms choose to respond to the foregoing warnings by overreacting and funneling all remotely sensitive work through their legal counsel. However, courts are aware of such methods to create a “zone of silence,” and have become suspicious of attempts to obfuscate business discussions a client would prefer to keep concealed with truly privileged legal advice. Abusive treatment of counsel as a conduit can lead to a wholesale waiver of the attorney-client privilege. However, that does not prevent firms from using counsel as a conduit for legal discussions surrounding sensitive business concerns.
If a firm’s communication with their counsel is predominately in the pursuit of legal advice, then privilege can be maintained. If a sensitive self-audit or examination is performed under the attorney’s instruction in preparation for trial or as a result of legal advice, the findings can receive similar protection. It would be wise to engage counsel to perform, or at least shepherd, these independent examinations. Recall that the attorney-client privilege may also apply to nonlawyers associated with or retained by — and supervised by — the attorney.
This is the second installment in our three-part series on regulatory examinations and attorney-client privilege. In our introductory piece, we discussed the sensitive nature of emails in a regulated firm and what that means for attorney-client privilege. Next up we cover which communications should receive privilege and other tools a firm can use to protect it.
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Mimi LeGaye
About the firm:
MGL Consulting, LLC is a full-service consulting firm with a broad array of clients both domestically and internationally. Since its founding in 1984, MGL has played a leadership role in the financial services consulting industry. The firm provides compliance, registration and strategic consulting services to broker-dealers, investment advisors and commodities firms. The firm’s senior staff have specialized expertise in compliance, regulatory, operations, legal and accounting disciplines. As such, MGL also provides litigation support and expert witness services to the legal community.
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