Legal Commentary

Is criminal liability always narrower than civil liability and should it be?  In a paper recently posted on SSRN, Wendy Gerwick Couture suggests that, when it comes to securities fraud, criminal liability is more expansive than civil liability.

Here's the evidence she points to:

First, prosecutors may use the criminal wire and mail fraud statutes, which have no civil equivalent, to prosecute conduct that does not violate the securities fraud statute..... Second, an individual defendant may be held criminally, but not civilly, liable for allegedly false forward-looking statements accompanied by meaningful cautionary language. Third, an individual defendant may be criminally prosecuted for aiding and abetting securities fraud, but an investor injured by the defendant's conduct is barred from asserting a private right of action. Fourth, some state blue-sky laws impose criminal liability for conduct that is not civilly actionable as securities fraud. Fifth, courts do not subject criminal indictments for securities fraud to the same degree of pretrial scrutiny as civil securities fraud complaints, leaving more issues to the jury.

According to Couture, the consequences include:

• "chilling corporate disclosure"
• "creating a class of reasonable investors who make investment decisions on the basis of vague statements of corporate optimism" because companies avoid forward-looking statements for fear of criminal liability
• "transferring enforcement responsibility away from the SEC to the DOJ and the individual states"
• "discouraging professionals from advising emerging companies"
• "affording prosecutors undue discretion in deciding what conduct to prosecute"
• "coercing defendants into agreeing to unfavorable settlements with the SEC" because of worries about criminal liability"
• "leaving injured investors without compensation" because they aren't compensated through criminal actions.

A few observations: The paper suggests that this broader criminal liability is an anomaly.  Is it?  Many of these arguments seem to extend beyond the securities law context.  I suspect the standards for wire fraud could be compared with any number of civil standards and be considered a broader basis of liability.  I also wonder whether other constraints on criminal law make its enforcement narrower despite these standards. (E.g., concerns that criminal sanctions would lead to an Arthur-Andersen-type bankruptcy.)