New York Federal Criminal Practice Blog
May 27, 2008

EDNY Judge Finds No Improper Collusion Between Parallel USAO and SEC Investigations

It is not uncommon for a defendant in a white collar criminal case to be the subject of parallel civil government enforcement proceedings.  While the latter can yield useful discovery for the criminal case, that opportunity cuts both ways, as illustrated in United States v. Leonard, 02 cr 881 (LDW), 2008 WL 1943548 (E.D.N.Y. May 1, 2008). 

At Leonard's trial on securities fraud charges, the government introduced his deposition testimony, among other evidence, gleaned from a parallel SEC action.  Following his conviction, the court held a hearing on Leonard's motion to dismiss the indictment and/or suppress the SEC evidence on the grounds that the U.S. Attorney's office "improperly colluded with the SEC by manipulating the SEC civil investigation discovery procedures to obtain evidence against Leonard for use in the criminal proceedings without advising him that he was a target of the criminal investigation." 

Denying the motion in a short decision, the court concluded that this was not "a single, unitary investigation," but in fact two investigations, proceeding in parallel.  "Although there may have been some coordination of efforts by the SEC and the Department of Justice to avoid duplication of efforts in pursuing the parallel investigations, the record does not reveal that the FBI or the USAO improperly or secretly manipulated or controlled the SEC's investigation, including Leonard's SEC deposition."  This was therefore not a case like United States v. Scrushy, 366 F.Supp.2d 1134 (N.D.Ala. 2005), the Leonard court concluded, where the court dismissed the indictment because the USAO used and directed the SEC investigation to gather evidence and manipulate venue, and engaged in deceit to conceal the involvement of federal prosecutors. 
It is unfortunate that there is such a paucity of facts presented in this important decision.  For example, the decision fails to explain the level of "coordination" between the two investigating bodies, and does not address whether there was any deception in either body's dealings with the defendant.  Coordination to avoid duplication sounds troublingly close to using one investigation to collect evidence for the other. 

But the case is a stark reminder that with any regulatory investigation, especially an SEC one, a criminal one may be around the corner, and defendants should consider acting accordingly.  Defensive measures include asserting the Fifth Amendment right against self incrimination, despite the adverse inference that may be drawn from that in a civil context, or seeking a protective order precluding the disclosure of civil discovery to criminal investigators and the grand jury.  See Minpeco S.A. v. Conticommodity Services, Inc., 832 F.2d 739 (2d Cir. 1987) (protective order appropriate unless government makes strong showing to the contrary).

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