Parallel Civil and Criminal Securities Fraud Cases: Navigating the Dual Proceedings
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When a company or executive is accused of securities fraud, they often face parallel civil and criminal proceedings. This means that both the Securities and Exchange Commission (SEC) and federal prosecutors pursue enforcement actions against them at the same time. Navigating these dual proceedings can be extremely challenging for companies and individuals.
In this article, we’ll break down what parallel proceedings are, how they work, key differences between civil and criminal cases, strategies for managing them, and recent examples. Our goal is to provide a helpful overview so executives and companies can be prepared if they find themselves facing an SEC investigation and criminal charges.
What are Parallel Proceedings?
Parallel proceedings refers to simultaneous or consecutive civil and criminal cases against a defendant for the same underlying misconduct. They are common in securities fraud cases.
Here’s how it often starts: the SEC opens a civil investigation into potential securities law violations. This may involve subpoenas, document requests, witness interviews, etc. If the SEC believes laws were broken, it can file a civil enforcement action seeking monetary penalties, disgorgement of profits, and injunctive relief.
At the same time, the SEC may refer the case to the Department of Justice (DOJ) and Federal Bureau of Investigation (FBI) for criminal investigation. Prosecutors present evidence to a grand jury, which can issue criminal indictments with charges like securities fraud, making false statements, obstruction of justice, and conspiracy.
Now the defendant faces an SEC lawsuit and federal criminal prosecution concurrently. The two cases typically proceed on parallel tracks, with both the SEC and DOJ conducting discovery, investigations, and settlement negotiations. Cases may be coordinated but have separate outcomes.
Key Differences Between Civil and Criminal Cases
While civil and criminal securities fraud cases stem from the same misconduct, there are important differences to understand:
- Burden of proof – Criminal charges must be proven “beyond a reasonable doubt,” a higher bar than the “preponderance of evidence” standard in civil cases.
- Penalties – Criminal convictions can result in massive fines and years in prison, while civil cases bring financial penalties and injunctions.
- Privilege – Asserting 5th Amendment rights in criminal proceedings can waive privileges in civil cases.
- Discovery – Prosecutors have tools like wiretaps, while SEC discovery is limited.
- Coordination – SEC and DOJ collaborate but run independent investigations and can disagree on resolution.
These differences make navigating parallel proceedings tremendously complex for defendants and their legal teams. Let’s look at some key strategies.
Strategies for Managing Parallel Proceedings
If your company or executives are facing parallel civil and criminal securities fraud cases, here are some suggestions to manage them effectively:
Get experienced counsel
Retaining lawyers experienced with parallel proceedings is crucial. Find attorneys and firms with specific expertise in securities litigation, white collar criminal defense, and managing cross-boundary issues.
Understand cooperation dynamics
The SEC may push for cooperation from defendants to build their civil case, while prosecutors seek to leverage criminal charges. Understanding these motivations allows crafting an optimal cooperation strategy.
Carefully pursue settlement
Settling one case can negatively impact the other, so coordination is key. For example, factual admissions in a civil settlement may be used against defendants criminally.
Challenge government coordination
Look for any improper collaboration between SEC and prosecutors that prejudices defendants. Seek remedies like staying civil case.
Explore global resolution
A joint civil/criminal settlement may be possible, avoiding extended litigation in both forums. But ensure agreement is in defendant’s interests.
While every case is unique, keeping these principles in mind can help manage parallel proceedings and achieve the best possible outcome.
The Road Ahead
Parallel civil and criminal securities fraud cases are a complex reality for public companies and executives. The SEC and DOJ often pursue dual proceedings aggressively, putting tremendous pressure on defendants.
Having skilled legal counsel from the start, developing an integrated defense strategy, understanding key differences between forums, and exploring possible global resolutions are critical. With the right approach, companies and individuals can work to achieve fair outcomes and protect their interests despite the challenges.