Suspected wrongdoers urged to talk.

Spurred by a directive from Washington, U.S. Attorney Debra Yang has been under increased pressure to bring charges against businesses that don't cooperate with federal investigations and to cut deals with the ones that do.

Increased cooperation, Yang said at a recent business roundtable, could result in reduced sentences or no prosecution at all.

"The only way to minimize your sentence is if you cooperate with the government," Yang said at the roundtable--a message she has been delivering at other public events as well.

Yang pointed to Westlake Village-based Homestore Inc., which as a company averted criminal prosecution by cooperating with federal investigators. Four of its former executives have pled guilty to charges related. to the inflation of revenues by the company.

Yang, top federal prosecutor in Los Angeles, could not be reached for further comment.

In reinforcing suggested procedures for investigating corporate wrongdoing, the Department of Justice is encouraging prosecutors to seek waivers of corporate confidentiality agreements.

"One thing we wanted to emphasize was the role of cooperation," said Bryan Sierra, a Justice Department spokesman. "When a company offers real cooperation, that should be weighed as to whether or not a company as an entity should be indicted."

The guidelines were issued in a Jan. 20 memo from Deputy Attorney General Larry Thompson.

"Too often," Thompson wrote, "business organizations, while purporting to cooperate with a department investigation, in fact take steps to impede the quick and effective exposure of the complete scope of wrongdoing under investigation. The revisions make clear that such conduct should weigh in favor of a corporate prosecution."

The adjusted policy has alarmed defense attorneys who say that such a move could pave the way for a flood of civil litigation.

"You get brownie points for ratting on yourself," said Jan Handzlik, a former federal prosecutor and immediate past chairman of the American Bar Association's National White Collar Crime Committee. "That's always been the case, but now they are conditioning favorable treatment of a corporation on how much they're willing to disclose during the course of the investigation."

Compromising position

The Thompson memo was written with input from the Corporate Fraud Task Force, a 12-member group of U.S. Attorneys and other Justice Department personnel created last summer and of which Yang is a member.

Yang's role on the task force may explain why cooperation is a major theme in her speeches to business groups, said James Sanders, partner at McDermott Will & Emery and former regional administrator of the Securities and Exchange Commission in L.A.

The Justice Department initiative follows a similar effort by the SEC, which issued standards to its investigators to determine how much credit a company should get if it cooperates in an investigation, said Sandra Hams, spokeswoman for the SEC's Pacific regional office.

But many white-collar defense attorneys say that cooperating with the federal government puts companies in a compromising position.

Handzlik, a partner at Kirkland & Ellis PC who represented one of the Homestore executives, said that when Yang and other prosecutors say "cooperate," they don't mean just hand over the books.

"They want active and energetic and full cooperation," he said. "Turn over your internal investigation report, don't pay the legal fees of officers and employees, take steps to fire people who are involved, and make sure you have a comprehensive compliance program in existence. The fact is today, corporate counsel many times have to bend over backwards to please the government."

He said many of the documents requested by Washington, such as the internal investigation reports, are confidential and require waiving attorney-client privilege before being handed over to the government.

Expanding exposure

Knowing the confidentiality could be breached might keep employees from disclosing important information, he said. Also, confidential documents could be used against the company in civil litigation such as shareholder suits.

"A waiver of attorney-client privilege is a waiver for all purposes," Sanders said. "If a company faces civil liability, not only from the SEC but from private plaintiffs in a class action, then that becomes a tough decision. Once it's waived, it's waived for everybody."

But federal prosecutors say that obtaining confidential information is an effective way to investigate a matter more thoroughly and quickly.

Confidential reports and communications among employees can allow prosecutors to obtain the statements of witnesses and targets without having to negotiate cooperation with them, according to the Thompson memo. On their own, prosecutors may have trouble identifying which individual acted on behalf of the company, since lines of authority could be spread across departments or overseas, the memo says.

"In the '90s, the DOJ did not automatically try to get its hands on these confidential and privileged reports prepared by counsel," Handzlik said. "But now they realized that they can save themselves a lot of time and essentially get a roadmap to the case by simply using the work of the company's reports."

Saving time has become more critical for federal prosecutors under pressure to take on more corporate fraud cases.

Pointing to the conviction of Arthur Andersen of charges related to the Enron scandal, Carolyn Kubota, a partner at O'Melveny & Myers LLP and former assistant U.S. Attorney in L.A., said charging a company can have a profound impact on a business. Andersen's conviction hastened its dissolution.

Sometimes, in the interest of moving a case through faster, prosecutors forego pursuing a company if it cooperates with them.

"You say, 'I'm going to choose efficiency and speed over the chance to prosecute,"' she said. "What you give up is the chance to prosecute the company, but you get the cooperation. Then, you can prosecute the individuals. The officers can go to jail. The company can't go to jail."