Carter employed Elles from the year 1996 to March 2009 when Elles later resigned his position and entered into a severance agreement. The severance arrangement called for Carter’s to pay Elles some $900,000 over a period of 24 months following his resignation in exchange for his agreement to cooperate with the company in facilitating a smooth transition of his responsibilities and to provide reasonable assistance to the company regarding matters that were under his care and control during his employment. Months later after Elles’ resignation, Carter learned of a statement by a large wholesale consumer for money supposedly owed in accordance with an undisclosed accommodation plan (Halter &Griswold, 2012). Carter suspended Elles’ severance payments awaiting resolution of an inquiry into the claim after realizing the statements and asserted arrangements that were inconsistent with representations by Elles to the company. Below is a case of Elles and Carter’s internal investigation.
The Audit committee of Carter’s Board of directors instigated an internal investigation and retained outside counsel to conduct it. The law firm set about to conduct witness interviews in connection with its investigation, including current and former employees of Carter’s. The scheduled earnings report for the third quarter of 2009 was delayed in order to complete a review of its accounting and accommodations to wholesale customers. What followed were contacts between Carter‘s and the SEC. At the same time, Carter’s publicly stated it had self-reported evidence concerning its review to the SEC, and that outside counsel was assisting the audit committee in an investigation. There was an agreement by the outside counsel to provide information to the SEC about the effects of any accounting indiscretions and the company’s net income for the involved periods (Halter & Griswold, 2012).
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Elles was contacted as part of Carter’s internal investigation requesting an interview. Elles requested Carter’s to indemnify him for the costs or fees incurred in the investigation or litigation. He also requested the company to advance his attorney’s fees which were rejected by The Carter Board of Directors. Elles afterward agreed to be interviewed by Carter’s outside counsel in fear that his severance payments would be dismissed. He was represented by counsel in the interview which was paid by Carter’s (Halter& Griswold, 2012).
After the interview, Carter announced the completion of its investigation claiming it had incorrectly stated various consumer accommodations in certain periods. This had then overstated net sales and net income in that period. It also reported that it had been informed of a Justice Department investigation as well as that of the SEC. Later, a federal grand jury accused Elles charging various securities fraud-related crimes.
Elles Rights that were violated
Elles argued that he was forced to appear at the interview, in violation of his constitutional right against self-incrimination. Additionally, in executing the internal investigation Carter’s was effectively acting as the government's agent, therefore further implicating his constitutional right against self-incrimination (Smith, 2008).
According to Martinet (2010), Elles pressure emerged from his belief that he did not give in to interview; Carter’s would dismiss his severance payments which would have shocking personal financial costs. He argues that the potential loss was “economic coercion” leaving him with no choice but to cooperate and remove his free choice to remain silent, all in violation of his Fifth Amendment right against compelled self-incrimination.
What happened and what should have happened?
Elles argued that Carter’s acted as the government’s agent when it forced Elles into waiving his constitutional right. Elles maintains that government implementation policies, mainly those of SEC in its seaboard Report and now in the Sec enforcement Manual, operate to compel a company such as Carter’s to cooperate fully with government investigations and get their present and past employees to do the same, for fear of civil and criminal charges that could lead to the demise of a company. He maintains that companies are obliged to perform investigations that would then be conducted by the government. Smith (2008) suggests that the compulsion of companies now raised as part of Elle’s challenge sums to de facto “deputization” of companies. Elles in support of his position maintains that Carter’s was rewarded with the first ever “Non-Prosecution Agreement” entered into with the SEC, all at the cost of his constitutional right against the statuses of the interview in a corporation internal investigation amount to forced “government action”.
References
Halter & Griswold LLP. November 2, 2012.Federal court to rule on challenge to use of former officer's interview statements in corporate internal investigation.. Retrieved from
https://www.lexology.com/library/detail.aspx?g=38d241f4-ed02-4212-81b2- 2fd904f7e4ef
Smith, R. S. (2008). Race, labor & civil rights: Griggs versus Duke Power and the struggle for equal employment opportunity. Baton Rouge: Louisiana State University Press.
Martinet, L. A. (2010). Violation of a constitutional right. Place of publication not identified: Gale Ecco, Making Of Mode.
