Regulatory And Internal Investigations And Whistleblower Allegations Expected To Jump In 2010

The latest results from Fulbright & Jaworski L.L.P.'s Litigation Trends Survey are in and corporate counsel say they expect litigation to swell in the coming year. The survey reports that 42 percent of U.S. respondents are anticipating an increase in legal disputes their companies will face in the next 12 months. The expectation comes during a year when 83 percent of U.S. respondents reported that new litigation has been commenced against their companies in the past year, up from 79 percent last year.

What may lie ahead? Regulatory investigations and whistleblower allegations are expected to eat up litigation resources. Looking to 2010, 16 percent of all respondents (and 23 percent of large-caps) say they expect the number of internal investigations involving their company to increase. Industry-wise, approximately 20 percent each of financial services, insurance and technology companies expect internal investigations to rise in the coming year. This tracks expected increases in whistleblower cases: 24 percent of all respondents and 31 percent of large-cap companies expect the number of claims brought by whistleblowers in their industries to go up.

The survey reports that the Department of Justice, Environmental Protection Agency, states attorneys general and the Securities and Exchange Commission account for much of the regulatory action in the U.S. More than 31 percent of respondents report an increase in inquiries and investigations over the past three years, including requests from the FDA, OSHA, the IRS, U.S. Attorneys offices and the FTC.

Large-cap companies are twice as likely as mid-caps, and four times as likely as small-caps, to commence investigations on their own initiative. And large-caps also are more likely to self-report a matter to a regulatory agency following investigation. Meanwhile, 47 percent of healthcare companies and 41 percent of manufacturing companies say they have commenced investigations on their own initiative in the past year, compared with an average of about 20 percent for other sectors.

Owing, perhaps, to the rise in corruption investigations among multi-national companies, 12 percent of respondents say they have seen an increase in the level of cooperation between regulatory agencies in different countries over the past three years. Only three percent say they have seen a decrease in cooperation. In the context of FCPA violations, some say the current level of international governmental cooperation is unprecedented.

A surprisingly large portion – 21 percent – of respondents say their companies have been subjected to whistleblower allegations in the past three years. But the percentage goes up to 30 percent for large-caps (versus eight percent for small-caps) and 28 percent for public companies (versus 14 percent for private companies). Whistleblower allegations result in a mix of internal investigations, regulatory investigations and third-party proceedings.

Finally, although the Foreign Corrupt Practices Act statute has been on the books for more than 30 years, enforcement of the law has only really taken off in the last four years, with the SEC and DOJ expressing renewed interest in cracking down on foreign corruption. Overall, investigations are on the rise, according to the Fulbright survey: In last year's survey, seven percent of all respondents reported having engaged outside counsel for such investigations versus 12 percent in the 2009 survey. Billion-dollar companies had a higher incidence of bribery investigations last year, with 17 percent engaging outside counsel to assist with an investigation, versus 11 percent of mid-cap companies and just two percent of small-caps. Public companies are investigated about three times as often as private companies. The rate of corruption investigations in the manufacturing industry is particularly high, with 25 percent of manufacturing companies having faced an investigation in the past year.