Defense Digest 3/09: Federal Civil And Criminal Agency Investigations May Proceed Against Individuals Or Corporation Simultaneously And Agencies May Share Information
By Susan L. DiGiacomo, Esq.*
Federal - Civil/Criminal Cooperation
Corporate clients should be aware that parallel investigations may be conducted and the information may be shared between the civil and criminal investigating agencies. An important decision was announced in the Ninth Circuit earlier this year regarding parallel criminal and civil investigations. In United States v. Stringer, 535 F.3d 929 (9th Cir. 2008)(petition for certiorari filed October 29, 2008), the Ninth Circuit Court of Appeals found that as long as there are no "affirmative misrepresentations" by the government to the targets, the sharing of information or coordination of direction between civil and criminal investigations may not be governmental misconduct. Counsel advising clients regarding regulatory or administrative governmental requests should consider other enforcement actions which may be lurking.Parallel investigations occur when a civil investigation is proceeding at the same time as a criminal investigation. Many times the investigations may be conducted by different government agencies. Trouble arises when information, to which the other agency may not be entitled, is shared or when an agency misleads the subject of the investigation to believe that there are no parallel investigations. Simply stated, when the government acts in a deceitful manner, the courts have not been pleased and have punished the government by dismissing the case.
In Stringer, a federal trial court dismissed the criminal indictments against three corporate executives who were charged with securities, mail, and wire fraud. The federal trial court, the United States District Court for the District of Oregon, dismissed the indictments because it found that the government engaged in "deceitful conduct" and violated the defendants' Fifth Amendment rights.
The SEC began an investigation of Stringer, other corporate executives, and their company for securities fraud violations. Two weeks later, the SEC began to meet with the United States Attorney's Office to coordinate the SEC investigation with a possible criminal investigation. Securities laws permit the SEC to disclose all information gathered in its investigation to facilitate a criminal investigation. Thereafter, the United States Attorney's Office and the FBI opened a criminal investigation and, as required under securities law, sent an "Access Letter" requesting access to the SEC file. See 15 U.S.C. §§ 77t(b), 78u(d).
During the course of the SEC investigation:
1. The SEC offered to conduct the interviews of the defendants so as to create "the best record possible" in support of "false statement cases" against them.
2. The AUSA instructed the SEC staff attorney on how best to do that.
3. The AUSA asked the relevant SEC office, which is located in Los Angles, to take the depositions in Oregon so that the AUSA's office would have venue over any false statements cases that might arise from the depositions.
4. The SEC and USAO both wanted the existence of the criminal investigation kept confidential.
The SEC subpoenaed Stringer for a deposition. Attached to Stringer's subpoena was SEC Form 1662. At the beginning of the deposition on the record, counsel for Stringer asked the SEC staff attorney if Stringer was the target of the SEC investigation. The SEC attorney replied that the SEC does not have targets in this investigation. Counsel then asked if the SEC is working in conjunction with any other department of the United States, such as the U.S. Attorney's Office in any jurisdiction, or the Department of Justice. The SEC attorney referred him to form 1662 and the "routine use of" section of SEC investigations and that it is the SEC's policy not to respond to questions like that but to direct counsel to the other agencies. However, when counsel asked which U.S. Attorney's Office he might inquire with, the SEC attorney replied that it would be up to his discretion.
The trial court dismissed the indictments finding that the government used "trickery and deceit to conceal the investigations from the defendants." The government appealed to the Ninth Circuit.
SEC Form 1662 states in its "routine use" section that "the Commission often makes its files available to other governmental agencies, particularly the United States Attorneys and state prosecutors." Further, the form advises the witness of the right to not incriminate oneself, stating, "Information you give may be used against you in any federal... civil or criminal proceeding brought by the Commission or any other agency."
On appeal, the Government stressed that it had no legal duty to disclose the investigation and made no affirmative misrepresentations to the defendant. Further, the government argued that a failure to invoke a claim of privilege waives a later claim of privilege. The Ninth Circuit agreed and reinstated the indictments. The Ninth Circuit found that Form 1662 gave sufficient notice to Stringer that information could be used against him. Further, the Ninth Circuit disagreed with Stringer in his assertion that the government used the civil investigation to solely obtain evidence for a criminal prosecution. The Court noted in this case the civil action was commenced first and led to SEC sanctions.
It is important to keep in mind that, even if a governmental agency request is administrative, regulatory, or civil in nature, the information may be provided to a criminal agency. Counsel should give serious consideration to a global enforcement picture before proceeding.
* Susan is Special Counsel to the firm. Susan may be reached at sldigiacomo@MDWCG.com or (215) 575-2791.
