Legal News

Is the Stringer Decision a Blow to an Already Battered SEC?

By Dan Slater

Diluted, de-fanged, drained of its budget. The SEC can’t retain its own staff, let alone protect investors.

All of these charges are highlighted in today’s NYT article on the Commission. Last week, Hank Paulson went so far as to recommend that the Commission be merged. As if all that weren’t enough to pile on Christopher Cox’s plate, a recent decision from the Ninth Circuit Court of Appeals, which, on its face, looks like a win for the government, might actually have dealt the SEC another blow.

The low-down from the West Coast: In United States v. Stringer, the appeals court reversed a district court ruling that the government engaged in “deceitful conduct, in violation of defendants’ due process rights,” by conducting simultaneous SEC and criminal investigations of the defendants’ alleged falsification of corporate financial records. (See this Journal story from Law Blog alum Peter Lattman about that lower-court decision.)

In the opinion, Judge Mary Schroeder wrote: “We vacate the dismissal of the indictments because in a standard form it sent to the defendants, the government fully disclosed the possibility that information received in the course of the civil investigation could be used for criminal proceedings. There was no deceit; rather, at most, there was a government decision not to conduct the criminal investigation openly, a decision we hold the government was free to make.”

On its face, the decision looks like a win for the government. But over at White Collar Crime Prof blog, Ellen Podgor thinks otherwise. The bottom line, writes Podgor, “is that the SEC suffers from this ruling . . . . At first blush it might appear that the DOJ will have increased ability to obtain and use information from a parallel proceeding. But the truth is more likely to be that those accused of crimes or issued a letter saying that they might be subject to an Indictment, may just refuse to provide information. This decision, like the Martha Stewart prosecution, may just send the message not to talk with the SEC.”

Arguing the case for the defendants, Janet Hofman and Ronald Hoevet.

Full post as published by Law Blog - WSJ.com on April 08, 2008 (boomark / email).