When a red-light camera executive warned his bosses of an alleged bribery scheme in Chicago so serious it would "take down the contract and most likely the company," the corporate chiefs turned to the national law firm Quarles & Brady for help.
The result was a three-week, Quarles-led internal investigation that would mostly clear its client and end without a hint to stockholders — or to City Hall — that there might be a problem. For the next two years, millions of dollars continued to flow to Redflex Holdings Ltd. from its Chicago contract, the Australian company's largest and most lucrative camera program.
Those days are now long gone.
In the aftermath of Chicago Tribune reports last year about the close relationship between the company, its Chicago operations consultant and the former city official who oversaw its decadelong contract, Redflex now says the Chicago program was likely built on a $2 million bribery scheme and that the company-initiated internal investigation in 2010 was "clearly inadequate."
Those were the findings of a second law firm hired by the company in October following the newspaper reports, which also prompted Mayor Rahm Emanuel to accuse Redflex of deceiving City Hall and call for an investigation by the city's inspector general.
The starkly contrasting conclusions of two different law firms investigating the same claims have some legal experts scratching their heads.
"There is definitely a tale to be told there," said James Grogan, chief counsel of the state Attorney Registration and Disciplinary Commission. "There's no way to really know without all the facts, but much of it has to do with the nature of the relationship between the law firm and corporation.
"I mean, if you are hamstrung, limited on the people you are allowed to interview, the availability of records from outside the country, noncooperative employees, you might be stuck because of the limitations set by the company itself," he said. "The bottom line is they have a duty of competency, and to do as exacting a job as permissible under the conditions of that relationship.
"Sometimes the law firms themselves are the victims of a conspiracy."
John W. Daniels Jr., chairman of Milwaukee-based Quarles & Brady LLP, referred all questions to Redflex at the request of the company. Redflex representatives declined to comment.
"Quarles & Brady LLP provides excellent, timely and appropriate legal work for its clients, including completing internal investigations within the confines of the projects clients retain us to perform in any matter," the firm said in a statement to the Tribune. "The ethical rules that govern our conduct limit what we may say about our representation in any particular case without first receiving approval from our client."
In October, one of the law firm's longtime Chicago partners, Sanford Stein, accompanied the general counsel of Redflex's Phoenix subsidiary — Redflex Traffic Systems Inc. — to the Tribune's offices to be interviewed about the company's response to a 2010 whistle-blower letter. The letter, sent to the board of directors of the Australia-based parent company, detailed how the company plied former Chicago transportation official John Bills with "non reported lavish vacations" and the "illegal transfer of 'commission'" to him through its Chicago consultant.
Bills and the consultant, Marty O'Malley, have denied any wrongdoing.
Both Stein and then-Redflex General Counsel Andrejs Bunkse discredited the allegations during the October interview. They told the newspaper the Quarles & Brady review found no merit to the accusations, aside from one inadvertent $910 hotel stay for Bills at the Arizona Biltmore paid by a top company salesman who was disciplined with anti-bribery training.
"When I read the letter I expected to find a great deal more," Bunkse said in the interview. "And we dug in very deeply, exhaustively into the expense reports and records of the company to the point of extreme redundancy, and the issue — the one instance of a problem — was this one instance where there were no meals reimbursed, there was no flight reimbursed and a two-day hotel stay was found.
"In every other instance, nothing else came up that was problematic," Bunkse said.
Stein even staked his firm's 120-year reputation on it.
"It's our reputation that we put on the line every day for every client. But it is our reputation of our law firm that is far more important — and our service — that supersedes everything," Stein said toward the beginning of the interview. "So we are happy to say that our investigation, which Andy will talk about, is consistent with the high quality standards that we support."
Later in the interview, Stein sought to reinforce that the results were trustworthy because of the firm's involvement.
"It was one incident, and never repeated and it's — you know — it is what it is. We can't make that fact disappear, but it is what it is. And it's not a series of events," Stein told the newspaper. "I am telling you that our reputation is such that you can count on that."
Stein declined to comment for this story.
In October, the attorneys also detailed what Bunkse described as a "deep dive" investigation.
"We, Quarles & Brady, reviewed exhaustively expense reports, interviewed every individual that is affiliated that is an employee of our company that is mentioned in this letter, asked questions directly related to allegations contained in the letter, particularly about Chicago, went through all of the company's records relating to the Chicago contract and came up with one instance of an oversight and a lapse," Bunkse said.
"We spent nearly $100,000 in an investigation in which our CEO — imagine how uncomfortable this is — our CEO sat off to the side because of all the things raised in this letter," Bunkse said. "It was taken quite seriously, and I will tell you again when I read the letter for the first time I thought that there was a lot more to it than there actually was after this big effort, I mean a big shut-down-the-company effort that occurred."
After the Emanuel administration began to take actions against the company last year and city investigators issued subpoenas, the company hired a second law firm, Sidley Austin LLP, to "conduct a new, independent and unrestricted investigation" into the allegations, according to the company's summary filed publicly March 4 with the Australian Securities Exchange.
The Sidley team, led by former city inspector general and federal prosecutor David Hoffman, dove deeper. After four months and upward of $2.5 million in legal costs, the Sidley team reported that the allegations in the whistle-blower memo "did, in fact, have merit."
Hoffman's team found the company plied Bills with 17 trips, including hotels, flights, rental cars, meals and golf outings, according to the summary report. It also found that the $2.03 million in company compensation to the Redflex consultant was likely part of a bribery scheme that would have made "any reasonable person highly suspicious."
The Hoffman findings also criticized the 2010 investigation and the company's oversight.
"The investigation consisted of interviews of three Redflex officials, no email review and very limited document review," a summary of the findings stated. "There was no attempt to interview the consultant. Some of those interviewed by the law firm did not provide complete and truthful information."
According to Hoffman's findings, the first investigation "was conducted in a manner that was clearly inadequate to determine whether the allegations were true, and there was inadequate oversight." He also found that some of the company's disclosures to the Tribune and to City Hall in October were "inaccurate and misleading."
"Among other things, it was improper for them to describe the 2010 investigation and the associated expense review as 'thorough, complete or exhaustive.'"
Redflex recently told its employees that the Phoenix office of Quarles & Brady led the first investigation of the whistle-blower letter, which in addition to the bribery allegations also made broad accusations of mismanagement by company executives. The investigation was led by an employment lawyer, which was not the proper approach given the allegations, the company told employees.
While not commenting on the specifics of Redflex's relationship with Quarles & Brady, legal experts interviewed said there are sometimes reasons to question internal investigations conducted by law firms that already have an ongoing client relationship with the corporation, which Quarles & Brady had with Redflex.
"This skepticism is based on the fear that regular corporate counsel may have a motive to avoid criticizing, and thus alienating, senior management, the source of perhaps sizable past and future law firm revenues," wrote David M. Brodsky, a New York lawyer who wrote a manual on internal investigation conduct for the American College of Trial Lawyers.
But Jim Fieweger, a former federal prosecutor and partner at the Chicago firm Williams, Montgomery & John Ltd., said large and diversified firms such as Quarles & Brady are often able to overcome such perceived conflicts by assigning different lawyers.
"You have to assume that Quarles & Brady was acting in good faith," Fieweger said. "There are rules that say you have to be competent and diligent. That doesn't mean you can't ever do a bad job. People are fallible, of course."
Mark Rotert, another former federal prosecutor and partner at Stetler, Duffy & Rotert Ltd., said law firms that feel thwarted by corporate officials who they are investigating are ethically bound to address it.
"I call a halt to the investigation and I go directly to the audit committee and I tell them I am getting the runaround," Rotert said. "These people are supposed to be big boys who are ready to accept bad news."
In the case of Redflex, two members of the parent company's audit committee, including the chairman of the board, resigned in the wake of the findings from Sidley, which has headquarters in Chicago and New York. In addition, the U.S. subsidiary's president, chief financial officer and Bunkse also resigned, and the executive vice president accused of putting the city official's trips on his expense account was fired.
Rotert said the mass departures suggest the company might be more responsible for the outcome of the first investigation.
"Those guys are good lawyers. They are not crazy," Rotert said of Quarles & Brady. "And if they came into your office and were willing to put their stamp of approval on something like this, that tells me that they were probably thoroughly deceived. I cannot imagine that they would have gone to the mat to defend the integrity of something if they had any qualms about it."
Tribune reporter Ameet Sachdev contributed.