15 Sep 23

The Impact of a Parallel SEC and DOJ Investigation After an SEC Target Letter

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Last Updated on: 19th September 2023, 08:51 pm

The Impact of a Parallel SEC and DOJ Investigation After an SEC Target Letter

Receiving a target letter from the SEC can be an intimidating and stressful experience. It means the SEC has identified you as a target in an investigation into potential securities law violations. But what happens when you get that dreaded target letter and realize the Department of Justice is also running a parallel criminal investigation? Now you’re facing the full force and scrutiny of both the SEC and DOJ at the same time. This parallel investigation can have serious implications for your case, so it’s important to understand how it changes the landscape.

Don’t Obstruct Either Investigation

Once you get a target letter, you need to be very careful not to obstruct the investigations by either agency. That means fully cooperating with all requests for documents and testimony. Obstruction or lack of cooperation can lead the DOJ to bring criminal charges for impeding an investigation, which is a separate crime. You have to walk a fine line between vigorously defending yourself while still providing what the agencies request.

Understand How the Agencies Coordinate

The SEC and DOJ have a long history of working together on securities cases. They routinely share information and evidence through formal agreements. This coordination can bolster both investigations and make it harder to defend against them. Anything you disclose to one agency will likely end up in the hands of the other. You need to be strategic in how you interact with both agencies and understand how it may impact the overall case.

Explore Settlement Options Carefully

Settling with one agency does not mean the other will drop its investigation. For example, the SEC may be open to a settlement but the DOJ could still pursue criminal charges. Any admission or facts agreed to in an SEC settlement can then be used against you by federal prosecutors. You need to look at the whole picture when exploring settlements and get experienced counsel to advise you on the implications.

Assert Your Constitutional Rights

The Fifth Amendment right against self-incrimination applies to both SEC and DOJ investigations. This means you can assert your right not to provide testimony that could implicate you in criminal conduct. However, asserting the Fifth Amendment in an SEC investigation while still defending yourself can be tricky. You need an experienced securities attorney to help you navigate this issue.

Challenge Improper Coordination Between Agencies

While the SEC and DOJ cooperate regularly, their coordination is still subject to limits. If you believe the two investigations have become one, with no separation between agencies, you may be able to challenge the coordination as improper. Your attorney can explore arguments that the SEC violated its duty to inform you of this merger of investigations. But this is a complex area of law you need expert advice on.

Explore Selective Prosecution Defenses

Being targeted by both the SEC and DOJ at the same time raises the question of selective prosecution. Your attorney can probe whether you’ve been singled out for prosecution based on improper considerations like race, religion, or the exercise of constitutional rights. While not easy to prove, selective prosecution claims can potentially get charges dismissed.

Don’t Let Your Guard Down with Either Agency

It’s natural to feel like once you’re under DOJ investigation, the SEC matter becomes less serious. But you can’t let your guard down with either agency. The SEC can still impose huge civil fines and other penalties even if no criminal charges are filed. You need to take both investigations seriously and mount a strong defense across the board.

Explore Global Resolutions

If fighting the allegations on the merits looks challenging, you may want to proactively explore a global resolution. This involves going to both agencies, laying all your cards on the table, and seeking a comprehensive settlement. This can potentially resolve all issues at once instead of fighting a two-front war. But the decision requires a clear-eyed assessment of your case.

Don’t Try to Play the Agencies Off Each Other

While the SEC and DOJ have some differences, they also work closely together. Any attempt to pit one against the other or manipulate their procedures is likely to fail. You’re better off exploring global resolutions or fighting the allegations on the facts. The agencies have their own objectives but also help each other, so a divide and conquer strategy rarely succeeds.

Prepare for Legal Whiplash

Going through simultaneous SEC and DOJ investigations can feel like legal whiplash. You respond to SEC requests, then get hit with DOJ subpoenas. Settlement talks with one agency falter while the other ramps up pressure. This rollercoaster is emotionally and physically draining. Make sure you take care of yourself throughout the process.

Don’t Forget About State and SRO Investigations

To make matters more complicated, you may also face parallel investigations by state securities regulators and self-regulatory organizations (SROs) like FINRA. All these entities often cooperate and share information just like the SEC and DOJ. So don’t forget to factor in potential state and SRO actions as you build your defense strategy.

Focus on the End Game

It’s easy to get lost in the details and overwhelmed by responding to both SEC and DOJ demands. But don’t lose sight of the big picture and your end goal. This could be a global resolution, taking your case to trial, or some other endpoint. Keep this goal in mind to stay focused amidst the chaos of parallel probes.

Don’t Go It Alone

Facing coordinated SEC and DOJ investigations is scary and the stakes are high. You need an experienced team of securities enforcement and white collar defense lawyers on your side. Don’t go it alone. Hire the best counsel you can to guide you through this minefield and give you the strongest chance of a favorable outcome.

In summary, getting an SEC target letter is bad enough. Discovering the DOJ has a parallel criminal investigation can be terrifying. But with the right legal strategy and counsel, you can effectively navigate both probes. Understand how the agencies coordinate, explore selective prosecution claims, don’t obstruct either inquiry, and keep your eye on the prize. The road won’t be easy, but surviving a dual SEC/DOJ investigation can feel like an uphill battle. But using smart legal strategies can help level the playing field. One approach is exploring claims of selective prosecution if you’ve been unfairly targeted. The defendant bears the burden of proving selective prosecution, which requires showing you were singled out and the prosecution serves an improper purpose [2]. If you can establish a prima facie case of selectivity, it may get the charges dismissed. But it is a heavy burden to meet.

Another key strategy is not obstructing either the SEC or DOJ investigation. Destroying documents or lying to investigators can lead to criminal charges like conspiracy, obstruction of justice, or false statements [3]. You have to be extremely careful in any responses to not run afoul of these crimes. Assert your 5th Amendment rights if needed to avoid self-incrimination.

At the same time, overly zealous prosecution tactics can themselves undermine justice. As one Congressman argued, “People who have committed crimes ought to go to jail, but…the decision whether or not to prosecute, and what charge to file…generally rests entirely in [the prosecutor’s] discretion.” [4] Prosecutorial discretion must serve justice, not political ends.

The decision to criminally prosecute a former president has been called crossing a political Rubicon [5]. It raises concerns about weaponizing the law for political gain. There is a fine line between punishing wrongdoing and selective prosecution. It ultimately comes down to evenhanded application of the law.

Finally, any criminal prosecution relies heavily on the accuracy of the investigation. Challenging deficiencies in the investigative process can be an important defense strategy. In one case, errors in the criminal history relied on by investigators formed the basis to get evidence suppressed [6]. Rigorously vetting the investigation itself can yield critical arguments in your defense.

Surviving parallel SEC and DOJ probes requires creativity, tenacity, and experienced counsel. But by understanding key strategies like selective prosecution claims, avoidance of obstruction, and challenging the investigation itself, you can mount an effective defense against coordinated government enforcement.