U.S. v. Stringer, 535 F.3d 929 (9th Cir. 2008)

Brief Summary
When conducting parallel civil and criminal investigations, the federal government may take steps to keep potential defendants participating in the civil investigation from learning of the criminal investigation.

Complete Summary
The primary issue faced by the Ninth Circuit was whether the federal government had violated defendants’ Fourth or Fifth Amendment rights when the U.S. Attorney’s Office and the Securities and Exchange Commission (“SEC”) cooperated to continue a secret criminal investigation with the SEC’s civil investigation. A second issue was whether defendants’ Due Process rights were violated when the SEC accepted potentially prejudicial evidence from defendants’ conflicted attorney.

The criminal action was preceded by an SEC investigation of defendant FLIR Systems, Inc. (“FLIR”), and three of FLIR’s top executives. Soon after the SEC investigation began, the U.S. Attorney’s Office decided to initiate a criminal investigation and sought help from the SEC. Neither branch wanted the defendants to know of the criminal investigation. Among the ways the SEC helped maintain this secret was by refusing to answer, during a deposition, whether a criminal investigation was under way, and by instructing court reporters to refrain from mentioning the involvement of an Assistant United Sates Attorney in the SEC depositions.

During the SEC investigation, a single attorney represented FLIR and two of its executives. In order to enhance FLIR’s cooperation with the investigation, that attorney disclosed evidence that tied the executives to an unsubstantiated accounting entry. The U.S. Attorney’s Office criminal indictment alleged that this accounting entry was made by the executives.

Regarding the parallel investigations, the Oregon District Court held that the government engaged in deceitful conduct and dismissed the indictments against the executives. Alternatively, the court held that all evidence obtained from the executives during the SEC investigation should be suppressed. The court separately suppressed evidence related to the unsubstantiated accounting entry because the government had improperly interfered with the executives’ attorney-client relationship.

The Ninth Circuit reversed. The Ninth Circuit held that the parallel investigations did not violate the Fifth Amendment privilege against self-incrimination. The court noted that defendants were on sufficient notice that information the SEC obtained could be used in a criminal proceeding. The SEC had warned the defendants in its subpoenas as well as prior to depositions that evidence obtained might be used in a criminal investigation. The court also dismissed defendants’ Due Process argument that the SEC investigation was initiated in bad faith (i.e. solely to obtain evidence for the criminal investigation) because the SEC investigation led to SEC sanctions and was initiated before the criminal investigation.

Regarding defendants’ Fourth Amendment argument, the court held that the SEC’s efforts to keep the criminal investigation secret did not amount to an unreasonable search or seizure because there were no affirmative misrepresentations.

Finally, the court held that defendants’ Due Process rights were not violated when the attorney disclosed the unsubstantiated accounting entry because the government did not deliberately intrude into the attorney-client relationship. Rather, the attorney had volunteered the information.

Significance of Opinion
This opinion demonstrates the power of the federal government to exploit the investigatory advantages of one branch for the benefit of another. In cases such as this, defense attorneys should seriously consider inquiry into any potential criminal investigations, especially before defendants are deposed and before settlement. Similarly, if a criminal investigation is first initiated, defense attorneys should seriously consider inquiry into any potential civil investigations, especially before submitting proffers.

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