Crisis Response &
Incident Investigation

Eversheds Sutherland’s Experience

Eversheds Sutherland has advised and defended clients facing numerous challenges caused by drilling rig accidents, transportation disasters, natural disasters such as hurricanes, and board room crises. This experience includes parallel civil litigation and criminal investigations, multi-district proceedings, putative class actions, congressional investigations and hearings, regulatory investigations, internal investigations, shareholder direct and derivative claims, and corporate disclosure issues.

Large National Property and Casualty Insurer

Issue: Hurricane Katrina.

Crisis: Hurricane Katrina was devastating for the Gulf Coast region, with Louisiana and Mississippi particularly hard-hit.  The storm caused extensive property damage in the region, as a result of wind, storm surge, the failure of the levee system in New Orleans, and other flooding.   As the area worked to rebuild, thousands of property damage insurance claims were filed raising new and unique challenges for insurers.

Services: Represented a national property and casualty insurance company in numerous lawsuits both directly and as part of a coordinating counsel role.  Our work included assisting the insurer with:

  • Defending coverage cases, including class actions, that were seeking to establish whether the damages were sustained as part of a covered cause or an excluded cause, including wind versus water issues and efforts by plaintiffs to limit the scope of flood exclusions;
  • Defending a putative class action challenging the amount of catastrophe reinsurance purchased by a state wind pool residual insurer;
  • Defending a suit brought by state attorneys general seeking to invalidate flood exclusions as allegedly contrary to public policy;
  • Defending cases involving insurance claims for damage arising from the failure of the levees in New Orleans;
  • Identifying, developing and coordinating assignment of expert witnesses to assist in coverage suits; and
  • Coordinating and preparing briefing regarding issues common to multiple cases against the insurer, and taking a leading role in briefing various issues common to multiple insurers as part of the joint defense efforts.

Large Homeowner’s Insurer

Issue: Hurricane Isabel.

Crisis: Hurricane Isabel caused widespread property damage in Mid-Atlantic coastal communities.  In addition to facing insurance claims under homeowner policies, insurers that participated in the National Flood Insurance Program faced litigation alleging that they had underpaid claims under flood insurance policies.

Services: Defended a homeowners’ insurer in a putative class action brought by insureds who made claims for alleged hurricane damage under flood insurance policies issued under the National Flood Insurance Program.  In addition to asserting contract claims under the flood insurance policies, plaintiffs also asserted extra-contractual claims which they sought to pursue as a matter of federal common law (apparently recognizing that any such claims brought under state law would be preempted by the National Flood Insurance Act). The court granted a motion to dismiss the extra-contractual claims, holding that no such claims were available under federal common law.  After discovery, the court then granted summary judgment on the contractual claims, finding that the defendant had paid all amounts due under the terms of the policy.  As a result, judgment was entered for the insurer on the named plaintiff’s claim without the need to address class certification.

Global provider of offshore contract drilling services

Issue: 2010 BP Oil Spill.

Crisis: Within hours of the April 20, 2010, explosion on the Deepwater Horizon, numerous state and federal agencies began investigating the accident, and the company was inundated with inquiries from media, customers, investors, and other stakeholders. The client worked to help stop the spill and salvage the wreckage while answering the inquiries, complying with investigators, and helping its injured employees and the families of the missing and dead. The accident was followed by civil charges, civil litigation, and intense international media scrutiny.

Services: Sutherland led the client’s defense in all matters arising from the spill and advised the company’s executives and board on managing unfolding events. Sutherland counseled the client through inquiries by the media, Congress, civil litigants, state attorneys general, and multiple regulatory agencies. For example, Sutherland:

  • Led the defense of the company in civil multi-district litigation (MDL) pending in the U.S. District Court for the Eastern District of Louisiana and other litigation in various other jurisdictions. More than 250 depositions were taken in the MDL litigation.
  • Guided the client through Congressional inquiries, and testified on the client’s behalf during Congressional hearings.
  • Established a team for efficient data collection, review and production. This team has managed more than 70 million pages of data produced by all parties during civil litigation to date, and more than 50 sets of document requests from litigants and government agencies including the Department of Justice, Securities and Exchange Commission, the U.S. Chemical Safety Board, the National Academy of Engineering, congressional committees, and the President’s Oil Spill Commission.

Merchant of physical commodities and financer of upper- and midstream commodity-producing assets

Issue: Train derailment led to fire and explosion in the transport of client’s crude oil.

Crisis: Client was confronted with major media coverage as well as liability and regulatory issues.

Services: Assisted in immediate response including advice to company on handling media queries and advice on contractual responsibility and points of potential exposure; monitored, advised and updated on continuously evolving regulatory requirements.

Broker-Dealer and its affiliated insurance company

Issue: Regulators and a congressional committee questioned whether our clients adequately disclosed their revenue sharing and marketing payments made to a national union and trade association.

Crisis: Investigations were launched against the clients on multiple fronts – by the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA), a state securities commission, and the U.S. House Committee on Education and Labor.

Services: Advised and advocated on behalf of the clients during three years of investigations, including submitting multiple filings and legal briefs, representing witnesses during on-the-record testimony, and engaging in often contentious negotiations. Ultimately convinced each entity to close its investigation without action.

International manufacturer and distributor of microorganism filtration products used by research, diagnostics and manufacturing sectors

Issue: Federal investigators discovered a shipment of unregistered products which also were being imported into the U.S. without complying with U.S. trade laws.

Crisis: Immediate cessation of all shipments of non-compliant products into the U.S. and the distribution of non-compliant products through the U.S. channels of trade. In addition to significant impacts to time-sensitive business operations, the company faced exposure to substantial civil and potential criminal penalties.

• Led an internal investigation of current and past manufacturing and distribution practices of regulated products.
• Devised and implemented an immediate compliance plan which brought existing product inventory into compliance and allowed the continued importation of products for sale and distribution in the U.S.
• Developed recommendations to management for proactively resolving litigation exposure with federal regulatory authorities.
• Developed and implemented a global training program for the operating business units to ensure future compliance.
• Negotiated a highly favorable administrative settlement without civil or criminal sanctions.

Leading global provider of offshore contract drilling services

Issue: Gulf of Mexico natural gas blowout and two-day fire consumed a jackup rig and forced evacuation of 44 workers.

Crisis: The client focused on making sure crew members were safe, that the gas leak was stopped as soon as possible, and that the environment was protected. The event resulted in heavy media attention and an immediate response from federal regulators.

Services: Involved from the beginning, advised the client on managing the crisis at emergency operations center and on legal protections in dealing with regulatory investigators; assisted local counsel. The Sutherland team also:

  • Immediately contacted and retained top experts on matters including well control, blowout preventers, and metallurgy, for advice and assistance in investigations and potential litigation.
  • Ensured that essential electronic data was preserved and interviewed all appropriate custodians to make sure necessary records were kept.
  • Advised the client on information to provide to news media.
  • Advised the client during interviews by the Coast Guard and Bureau of Safety and Environmental Enforcement.
  • Served as defense counsel in litigation.

Privately held manufacturing company

Issue: Antitrust claims of alleged collusion with principal competitor to allocate customers.

Event: Client was faced with a dawn FBI search, and it soon became evident that the company was facing a coordinated investigation in the United States and Canada, that its competitor was cooperating with the government, and that the crisis threatened the company’s financial viability as well as its long-term customer relationships.

Services: Sutherland provided immediate assistance on compliance issues during the FBI search and continued to represent the company throughout the U.S. and Canadian investigations, including:

  • Defending against two class action lawsuits, one of which is continuing.
  • Assisting the company in securing Canadian counsel and individual counsel for its CEO.
  • Negotiating guilty pleas and fines in an amount and on terms that the company could survive with both U.S. and Canadian prosecutors.
  • Working with the client and a PR firm on measures to address business fallout and preserve customer relations, including the unusual step of notifying potentially affected customers prior to entry of the guilty plea.
  • Negotiating individual settlements with most key customers without litigation.
  • Assisting the client in connection with financing issues.
  • Filing claims for estate tax refunds based on the loss of corporate value on behalf of the estate of the founder, who died during the pendency of the conspiracy.

Multinational oil company

Issue: Company’s pipeline was found to be carrying contaminated crude oil.

Crisis: Client was forced to shut down the line, find source of contamination, clean out the entire system, establish testing protocol, conduct crude testing and continue testing once system was back online in an extraordinarily complicated operation.

Services: Hired experts to help with testing protocol; monitored work; advised on crude sample preservation. The system involved multiple shippers, producers and refineries. Sutherland lawyers conducted liability analysis and assisted with response to state regulatory agencies.

$5 billion NYSE-listed investment company

Issue:  Multi-year short-selling campaign led by activist hedge fund alleging portfolio overvaluation.

Event: A well-known hedge fund manager gave a speech to a large institutional investor audience at a private evening conference about shorting the client’s stock – alleging improper valuation practices, improper accounting and disclosure, and fraudulent lending activity at the company’s largest portfolio company, which was itself a small business lender regulated by the Small Business Administration. The following day, the company’s stock experienced huge selling pressure with significant price drop, and the company was inundated with media attention, multiple class action suits, a three-year SEC enforcement action, a four-year DOJ investigation, and an SBA investigation.

Sutherland’s Services: Involved from the first day, Sutherland served as primary counsel to the company and was involved in every aspect of developments for more than eight years, including ongoing corporate disclosure, media management, investor relations, board communications, litigation, and regulatory investigations.

Global provider of offshore contract drilling services

Issue: A well control incident during the drilling of a gas well in the Gulf of Mexico led to an evacuation and subsequent regulatory investigation.

Crisis: The event attracted major media attention, and the drilling company was involved in incident response coordination with regulatory authorities over several days.

Services: Assisted company in immediate aftermath response on a several legal issues including securities disclosures, document preservation and witness interviews. Also coordinated company’s participation in regulatory investigation including preparation and presentation of company witnesses for interviews. Advised client of potential contractual and commercial exposure.

Offshore contract drilling company

Issue: A fully laden crude oil tanker collided with the client’s mobile offshore drilling rig while under tow offshore in the Gulf of Mexico.

Crisis: Client was forced to shut down the line, find source of contamination, clean out the entire system, establish testing protocol, conduct crude testing and continue testing once system was back online in an extraordinarily complicated operation.

Services: Coordinated in Coast Guard regulatory investigation, responded to incident location to secure witness statements and interview the crew. Secured the seizure of the colliding tanker to perfect client’s maritime lien. Conducted expedited discovery of tanker crew before release by regulatory authorities. Initiated and prosecuted recovery action for client’s property and economic damages.

Global provider of offshore contract drilling services

Issue: Client jackup rig lost stability at offshore work location, causing rig to collide with a nearby platform.

Crisis: Company was confronted with immediate evacuation involving health and safety of workers as well as regulatory investigation.

Services: Assisted in witness interviews and managed internal investigation; advised company on potential contractual and commercial issues.

Multinational publicly held industrial giant

Issue: Six weeks prior to the scheduled release of year-end earnings, the company’s auditors flagged multiple instances of revenue recognition irregularities affecting subsidiary and parent company financials, crossing the company’s operations in Europe, North America, and South America.

Event: Auditors threatened to withhold certification of the annual financial statements unless satisfied that the issues were not material and did not impact the internal controls and the integrity of company management.

Services: A rapid response team from Sutherland investigated the issues, determined individual responsibility, addressed accounting and internal controls issues, and quantified the impact of problematic transactions to the satisfaction of the auditors, resulting in timely release of the company’s financial statements.

One of the nation’s largest regional investment firms

Issue: Parallel investigations stemming from the subprime mortgage crisis launched by the SEC, FINRA and five U.S. state securities offices.

Event: As a result of the subprime mortgage crisis and questions concerning certain sales practices and fair valuation of mortgage-backed and other asset-backed securities owned by certain mutual funds, the client faced inquiry from the SEC, FINRA, and the states of Mississippi, Alabama, Kentucky, South Carolina, and Tennessee. Among other charges, the SEC alleged violations of the anti-fraud provisions of the Securities Act, the Securities Exchange Act, the Investment Advisers Act, and certain books and records violations. The SEC requested sanctions of more than $700 million.

Services: Sutherland defended and guided the client through three years of investigations, ultimately settling all claims on the eve of trial for far less than the regulators had demanded, and for significantly reduced charges. The SEC dropped claims related to the Securities Act and the Securities Exchange Act, and the parent company was not charged with aiding and abetting or causing violations of sections of the Advisers Act. Additionally, all five states dropped all charges of fraudulent conduct as part of the combined settlement. Although FINRA alleged violation of its advertising rules, Sutherland’s strategies forced FINRA to withdraw its complaint, resulting in the parties signing an unrelated settlement. During the course of the investigations, Sutherland assisted the client with production of more than 1.8 million e-mails and attachments, 200 gigabytes of e-mail data, and 800,000 pages of documents. Sutherland negotiated the extent of privilege during investigations to protect client information, and prepared and defended 29 witnesses who gave testimony to investigative agencies.

Major independent broker-dealer

Issue: Large series of related regulatory matters, class actions and arbitrations concerning investments that were alleged Ponzi schemes.

Event: The SEC filed federal court actions against our client concerning Regulation D alternative investments and the sufficiency of the client’s due diligence process. The investments were alleged to be Ponzi schemes that fraudulently raised more than $1 billion from thousands of investors.

Services: Sutherland’s representation of this client has led to nationwide settlements of the class actions and related settlements of hundreds of arbitrations, resulting in significantly less exposure to the client. We also settled a state regulatory action brought by the Massachusetts Securities Division after four months of trial, resulting in the State abandoning all its fraud claims against our client.

Medical equipment company

Issue: An internal investigation and subsequent external investigation by the SEC into allegedly unlawful payments to foreign officials under the Foreign Corrupt Practices Act (FCPA).

Event: The SEC alleged that our client made a payment to a foreign official in Italy in exchange for favorable consideration in the selection of contracts for supplies and equipment. The SEC also claimed that the company’s COO approved a false invoice, claiming the payment was for consulting services in Switzerland. The company and the COO also were subject to a criminal investigation by the authorities in Italy. The company’s auditors threatened to withhold certification of the company’s financial statements, pending the resolution of the allegations into violations of books and records and internal controls provisions.

Services: Sutherland guided our client through the internal investigation as well as the related SEC investigation, and the company settled all issues for $50,000 without admitting or denying the SEC’s allegations. Further, DOJ declined prosecution of the company.

Large local government organization

Issue: Indictment of executives on criminal charges related to government construction and supplier contracts.

Event: The local district attorney executed search warrants at various office locations with no notice. The board immediately was inundated with media requests.

Services: Sutherland served as general counsel for the board, and in this situation, the representation involved the delicate separation of the board’s best interests from those of the former executives, who retained separate counsel. Sutherland established a crisis management team to coordinate with the client to address media issues, subpoena responses, employee concerns, and ongoing operational challenges.

International Chemical Company

Issue: Chemical Spill Response

Event: While the client’s chemical products were being shipped by rail, multiple railcars experienced integrity failures and released hydrofluoric acid.

Services: Sutherland advised the client as to its immediate environmental reporting obligations, and coordinated with all governmental and private party interests to preserve evidence and conduct a comprehensive failure analysis. The firm also advised the client on the subsequent federal and California state administrative investigations, filed a lawsuit against the responsible party for the spills, and ultimately recovered a significant percentage of the client’s out-of-pocket expenses.

June 28, 2017
Extension of FCPA Pilot Program Signals Commitment to Proactive Disclosure

The extended life of a Department of Justice program that promotes self-disclosure of violations of the Foreign Corrupt Practices Act signals a continued emphasis on individual culpability, according to two Eversheds Sutherland (US) lawyers experienced in defending against government investigations.

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