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The Fallout When a Law Firm Accidentally Sends Privileged Client Documents About a Whistleblower to a Wall Street Journal Reporter

By Marianne Jennings




Hang on for the complex plot twists and turns on this one. PepsiCo, Inc. acquired a Russian beverage company in 2011 (Wimm-Bill-Dann (WBD)).  PepsiCo’s general counsel, Maura Smith, hired in May 2011, oversaw an investigation into the business practices of WBD, an important step for any company in a foreign acquisition.  The goal of such investigations is to find out what the company has been doing and stop that which it is illegal and self-report anything that has been done.  Ms. Smith hired Gibson, Dunn & Crutcher LLP to conduct the investigation. Gibson Dunn uncovered a maze of illegal activities including theft, questionable land transactions, and what appeared to be payments funneled through questionable consulting contracts.  For example, the outside lawyers found that a Russian government official was given an Audi A8 to use without cost. Gibson Dunn’s conclusion was that there had likely been violations of the Foreign Corrupt Practice Act (FCPA).


Together, on June 7, 2012, Ms. Smith and Gibson Dunn put together a 33-page draft memo that summarized the findings on WBD. The memo was protected by attorney-client privilege, which means that what was contained therein was not available for use against PepsiCo by regulators or prosecutors. However, Gibson Dunn lawyers pushed back on the memo and it was never given to the PepsiCo board. PepsiCo auditors did review the WBD issues, determined that they occurred prior to its acquisition, and that the events were immaterial and did not require public disclosure or restatements in the form of an SEC 8-k or inclusion in the 10-Q or 10-K regular SEC filings. Andrew Ackerman, Joe Palazzola, and Jennifer Mahoney, “SEC Investigates Firing of Top Pepsi Lawyer,”... On June 15, 2012, PepsiCo announced that Ms. Smith was leaving the company to “pursue other opportunities.”   Her separation agreement was not signed until October 2012 after her departure.  She was given a $5.5 million separation compensation package (plus pending stock awards) and both she and the company agreed that they would not “disparage each other.”



Ms. Smith was subpoenaed by the SEC as part of its investigation into whether employment contracts at some companies discouraged lawyers from reporting misconduct.  The SEC then began investigating whether Ms. Smith had experienced a retaliatory termination as a result of her Russia investigation.  Some reports indicate that Ms. Smith had rocky relationships with executives at PepsiCo before the WBD investigation and results.

PepsiCo hired WilmerHale and several other law firms to represent it in the SEC investigation. WilmerHale produced an August 16, 2017 memo, also protected by the lawyer-client privilege, that outlines the SEC investigation and the allegations of retaliatory conduct. A WilmerHale lawyer sent its August 16,2017 memo to lawyers in other firms also representing PepsiCo, but accidentally copied a Wall Street Journal reporter in transmitting the memo. In addition, the e-mail included the 2012 Smith/Gibson Dunn memo on WBD. That memo alleged that PepsiCo had not done enough due diligence before acquiring WBD.


WilmerHale maintains that it wrote to the Wall Street Journal Reporter and asked him to delete the files and not publish any of the confidential information.  The reporter did delete the files but had made copies prior to doing so.


We are left with four investigations:  the original WBD one, the SEC generic investigation into lawyers’ roles in advising clients, the SEC investigation into the retaliation claim by Smith, and the SEC investigation into PepsiCo’s conduct and investigations into its WBD acquisition. There will probably be two more investigations:  one at WilmerHale on how the reporter got on the e-mail list and one by the PepsiCo board on how it was kept out of the loop on the original memo. You can read PepsiCo’s full statement in response to the memo leak, retaliation allegations, and WBD here


The lessons here are important.  Be careful about blast e-mails and who is on the recipient list.  Once a company begins an investigation, the findings can neither be changed nor concealed. Document the bases for termination, particularly those at the executive level.




Explain the sequence of events.


Discuss what you would do differently if you were giving Pepsi or the law firms advice.