July 19, 2010
The SEC and monies for lawyering up...
The year was 1991. Or 1990. Anyway, PLI was offering dueling glimpses of the prosecutorial frenzy over insider trading. The conference's keynote panel featured lawyers for a broker-dealer who argued that a legitimate enterprise had been squeezed into submission by the asset forfeiture provisions of the RICO law; responding prosecutors highlighted wiretaps disclosing boasts such as "Welcome to the world of sleeze." At the most confrontational moment, a storied SDNY judge took the floor and warned the SEC, "Cool your jets."
It was great theatre, and prescient legal commentary. For perhaps gone are the days when securities regulators can dance in and out of the dictates of criminal procedure. Witness a recent SDNY decision, SEC v. FTC Capital Markets Inc, 09 Civ. 4755 (June 29, 2010). In granting the defendant's motion modifying an SEC injunction to permit an advance of legal fees, the Judge stated as follows:
"This Court concludes that [petitioner's] claim to the frozen funds is governed by the standard set forth in Monsanto and Coates. [Petitioner] has demonstrated - and the Commission does not dispute - that without advancement of the frozen funds, she will be unable to to pay defense counsel's fees in the criminal action. Under such circumstances, the Commission is required to demonstrate that the frozen funds are traceable to fraud...Here, there has been no finding that the forzen funds are traceable to fraud..."
In rejecting the Commision's reach for a restrictive standard possibly exceeding precedent (i.e., precluding the release of funds "whether or not the funds are tainted by fraud"), the Judge disregarded the SEC position at oral argument, tersely stated as "As a matter of fact, it doesn't make sense to treat one pile of money different from another pile..." The decision countered, "In determining whether funds are the proceeds of fraud or are traceable to fraud, however, it may in fact 'make sense to treat one pile of money different[ly] from another pile.'"
Such judicial brakes do more than "cool the jets" of the SEC: If the fungible money debate continues and escalates, decisions like FTC Capital Markets (and the aggressive SEC stances therein) may effect 6th Amendment case law in toto.
July 19, 2010 | Permalink