SEC Testimony vs. Grand Jury Testimony.

The SEC possesses the authority to conduct civil enforcement proceedings, but it has no criminal prosecutorial power. The Department of Justice (DOJ) has the authority to conduct criminal investigations and prosecute federal offenses.

The SEC and DOJ can launch parallel investigations into the same or related conduct. SEC investigations can lead to civil enforcement proceedings with various possible outcomes, such as fines, penalties, disgorgement, and administrative penalties. DOJ investigations can lead to criminal charges, and a criminal conviction can carry significant penalties, including incarceration and substantial fines.

2. Secrecy Rules, Counsel Access, and Transcript Rights

The grand-jury proceeding is secret, whereas an SEC enforcement investigation generally is not.

Under Federal Rule of Criminal Procedure 6(d)(1), counsel are not present during grand-jury testimony, while counsel may be present during SEC testimony.

The Fifth Amendment applies during both SEC and grand-jury testimony, and the right to remain silent applies equally.

A witness in an SEC enforcement investigation is entitled, upon written request and payment of the appropriate fees, to obtain a copy of his or her testimony transcript under 17 C.F.R. § 203.6, while a grand-jury witness generally has no automatic right to a copy of his or her testimony.

3. Risks of Incriminating Testimony

Both SEC and grand-jury testimony present risks of incrimination. However, they also present different risks. As a matter of course, the SEC will refer cases for criminal prosecution if it uncovers evidence of criminal wrongdoing.

4. When is an SEC Investigation Formal vs. Informal?

A formal SEC investigation is one in which the Commission has issued a formal investigation order authorizing the SEC staff to issue subpoenas. SEC staff can also issue requests for voluntary production of documents and voluntary interviews, but these informal inquiries do not have the effect of subpoenas.

Informal SEC inquiries ordinarily begin with an informal inquiry, a subpoena under a formal investigation order, or a subpoena for the production of documents and testimony at an SEC enforcement proceeding. Formal SEC testimony is given under oath and is transcribed.

1. How can I challenge a grand-jury subpoena?

A federal grand-jury subpoena can compel either testimony or the production of documents. It can also compel both testimony and the production of documents. A grand-jury subpoena for testimony is generally unenforceable if it is unreasonable or oppressive. Under Federal Rule of Criminal Procedure 17(c)(2), a grand-jury subpoena for documents may be quashed if the subpoena or the documents demanded are “unreasonable or oppressive.”

The receipt of a grand-jury subpoena does not necessarily establish a witness’s status as a witness, subject, or target of the grand jury’s investigation. If you receive a grand-jury subpoena, one of the first steps should be to determine your status in the investigation.

2. How can I challenge an SEC subpoena?

The SEC can seek enforcement of its subpoenas in federal district court. If the SEC seeks to enforce its subpoena under 15 U.S.C. § 78u(c), courts generally presume enforcement unless the subpoena is not authorized by the Commission, fails to describe with sufficient definiteness the information sought, or fails to seek information which is “reasonably relevant” to the Commission’s investigation. However, as noted above, the SEC frequently issues subpoenas as part of formal investigations under its own administrative subpoena power, which is separate from the grand-jury power of the U.S. Attorney’s Office.

Like SEC subpoenas, grand-jury subpoenas generally are subject to a presumption of enforceability. Under United States v. R. Enterprises, Inc., 498 U.S. 292 (1991), a subpoena is not inherently unreasonable or oppressive, and the recipient of the subpoena bears the burden of demonstrating that enforcement of the subpoena is unreasonable or oppressive.

3. What is the difference between a subject and a target?

The Department of Justice (DOJ) defines subjects and targets as follows. Subjects are individuals (or entities) about whom the government has information which falls within the scope of the grand jury’s investigation, and targets are putative defendants against whom the grand jury has substantial evidence linking them to a potential criminal offense. A potential target may become a subject, and a potential subject may become a target. If you are the subject or target of a grand-jury investigation, your defense counsel will use all available means to communicate with the grand jury, the U.S. Attorney’s Office, and the Department of Justice in an effort to protect you and to avoid the filing of criminal charges.

Who can see SEC and grand jury testimony?

1. SEC Testimony Transcripts

Witnesses compelled to testify in SEC enforcement investigations have the right to purchase a copy of their testimony transcripts. As a matter of course, when witnessing compels an individual under 15 U.S.C. § 78u(b), it allows that witness to review what he or she has told the Commission.

2. SEC Investigation Secrecy

While SEC enforcement investigations are generally nonpublic, they do not enjoy the same own level of strict secrecy protections as grand jury proceedings. The SEC is generally allowed to discuss its non-public investigations, and its investigators are generally free to discuss them as well.

3. Grand Jury Secrecy

While the SEC is subject to relatively few restrictions on its disclosures, grand juries are subject to extensive restrictions on disclosures of all matters occurring before them. Federal Rule of Criminal Procedure 6(e) is the primary rule governing grand jury secrecy, and it is strictly enforced in federal court.

4. Disclosing Grand Jury Witness Testimony

While Rule 6(e) imposes strict restrictions on prosecutors and other personnel, it doesn’t prohibit the witness themselves from discussing his or her testimony. Rule 6(e)(2) expressly states that witnesses are not subject to the rule’s disclosure restrictions, meaning they can generally discuss their testimony with whoever they choose.

5. Publicly Available Grand Jury Transcripts

The transcript of a grand jury proceeding does not automatically become public record upon the conclusion of the proceedings. Even long after the grand jury has completed its investigation and decided whether or not to indict, transcripts of grand jury testimony generally remain secret.

6. Court-Ordered Grand Jury Transcript Disclosure

In Douglas Oil Co. of California v. Petrol Stops Northwest, 441 U.S. 211 (1979), the United States Supreme Court noted that under Rule 6(e), grand jury proceedings are secret and the disclosure of grand jury materials is generally prohibited, except that the rule allows for the disclosure to occur upon court order when there is a “particularized need” for the information at hand.

7. Right to Obtain Grand Jury Testimony Transcripts

While witnesses compelled to give SEC testimony have an automatic right to obtain copies of their testimony transcripts, grand jury witnesses generally have no automatic right to obtain a copy of their testimony transcripts.

8. Right to Obtain Grand Jury Testimony Transcripts for Defendants

Under Federal Rule of Criminal Procedure 16(a)(1)(B)(iii), defendants have the right to receive their own recorded grand jury testimony in criminal proceedings involving the offenses charged. The rule provides that if no recording exists, a defendant may obtain a transcript which the government admits is an accurate record of the testimony, provided the testimony concerns “an offense charged against a defendant.”

If any of this describes your situation, it is worth talking it through with counsel. Spodek Law Group can be reached at 212-300-5196.

How does the Fifth Amendment work in each proceeding?

1. Question-by-Question Self-Incrimination Privilege Requests

When witnesses are asked questions, the Fifth Amendment allows for a question-by-question self-incrimination privilege request. That means if a witness needs to claim the privilege for a specific question, he or she may do so, but that does not mean the witness can’t (or doesn’t have to) answer other questions that don’t implicate the privilege. However, if you are asked a question and think that asserting the Fifth Amendment privilege will be necessary in a potential subsequent grand-jury or SEC enforcement proceeding, you may not need to assert your privilege right away. Instead, you may need to wait until you are asked the same (or similar) question in the subsequent proceeding.

2. Corporate Inability to Invoke the Fifth Amendment Privilege

Corporations and other businesses are unable to invoke the Fifth Amendment privilege against self-incrimination. Unlike individual witnesses, corporations and business entities must disclose any information that they are asked to provide during an SEC investigation or a grand-jury proceeding.

3. Fifth Amendment Privilege Relative to the Content of Existing Documents

The Fifth Amendment privilege does not protect the content of already-existing documents. It can only protect against compelling testimony that requires the witness to adopt documents in order to provide their contents. In other words, the actual content of a document is not what’s protected by the Fifth Amendment; instead, it is the witness’s forced acknowledgement and adoption of the information contained within the document.

But, production of a document may be testimonial in very narrow circumstances, and there may be compelling reason to resist production based on the privilege.

4. Use and Derivative-Use Immunity

The grant of use immunity under 18 U.S.C. § 6002 covers all materials obtained under the immunity order (i.e., in the context of compelled testimony), and it also covers “derivative evidence.” According to the U.S. Department of Justice (DOJ), derivative evidence is that which is obtained by “the use of testimony as a lead to a further investigation.” In Kastigar v. United States, 406 U.S. 441 (1972), the U.S. Supreme Court held that when evidence is obtained under a grant of use immunity, the prosecution must prove that it is derived from an independent source.

5. SEC Immunity Requests, Grand Jury Immunity Requests, and Court Orders

Under 18 U.S.C. § 6004, an immunity order that grants use immunity to SEC witnesses requires Attorney General approval, and the order must be requested through the DOJ. By contrast, if the government seeks a grant of use immunity to compel testimony in a grand-jury proceeding, it must obtain a court order. The United States District Attorney or the U.S. Attorney’s Office must make the request under 18 U.S.C. § 6003, and a federal judge must order the grant of use immunity if the request is granted.

What should I tell my lawyer before testifying?

1. When will my lawyer be with me during an SEC investigation or a grand-jury proceeding?

While grand-jury proceedings are secret, witnesses who are called to testify are permitted to leave the room at intervals to consult with their defense lawyers. During an SEC formal investigative proceeding, 17 C.F.R. § 203.7 provides that a witness has the right to be accompanied, represented, and advised by counsel.

2. Can a materially false statement in response to an SEC inquiry result in criminal liability?

Materially false statements made in response to an SEC inquiry, even during an informal inquiry, can expose witnesses to criminal liability under 18 U.S.C. § 1001. This applies whether the testimony was voluntary or compelled.

3. Can a materially false statement to a grand jury result in criminal liability?

If a witness makes a materially false statement during grand-jury testimony, this also carries the potential for criminal liability under 18 U.S.C. § 1623. However, this statute specifically covers grand-jury proceedings.

4. If I speak to my company’s lawyer about an investigation, am I protected by the attorney-client privilege?

Normally, the attorney-client privilege applies when you speak to your attorney. But in the case of corporate representation, the “corporate counsel exception” typically applies. This means that if an employee speaks to corporate counsel regarding the business of their employer, corporate counsel represents the employer, not the employee. Unless corporate counsel has separately agreed to represent the employee, the employer, not the employee, will hold the attorney-client privilege.

5. What is the crime-fraud exception?

The crime-fraud exception is one of the few recognized exceptions to the attorney-client privilege. Specifically, the privilege will not apply to communications intended to further or cover up a crime or fraud. This exception only applies to future criminal or fraudulent conduct, and it does not apply to communications disclosing the client’s past crimes or fraud.

6. How does the attorney-client privilege differ from the act of committing a crime?

The attorney-client privilege is a rule of evidence that protects the confidentiality of the communication between a lawyer and their client. It prevents the lawyer from being compelled to testify about his or her client’s disclosures. However, the privilege protects the communication itself, not the underlying historical facts. For example, telling your attorney that you committed a crime is a privileged communication; the actual crime is not.

7. Does the attorney-client privilege apply to prospective clients?

The attorney-client privilege is extended to protect the confidentiality of communications with prospective clients as well. If you discuss your situation with an attorney you are considering hiring, the information you provide may be protected by the privilege from the moment you communicate with the lawyer.

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 212-300-5196.