White Collar & Government Investigations - Parallel Investigations: The Open Sesame of Form 1662
In its 2006 decision dismissing an indictment of former FLIR executives for securities, mail and wire fraud, the Oregon federal court exemplified increased judicial scrutiny and rejection of prosecutors’ concealed use of SEC
civil investigations to build criminal cases. Now, however, the Ninth Circuit may have signaled an end to that trend. U.S. v. Stringer, No 06-30100 (9th Cir., April 4, 2008).
The Court of Appeals first predicates its reversal of the dismissal of charges on the 1970 Supreme Court opinion in U.S. v. Kordel, holding that parallel civil and criminal investigations are proper unless the civil case
is conducted solely for the purpose of gathering evidence for a prosecution or the government engages in affirmative misrepresentation. Overruling the district court’s findings that the SEC and Oregon U.S. Attorney deceived
the defendants by concealing the prosecution’s active participation in the SEC’s collection of evidence against them, a panel of a usually liberal federal circuit holds there was no “affirmative” deception,
because the SEC had given each of the defendants the standard Form 1662 with the agency’s request for evidence. Woe betide the executive or lawyer who fails to study that form.
SEC Form 1662, both then and now, opens with all the potential risks of less than full cooperation with the agency. It then sets forth the “Principal Uses of Information” – to gather facts relating to a
possible violation of the securities laws. The form goes on, however, under the title “Routine Uses of Information,” to list the potential beneficiaries of disclosure to the Commission: state and federal
law enforcement, self-regulating entities, foreign authorities, tax authorities, consumer reporting agencies, trustees and receivers, bar associations, and Congress. The form also includes a brief Fifth Amendment warning.
Relying repeatedly on the text of Form 1662, the Ninth Circuit panel brushed aside the concealed actions of SEC counsel and the prosecutors, which had concededly been taken to facilitate the ongoing and focused criminal investigation.
In the Court’s view, the SEC form explicitly put the defendants on notice that any information they provided the SEC was presumptively accessible to any other entity anywhere who might be interested in it. Since the
form includes a Fifth Amendment warning, the Court also concluded that the defendants had waived their right against self-incrimination in the criminal proceeding by not invoking it in response to the SEC’s civil investigative
request.
The Ninth Circuit’s decision in Stringer thus increases the intensity of the dilemma facing any business or individual who receives a request for information from the SEC or any other agency that uses Form 1662.
That dilemma is the more problematic, for, as the form also states, refusal to comply with the request may subject the recipient to conviction for criminal contempt or other violation. Now clearly, when a request for information
arrives with a Form 1662, there will be a premium on quickly determining whether the recipient has any reason to anticipate criminal scrutiny.