Post by fastwalker on Feb 14, 2006 22:36:39 GMT -5
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Re: Prosecutors and the SEC improperly collude
« Thread Started on Today at 8:19pm »
Reining in a dynamic duo: Justice Department and SEC
Wednesday, January 25, 2006
By Peter Lattman and Kara Scannell, The Wall Street Journal
The Justice Department and the Securities and Exchange Commission long have worked in concert in fighting corporate wrongdoing, securing convictions and settlements in recent years against former executives at WorldCom Inc., Enron and elsewhere.
The SEC can bring civil charges and seek to impose financial penalties and to ban transgressors from top jobs at publicly traded corporations or from the securities industry. The Justice Department can bring criminal charges and seek prison sentences for the most serious white-collar violators.
In two recent cases, however, federal judges have taken the agencies to task for using what the judges deemed an unfair one-two-punch approach in criminal cases.
In Oregon this month, a judge dismissed criminal charges against three corporate executives, saying the Justice Department unconstitutionally pursued a stealth criminal investigation under the cloak of a less-threatening civil proceeding by the SEC. And in Alabama last year, a judge dismissed charges that former HealthSouth Corp. Chief Executive Richard Scrushy lied to the SEC, ruling that he should have been warned that the Justice Department already had opened a criminal investigation when the SEC questioned him.
In both cases, the judges found the line between the agencies' roles had become improperly blurred.
"It is entirely appropriate and necessary for courts to make sure that line is clear," says defense lawyer Jacob Frenkel, a former SEC lawyer and federal prosecutor.
The SEC and the Justice Department long have run parallel investigations. Business scandals prompted President Bush in July 2002 to create the Corporate Fraud Task Force, which stepped up coordination between federal agencies.
"It's important that those of us with expertise in the securities field can lend that expertise to criminal prosecutors and work together," says Linda Chatman Thomsen, the SEC's director of enforcement. "All of us do have to worry about making sure we do it right while protecting fairness and due process."
The SEC refers matters to the Justice Department if the agency decides violations merit criminal investigation. But defense lawyers say the system becomes unfair if prosecutors use a civil SEC probe to secretly advance a criminal case.
Without an explicit threat of jail time, executives have a greater incentive to cooperate in SEC investigations. Subjects of SEC probes can assert their Fifth Amendment rights against self-incrimination and stay silent, but judges and juries are allowed to draw "adverse inferences" from such assertions in civil trials. In criminal trials, such inferences aren't allowed. It puts corporate defendants in a Catch-22: If they talk to the SEC, they might help criminal prosecutors. If they don't, they will be disadvantaged in the civil case.
Though no statute articulates how parallel civil and criminal proceedings work, courts for years have allowed the U.S. agencies leeway: They can communicate regularly, exchange information and discuss strategy, though prosecutors can't share anything they learn via grand-jury proceedings, which are by law secret.
In a 1970 case involving the Food and Drug Administration and criminal prosecutors, the Supreme Court confirmed that parallel proceedings are constitutional. But it said that case didn't involve the government's using a civil action "solely to obtain evidence for its criminal prosecution" or failing to advise a defendant that he faced criminal charges -- suggesting that such tactics might be unconstitutional.
"Up until now, the courts have mostly taken a hands-off approach to parallel proceedings," says Peter Henning, law professor at Wayne State University Law School in Detroit and a former federal prosecutor and SEC lawyer.
He adds: "Judges are trying to find a line to accommodate the cooperation between civil and criminal investigations without allowing the civil investigation to be a facade for the Justice Department."
In the Oregon case, U.S. v. Stringer, U.S. District Judge Ancer Hagerty dismissed criminal indictments against three former executives at Flir Systems Inc., a technology company.
The judge pointed to a Federal Bureau of Investigation memo about a 2000 meeting with the SEC and federal prosecutors. The memo said that because one of the defendants had agreed to an SEC interview, the FBI -- an arm of the Justice Department -- wouldn't conduct any interviews that would flag a criminal investigation "so as not to jeopardize the opportunity to obtain statements from these individuals."
Another memo cited by the judge indicated that prosecutors opted against opening a grand-jury investigation so they could "passively observe the results of the SEC's work" -- a strategy that "provided good investigative results, at little cost." The judge also cited an SEC lawyer's handwritten note to herself to "make sure court reporters won't tell" a defense lawyer about Justice Department involvement.
Judge Hagerty's Jan. 9 ruling was blistering in its criticism, accusing prosecutors of spending "years hiding behind the civil investigation to obtain evidence, avoid criminal-discovery rules and avoid constitutional protections." The judge accused prosecutors of using "deceit and trickery" to conduct a criminal probe "behind the guise of a civil prosecution."
The U.S. attorney for Oregon, Karin Immergut, says the Justice Department is reviewing appeal options and "we disagree with the court's decision based on the facts and the law." The SEC declined to comment on the case, which was the subject of an Oregonian newspaper article Jan. 15.
The judge's opinion "clearly shows judicial aversion" to the close working relationship between the two agencies, says Mary Jo White, a former U.S. attorney for the Southern District of New York. While the conduct "sounded scuzzy," she adds, "I don't think it's going to have broad repercussions."
In dismissing the perjury counts against HealthSouth's Mr. Scrushy, U.S. District Judge Karon Bowdre criticized the government for "failing to advise Mr. Scrushy or his attorneys about the criminal investigation."
The judge based her decision in part on a 2003 ruling by U.S. District Judge Inge Johnson in the SEC's civil case against Mr. Scrushy. Reversing a court-approved freeze of Mr. Scrushy's assets by the SEC, Judge Johnson also criticized the two agencies.
"The government had undoubtedly manipulated simultaneous criminal and civil proceedings," she wrote.
Thomas Sjoblom, a former SEC lawyer and Mr. Scrushy's lawyer in the asset-freeze hearing, says parallel probes were more carefully conducted in his days at the agency. Defense lawyer Ralph Ferrara, a former SEC general counsel, agrees. "These folks are moving in shadows with one another," he says.
Judges don't always act on defendants' complaints. Lawyers for Jeffrey Skilling, the former Enron chief executive, sought to bar Mr. Skilling's SEC deposition testimony from being introduced at his coming criminal trial, citing the Oregon case. Monday, the judge denied the request.
www.post-gazette.com/pg/06025/644073.stm
Re: Prosecutors and the SEC improperly collude
« Thread Started on Today at 8:19pm »
Reining in a dynamic duo: Justice Department and SEC
Wednesday, January 25, 2006
By Peter Lattman and Kara Scannell, The Wall Street Journal
The Justice Department and the Securities and Exchange Commission long have worked in concert in fighting corporate wrongdoing, securing convictions and settlements in recent years against former executives at WorldCom Inc., Enron and elsewhere.
The SEC can bring civil charges and seek to impose financial penalties and to ban transgressors from top jobs at publicly traded corporations or from the securities industry. The Justice Department can bring criminal charges and seek prison sentences for the most serious white-collar violators.
In two recent cases, however, federal judges have taken the agencies to task for using what the judges deemed an unfair one-two-punch approach in criminal cases.
In Oregon this month, a judge dismissed criminal charges against three corporate executives, saying the Justice Department unconstitutionally pursued a stealth criminal investigation under the cloak of a less-threatening civil proceeding by the SEC. And in Alabama last year, a judge dismissed charges that former HealthSouth Corp. Chief Executive Richard Scrushy lied to the SEC, ruling that he should have been warned that the Justice Department already had opened a criminal investigation when the SEC questioned him.
In both cases, the judges found the line between the agencies' roles had become improperly blurred.
"It is entirely appropriate and necessary for courts to make sure that line is clear," says defense lawyer Jacob Frenkel, a former SEC lawyer and federal prosecutor.
The SEC and the Justice Department long have run parallel investigations. Business scandals prompted President Bush in July 2002 to create the Corporate Fraud Task Force, which stepped up coordination between federal agencies.
"It's important that those of us with expertise in the securities field can lend that expertise to criminal prosecutors and work together," says Linda Chatman Thomsen, the SEC's director of enforcement. "All of us do have to worry about making sure we do it right while protecting fairness and due process."
The SEC refers matters to the Justice Department if the agency decides violations merit criminal investigation. But defense lawyers say the system becomes unfair if prosecutors use a civil SEC probe to secretly advance a criminal case.
Without an explicit threat of jail time, executives have a greater incentive to cooperate in SEC investigations. Subjects of SEC probes can assert their Fifth Amendment rights against self-incrimination and stay silent, but judges and juries are allowed to draw "adverse inferences" from such assertions in civil trials. In criminal trials, such inferences aren't allowed. It puts corporate defendants in a Catch-22: If they talk to the SEC, they might help criminal prosecutors. If they don't, they will be disadvantaged in the civil case.
Though no statute articulates how parallel civil and criminal proceedings work, courts for years have allowed the U.S. agencies leeway: They can communicate regularly, exchange information and discuss strategy, though prosecutors can't share anything they learn via grand-jury proceedings, which are by law secret.
In a 1970 case involving the Food and Drug Administration and criminal prosecutors, the Supreme Court confirmed that parallel proceedings are constitutional. But it said that case didn't involve the government's using a civil action "solely to obtain evidence for its criminal prosecution" or failing to advise a defendant that he faced criminal charges -- suggesting that such tactics might be unconstitutional.
"Up until now, the courts have mostly taken a hands-off approach to parallel proceedings," says Peter Henning, law professor at Wayne State University Law School in Detroit and a former federal prosecutor and SEC lawyer.
He adds: "Judges are trying to find a line to accommodate the cooperation between civil and criminal investigations without allowing the civil investigation to be a facade for the Justice Department."
In the Oregon case, U.S. v. Stringer, U.S. District Judge Ancer Hagerty dismissed criminal indictments against three former executives at Flir Systems Inc., a technology company.
The judge pointed to a Federal Bureau of Investigation memo about a 2000 meeting with the SEC and federal prosecutors. The memo said that because one of the defendants had agreed to an SEC interview, the FBI -- an arm of the Justice Department -- wouldn't conduct any interviews that would flag a criminal investigation "so as not to jeopardize the opportunity to obtain statements from these individuals."
Another memo cited by the judge indicated that prosecutors opted against opening a grand-jury investigation so they could "passively observe the results of the SEC's work" -- a strategy that "provided good investigative results, at little cost." The judge also cited an SEC lawyer's handwritten note to herself to "make sure court reporters won't tell" a defense lawyer about Justice Department involvement.
Judge Hagerty's Jan. 9 ruling was blistering in its criticism, accusing prosecutors of spending "years hiding behind the civil investigation to obtain evidence, avoid criminal-discovery rules and avoid constitutional protections." The judge accused prosecutors of using "deceit and trickery" to conduct a criminal probe "behind the guise of a civil prosecution."
The U.S. attorney for Oregon, Karin Immergut, says the Justice Department is reviewing appeal options and "we disagree with the court's decision based on the facts and the law." The SEC declined to comment on the case, which was the subject of an Oregonian newspaper article Jan. 15.
The judge's opinion "clearly shows judicial aversion" to the close working relationship between the two agencies, says Mary Jo White, a former U.S. attorney for the Southern District of New York. While the conduct "sounded scuzzy," she adds, "I don't think it's going to have broad repercussions."
In dismissing the perjury counts against HealthSouth's Mr. Scrushy, U.S. District Judge Karon Bowdre criticized the government for "failing to advise Mr. Scrushy or his attorneys about the criminal investigation."
The judge based her decision in part on a 2003 ruling by U.S. District Judge Inge Johnson in the SEC's civil case against Mr. Scrushy. Reversing a court-approved freeze of Mr. Scrushy's assets by the SEC, Judge Johnson also criticized the two agencies.
"The government had undoubtedly manipulated simultaneous criminal and civil proceedings," she wrote.
Thomas Sjoblom, a former SEC lawyer and Mr. Scrushy's lawyer in the asset-freeze hearing, says parallel probes were more carefully conducted in his days at the agency. Defense lawyer Ralph Ferrara, a former SEC general counsel, agrees. "These folks are moving in shadows with one another," he says.
Judges don't always act on defendants' complaints. Lawyers for Jeffrey Skilling, the former Enron chief executive, sought to bar Mr. Skilling's SEC deposition testimony from being introduced at his coming criminal trial, citing the Oregon case. Monday, the judge denied the request.
www.post-gazette.com/pg/06025/644073.stm
