(The news featured
below is a selection from the news covered in Federal Securities Law Reporter,
which is distributed to subscribers of Federal
Securities Law Reporter.)
Claimed Government
Misconduct Not a Bar to Prosecution
A 9th Circuit panel
found that a district court improperly dismissed criminal securities fraud
charges against two former corporate officers. The district court concluded that
the government had engaged in "deceitful conduct" in violation of due
process by simultaneously pursuing civil and criminal investigations. In the
alternative, the trial court ruled that if there was a criminal trial, all
evidence provided by the individual defendants in response to SEC subpoenas
should be suppressed. Additionally, the district court found that the government
improperly interfered with or intruded into the attorney-client relationship of
one of the defendants by accepting incriminating evidence about the entry from a
defense attorney. The attorney had an apparent conflict of interest because she
represented the corporation as well as an individual defendant.
The 9th Circuit panel vacated the dismissal of the indictments, however.
According to the appellate court, a "standard form" letter sent to the
defendants "fully disclosed the possibility that information received in
the course of the civil investigation could be used for criminal
proceedings." The panel reasoned that there was no deceit, and the
government did not act wrongfully in its decision not to conduct the criminal
investigation openly. "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," stated the court.
The court found the government had no duty to disclose the criminal
investigation beyond what was stated in the form letter sent to the defendants.
The civil investigation was also not a sham or pretext to produce information
for the criminal prosecution. Claims that the conduct of SEC staff attorneys who
instructed court reporters to refrain from mentioning the U.S. Attorney's
involvement in the case and gave "evasive" answers to questions about
the dual investigations were rejected. According to the court,
in this case, the
SEC made no affirmative misrepresentations. The SEC did advise defendants of
the possibility of criminal prosecution. The SEC engaged in no tricks to
deceive defendants into believing that the investigation was exclusively civil
in nature. The SEC's Form 1662 explicitly warned defendants that the civil
investigation could lead to criminal charges against them: "Information
you give may be used against you in any federal . . . civil or criminal
proceeding brought by the Commission or any other agency." Defendants
were represented by counsel, and the government provided counsel, so far as
this record reflects, with accurate information.
Finally, the court
agreed with the government that it did not deliberately intrude into one of the
defendants' attorney-client relationship because it received information that
the attorney offered the government, wholly independent of any government
conduct. According to the court, the defendant was fully aware of the attorney's
potential conflicts of interest and had been advised of the risks of employing
an attorney who also represented the corporation.
|