THE CIVIL INVESTIGATION OF AN ALLEGED SECURITIES VIOLATION MAY HAVE CRIMINAL LAW IMPLICATIONS

Both attorneys and the targets of civil securities investigations need to understand that the dotted line between civil and criminal investigations is becoming more hazy, and criminal prosecutions of alleged securities law violators are becoming more common. At Cosgrove Law, LLC, we have had civil defendants come to us that had previously and unknowingly waived their constitutional rights to remain silent and testified (and incriminated themselves) in response to a civil investigatory demand. Some of them were represented by prior counsel when they did so.

State securities regulators frequently and contemporaneously share the fruits of their investigations with federal and state criminal investigatory authorities, such as the FBI or the U.S. Postal Service. Some state regulators--namely Attorneys General--have contemporaneous civil and criminal jurisdiction. Although we had thorough written guidelines regarding the need to erect and maintain "Chinese Walls" and avoid crossover during parallel proceedings when I ran the Missouri Attorney General's Consumer Protection Division, and worked as the Chief Consumer Protection Prosecutor in the Massachusetts Attorney General's Criminal Division, many regulators confronted with the case law regarding the prohibitions against using civil compulsory process to feed a criminal investigation appear to have been confronted with alien information. Counsel for a civil defendant must quickly identify the potential for criminal exposure and understand the limitations on purported civil investigations. On the other hand, attorneys representing defrauded investors should have the knowledge and experience necessary to identify those situations when a report to a criminal investigatory agency is appropriate. They must also understand that threatening to do so in an attempt to foster a civil resolution is strictly prohibited.

On a side note, just this past week, the Missouri Securities Division's most recent Chief Enforcement Counsel joined our law firm. We expect that she will be a great asset to our versatile securities, white collar defense and commercial litigation practice.