Monday, October 9, 2006

Parallel Investigations

The US Attorney's Office in Massachusetts has a press release here informing the public of a recent white collar sentencing. The former executive of North Andover Corporation was sentenced for convictions on  8 counts of securities and wire fraud to a sentence of  2years and 6 months’ imprisonment, to be followed by 3 years of supervised release.  According to the government press release, "[t]he evidence established that the [defendant] falsely overstated the sales and revenues of Interspeed by approximately $9 million, over 60% of the company’s publicly reported revenues, through various fraudulent acts."  But one paragraph in the press release is particularly interesting as it states:

"The Securities and Exchange Commission filed a parallel civil proceeding against the defendant. The U.S. Attorney appreciates greatly the cooperation and assistance of the SEC in this matter."

Should a civil agency be permitted to provide materials to the criminal body prosecuting a case?

(esp)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2006/10/parallel_invest.html

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Comments

I have a hunch that the press release is overstating the extent of the cooperation. I don’t have direct knowledge, but I think that they are proceeding very carefully when they proceed in parallel, so as not, in Ghostbusters lingo, to “Cross the Streams.”

Posted by: S.cotus | Oct 9, 2006 8:49:05 PM

Yes.

And I say that as a person who was successfully brought to his knees by the parallel investigations of the Justice Department (criminal), the Securities and Exchange Commission (civil) and class action civil plaintiffs and other civil litigants.

The prohibition only relates to the Justice Department sharing its criminal investigation materials with civil litigants including the SEC. Civil litigants have a free speech right to share information with criminal investigators unless ordered by the Court to seal discovery. However, such information can be available via subpoena by the criminal investigators.

In the Crazy Eddie matter the parallel investigations and the information provided by all civil litigants (SEC and private litigants) resulted in both successful criminal prosecutions and civil prosecutions which yielded shareholders almost $0.30 per dollar recovery - a percentage almost ten times in excess of what is usually recovered from such securities frauds. In addition the government and civil litigants actually collected funds from the litigants in excess of the profits the Antar family made on the stock pretax.

Therefore on both legal and public policy grounds a civil agency should be permitted to provide materials to the criminal body prosecuting a case.

Posted by: Sam E. Antar | Oct 9, 2006 11:08:58 PM

Why not? It becomes a problem if it goes the other way - a grand jury turning over information obtained during the course of its investigation for use in an enforcement action.

Posted by: mab | Oct 10, 2006 3:49:32 AM

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