The anticipated escalation of securities and investment fraud cases prompting criminal charges got off to an unexpected start with the acquittal of two Bear Stearns hedge fund managers last week. Regardless, financial industry members and their attorneys should continue to defend civil investigations and suits and administrative actions with an eye on the possibility of an indictment. Administrative enforcement personnel are in constant referral contact with criminal enforcement agencies such as the US Postal Service and the FBI. It is still all too common for either pro se defendants or targets, or defendants with counsel lacking financial or white-collar defense experience, to "T-up" a criminal prosecution by blindly participating in, or refusing to participate in, a civil or administrative action. Of course, in some cases, such as the Rothstein case coming out of Ft Lauderdale this month, the civil defendant and FBI target would have to be utterly clueless not to contemplate the advent of an indictment. But as the line between civil and criminal cases becomes less clear, and the public and political pressure to bring criminal cases persists, the brazen attorney or arrogant defendant may be in for a rude surprise.
Litigating a civil matter with an eye towards a potential criminal case is not an easy task. For example, asserting the privilege against self-incrimination in a civil or administrative matter is not without significant consequence, but the cost-benefit analysis of such an invocation should be evaluated and given serious and learned consideration. On the other hand, certain conduct in a civil matter--such as a lack of cooperation, witness tampering, or continuing on with the very conduct the regulator considers illegal--may frustrate the regulator or civil litigant to the point of seeking the involvement of a criminal enforcement agency. There are dozens of such points of decision or strategy during the course of any civil investigation or litigation. As such, there are seldom clear answers or boilerplate strategies. But the odds of making it through the treachery without blowing up yourself (or your client)are pretty slim if you don't even realize you are walking through a legal minefield. Remember, even an acquittal is only partial solace and seldom redemtive. The months of stress and distraction, public disgrace and incredible financial burden are not cured by the rare acquittal garnered by the Bear Stearns defendants. The line between civil and criminal investment or securities fraud is in the eyes of the beholder, and the beholder is the government until the case is submitted to the jury.