U.S. v. Stringer, 06-30100 (9^th Cir., April 4, 2008)

This Ninth Circuit decision addresses some tricky issues that arise when one branch of the government is conducting a civil investigation into wrongdoing that is also the subject of a criminal investigation. In this case, the Securities and Exchange Commission targeted an Oregon company and its officers for a civil securities fraud investigation. Shortly after opening the case, SEC officials paid a visit to the U.S. Attorney’s Office in Oregon. Based on information shared during this visit, the USAO and the FBI opened a criminal investigation against the same targets.

The targets cooperated with the SEC but were unaware of the pending criminal investigation. Eventually, the USAO indicted the company and three officers, relying heavily on information the defendants had volunteered during the SEC’s civil investigation. But the district court dismissed the indictment, concluding that the agencies had violated due process by misleading the defendants about their simultaneous investigations.

On appeal, a panel of the Ninth Circuit reverses. The panel explains that because the civil investigation was initiated before the criminal investigation, there is less of a concern that the government is improperly using civil tools to gain evidence for criminal charges. Here, each of the defendants was represented by counsel, and they should have been well aware that the civil investigation could lead to indictments. Indeed, each of the defendants was provided with Form 1662, which contains a standard government warning that information may be used for criminal prosecution and reminds recipients that they can invoke their Fifth Amendment right to silence.

When it dismissed the indictment, the district court found that the SEC deliberately misled the defendants about the existence of a criminal investigation. Check out this fancy footwork by an SEC Staff Attorney during the deposition of defendant Kenneth Stringer, who was under criminal investigation by the Oregon U.S. Attorneys Office:

MR. MARTSON: My first question is whether Mr. Stringer is a target of any aspect of the investigation being conducted by the SEC.

STAFF ATTORNEY: The SEC does not have targets in this investigation.

MR. MARTSON: The other questions I have relate to whether or not, in connection with your investigation, 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.

STAFF ATTORNEY: As laid out in the 1662 form, in the “routine use of” section there are routine uses of our investigation, and it is the agency’s policy not to respond to questions like that, but instead, to direct you to the other agencies you mentioned.

MR. MARTSON: And which U.S. Attorney’s Office might I inquire into?

STAFF ATTORNEY: That would be a matter up to your discretion.

The district court felt that the Staff Attorney’s answers were evasive enough to amount to deceit, but the Ninth disagrees. The panel concludes that the Staff Attorney answered the questions truthfully and did not make any false or misleading statements.

Finally, the district court took issue with the fact that, prior to the defendants’ depositions, an SEC attorney told court reporters not to mention the fact that there was an AUSA assigned to the case. The district court saw this as evidence of deliberate concealment, but the Ninth again disagrees. The panel concludes that the SEC attorney’s statements to court reporters amounted to nothing more than a warning to mind their own business.

It’s an interesting decision, and one that should be read carefully by government attorneys and white collar defense attorneys alike.

Posted Mon, 07 Apr 2008 06:16:33 and filed under Due Process, Fifth Amendment, Decision of the Day. You can leave a response, or trackback from your own site.