The Evolution and Importance of Internal Corporate Investigations

Lesley Brovner & Mark Peters
September 5, 2025

Internal corporate investigations have become a critical tool for companies to address allegations of misconduct, comply with regulatory obligations, and maintain public trust. Once a niche strategy used primarily in response to SEC enforcement actions, these investigations are now an essential part of corporate governance and compliance programs.

Over the past five decades, landmark legislation, court decisions, and shifting enforcement priorities have transformed how companies conduct internal reviews. This article examines the origins of internal investigations, the laws that shaped them, and why they remain a key component of corporate risk management.

The Early Days of Internal Corporate Investigations

The concept emerged in the 1960s when corporations settled SEC enforcement actions by agreeing to court-supervised investigations. These reviews allowed companies to retain control while avoiding more severe sanctions such as board restructuring or the appointment of a receiver.

The Watergate scandal in the 1970s brought corporate misconduct into the national spotlight. Hundreds of corporations were implicated in illegal political contributions and questionable payments to foreign officials. In response, the SEC launched its "voluntary disclosure program," encouraging companies to self-investigate and report findings—often in exchange for reduced penalties and without publicizing sensitive details.

The passage of the Foreign Corrupt Practices Act (FCPA) in 1977 further cemented the role of internal investigations. The law prohibited bribery of foreign officials and required companies to maintain accurate books and internal accounting controls, making ongoing compliance checks a necessity.

Major Laws That Changed the Corporate Landscape

Sarbanes-Oxley Act of 2002

Sparked by the Enron and WorldCom scandals, the Sarbanes-Oxley Act aimed to prevent corporate fraud and improve governance. Key requirements included:

  • Audit committees must establish procedures for handling complaints on financial reporting
  • Boards must adopt corporate governance guidelines
  • Compensation committees must be composed of independent directors
  • Public companies must respond appropriately to reports of securities law violations

While aimed at public companies, Sarbanes-Oxley also impacts private firms, especially those auditing public entities. It has strengthened oversight and accountability but increased compliance costs, particularly for smaller businesses.

Dodd-Frank Act of 2010

Following the 2008 financial crisis, Dodd-Frank introduced sweeping reforms, including the SEC whistleblower program. This program allows individuals to report securities violations directly to the SEC, bypassing internal channels, and potentially receive 10–30% of monetary sanctions over $1 million.

This change placed added pressure on companies to detect and address issues internally before they reach regulators. The law also incentivized self-reporting by offering the possibility of reduced penalties through cooperation agreements and deferred prosecution arrangements.

How Regulators Reward Cooperation

The SEC's Seaboard Report

In 2001, the SEC outlined factors it considers when deciding whether to reduce or forego penalties for companies under investigation, including:

  • Whether the company self-detected misconduct
  • The thoroughness of the internal investigation
  • Remedial measures taken
  • Level of cooperation with authorities

The DOJ's Filip Factors

The Department of Justice takes a similar approach, weighing voluntary disclosure, identification of wrongdoers, and access to witnesses and evidence. Recent DOJ policies offer non-prosecution or reduced fines for timely self-reporting and remediation, with expanded incentives for individual whistleblowers.

Adapting to Modern Challenges

Today's internal investigations face new complexities:

  • Cybersecurity & Data Privacy: Digital evidence collection must comply with privacy laws, and cyber incidents often trigger immediate internal reviews.
  • Remote & Hybrid Work: Investigations now must account for employees working outside traditional offices.
  • Emerging Industries: Cryptocurrency and other evolving markets are increasingly on regulators' radar.
  • Shifting Political Priorities: Enforcement focus can change quickly with new administrations.

Companies are also using advanced technology—such as data analytics and AI—to streamline fact-finding while maintaining legal compliance.

Why Companies Conduct Internal Investigations

Internal reviews can be prompted by:

  • Government inquiries from the SEC, DOJ, IRS, or other agencies
  • Shareholder demands or derivative lawsuits alleging misconduct
  • Whistleblower tips
  • Routine compliance checks in high-risk areas

While many investigations are reactive, proactive reviews can help companies stay compliant, especially in regulated industries like finance, healthcare, energy, and manufacturing.

The goal is always to uncover facts, address problems, and document corrective actions. A thorough internal investigation can help a company avoid costly litigation, regulatory penalties, and reputational damage.

Best Practices for Conducting an Internal Investigation

While each case is unique, most effective investigations follow these steps:

  1. Obtain Proper Authority: Secure board or executive approval to ensure legitimacy.
  2. Define the Scope: Clearly outline what issues will be investigated and the timeframe covered.
  3. Gather and Preserve Evidence: Collect documents, emails, and other relevant materials while maintaining chain of custody.
  4. Interview Witnesses: Speak to employees and other relevant parties while protecting confidentiality.
  5. Analyze Findings: Assess whether misconduct occurred and identify root causes.
  6. Report Results: Present findings to the appropriate decision-makers or regulatory bodies.
  7. Implement Remediation: Update policies, provide training, or take disciplinary action as necessary.

The Value of a Proactive Approach

The most effective internal investigations aren't just reactive damage control—they're part of a broader compliance culture. Companies that regularly review their operations, train employees on ethics and compliance, and maintain open reporting channels are better positioned to:

  • Detect misconduct early
  • Avoid regulatory penalties
  • Maintain strong relationships with investors and stakeholders
  • Protect their reputation

From their beginnings in the 1960s to the complex, technology-driven reviews of today, internal corporate investigations have evolved into a vital compliance tool. Legislative milestones like the Sarbanes-Oxley Act and Dodd-Frank, coupled with regulatory guidance from the SEC and DOJ, have made these investigations central to corporate governance.

For businesses in every industry, the message is clear: conducting thorough, timely, and well-documented internal investigations is not optional—it's essential for legal compliance, risk management, and maintaining public trust.

Contact Peters Brovner

At Peters Brovner, we have extensive experience guiding corporations through sensitive internal investigations. Our attorneys understand the legal, regulatory, and reputational stakes involved, and we work discreetly and strategically to protect your business. Whether you need to respond to a government inquiry, address a whistleblower complaint, or strengthen your compliance program, our team is here to help.

Contact us today to discuss how we can support your company's internal investigation needs.