Criminal and civil enforcement proceedings against corporations show no sign of abating, and the penalties, fines and settlements associated with such proceedings can be staggering. Last month, Goldman Sachs agreed to pay the Federal Housing Finance Administration $1.2 billion to settle litigation arising out of the fraudulent sale of mortgage-backed securities. In June of this year, BNP Paribas agreed to plead guilty and pay $8.9 billion in penalties for illegally processing financial transactions for countries subject to U.S. economic sanctions. In May, Credit Suisse pleaded guilty to conspiracy to assist U.S. taxpayers in filing false income tax returns with the Internal Revenue Service, and agreed to pay a fine of $2.6 billion; and last year, Johnson & Johnson paid $2.2 billion to resolve criminal and civil charges arising out of its marketing of prescription drugs for off-label uses.

Derivative lawsuits driven by specialized shareholder law firms, aimed at a corporation’s individual directors, often follow in the wake of criminal and civil enforcement proceedings and the multibillion-dollar payments to resolve those proceedings. The precipitous filing of such lawsuits, however, without a proper factual investigation of the board’s knowledge and involvement in the liability-causing conduct can doom the lawsuit from the beginning and lead to an early and permanent dismissal. One important, but often overlooked and underused, pre-suit investigatory tool is a books and records demand, which provides “behind the scenes” access to a corporation’s nonpublic documents.

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