In Bad Faith

Among the most daunting challenges facing counsel is whether to advise clients to take the Fifth when the SEC comes knocking.

"The pros and cons are often evenly weighted, but the existence of a parallel criminal investigation militates strongly in favor of taking the Fifth," says Perrie Weiner, international co-chair of DLA Piper's securities litigation group.

When criminal charges were laid, the defendants sought dismissal on the grounds that the civil case was directed by and benefitted the prosecution. The District Court agreed, noting that the DOJ had decided early on to obtain information through the civil proceedings rather than on its own. By being so "actively involved," prosecutors had effectively carried out a criminal investigation in the guise of civil proceedings, offending the defendants' constitutional rights.

"The District Court treated the standard form as a garden variety form, like the fine print on the back of a rental contract, so that signing it didn't amount to a proper waiver of rights," says Doug Jensen, counsel at Chadbourne & Park.

What in-house counsel must always bear in mind is that prosecutors' threshold for seeking indictments and getting before grand juries is very low, at times requiring only scanty information.

"As they say, the government can indict a ham sandwich if it wants to," says Richard Walton, counsel at Buchalter Nemer. "And if they get the indictment and charge an individual, that person's life may be over as they know it, even if there's eventually an acquittal."


Julius Melnitzer

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