CA9: SEC investigation led to valid consent that led to a criminal investigation

Consent obtained during an SEC investigation by the SEC was not involuntary because the targets were well aware of the potential for a criminal investigation arising out of it. United States v. Stringer, 521 F.3d 1189 (9th Cir. 2008):

In this case, the SEC made no affirmative misrepresentations. The SEC did advise defendants of the possibility of criminal prosecution. The SEC engaged in no tricks to deceive defendants into believing that the investigation was exclusively civil in nature. The SEC’s Form 1662 explicitly warned defendants that the civil investigation could lead to criminal charges against them: “Information you give may be used against you in any federal … civil or criminal proceeding brought by the Commission or any other agency.” Defendants were represented by counsel, and the government provided counsel, so far as this record reflects, with accurate information. The standard we laid down in Robson was not violated.

The defendant-appellees point to a number of collateral facts they argue demonstrate trickery or deliberate misleading. They argue the SEC Staff Attorney affirmatively misled Stringer’s attorney when, in response to the attorney’s question about other agency involvement, she directed him to the provision in Form 1662 that warned that the SEC would likely turn over to the USAO evidence it collected at the depositions. The Staff Attorney, during the deposition taken in Portland, declined to direct defense counsel to a specific U.S. Attorney’s Office, which would have been the Portland Office, but there was nothing false or misleading in her response that it was up to the defendant to decide where to direct his inquiries.

The defendant-appellees also point to the Staff Attorney’s request to the court reporters not to mention the AUSA in the presence of defendants’ attorneys. While this indicates an intent to prevent disclosure to defendants of the actual criminal investigation, the possibility of criminal investigation should have been well known to both the defendants and their counsel. The request to the court reporters to, in effect, mind their own business did not mislead or misinform defendants about the existence of an investigation. Thus, to the extent that the Fourth Amendment may have been implicated by the dual investigation, the district court erred in concluding that the government’s actions in this case constituted an unreasonable search or seizure.

See Ellen Podgor’s White Collar Blog for her commentary on other aspects of this case involving the attorney-client privilege.

Comment: In my one SEC case, the mere possibility of a criminal prosecution was always hanging over our shoulders. It was so obvious you could cut it with a knife, and one would have to be completely obtuse to not recognize the risk. Maybe it is my training as a criminal defense lawyer that makes me more cynical about government motives in the first place ….