9th Circuit Upholds Coordinated SEC/DOJ Investigations

U.S. v. Stringer

Although I rarely discuss non-SEC opinions the Ninth Circuit has just issued an important decision for all practitioners that deal with joint SEC/Department of Justice investigations.  Contrary to the claims of some, this is a major win for the SEC.  It ends the time wasting claims by some defense counsel that have tied up SEC resources in subpoena enforcement cases where persons receiving subpoenas argued that coordinated investigations are per se improper. Further, the decision will not restrict SEC investigations by hindering witness cooperation as all experienced defense counsel already know that the SEC and DOJ always share information and counsel never advise clients who may have potential criminal liability to cooperate with the SEC without an immunity grant.  Experienced defense counsel know that the only way to deal with an SEC investigation is to assume that the DOJ may be involved and to (in the words of Jack Nicholson)  "act accordingly," that is, either fully cooperate or take the Fifth.  Last, one commentator has argued that this, like the Martha Stewart case, will discourage cooperation with the SEC.  Again, I beg to differ.  The lesson from the Martha Stewart case is simple, if you are going to testify before the SEC, tell the truth.

In recent years various defense counsel have attempted to argue that it is inherently improper for the SEC and DOJ to conduct joint investigations and to share information they develop. Some have attempted to argue that any such investigations be completely independent and that any sharing of information or coordination between the SEC and DOJ is verboten.  This case should put and end to these defense claims.

Here, the court of appeals overturned a district court decision dismissing an indictment after finding that the SEC's practice of not disclosing details of its contacts with the DOJ was improper and tainted a subsequent criminal prosecution.  

Specifically, the circuit ruled:

"We vacate the dismissal of the indictments because in a standard form it sent to the defendants, the government fully disclosed the possibility that information received in the course of the civil investigation could be used for criminal proceedings. There was no deceit; rather, at most, there was a government decision not to conduct the criminal investigation openly, a decision we hold the government was free to make. There is nothing improper about the government undertaking simultaneous criminal and civil investigations, and nothing in the government’s actual conduct of those investigations amounted to deceit or an affirmative misrepresentation justifying the rare sanction of dismissal of criminal charges or suppression of evidence received in the course of the investigations."

This was more than merely parallel SEC/DOJ investigations.  As the court explained:

"The SEC facilitated the criminal investigation in a number of ways. The SEC offered to conduct the interviews of defendants so as to create “the best record possible” in support of “false statement cases” against them, and the AUSA instructed the SEC Staff Attorney on how best to do that. The AUSA asked the relevant SEC office, located in Los Angeles, to take the depositions in Oregon so that the Portland Office of the USAO would have venue over any false statements case that might arise from the depositions, and the SEC did so. Both the SEC and USAO wanted the existence of the criminal investigation kept confidential. The SEC Staff Attorney, at one of the Portland depositions, made a note that she wanted to “make sure [the] court reporters won’t tell [[defense counsel]]” that there was an AUSA assigned to the case."

The court ruled that the SEC had no affirmative duty to disclose its cooperation with the DOJ and that it was sufficient for Fifth Amendment purposes for it to disclose the possibility that it might share information obtained in its investigation with the criminal prosecutors.