I understand that, unlike United States Department of Justice lawyers, Securities and Exchange Commission lawyers are not allowed the benefit of surveillance evidence or wiretaps gathered by agencies on the same suspects during investigations.

Is this the case? If so, what is the legal reason that this is the case and what policy does this serve?


1 Answer 1


The Distinction Is Probably Between Criminal And Civil Enforcement

My suspicion is that the distinction that you are picking up upon reflects of division of labor in which civil enforcement actions are mostly handled by lawyers assigned to the Securities and Exchange Commission (an independent federal government agency), while criminal securities fraud enforcement actions are mostly handled by lawyers assigned to the United States Department of Justice.

But, I strongly suspect that the fundamental source of the distinction is the kind of case handled by each agency and not agency of employment per se, because constitutionally and for most purposes, SEC employees and Justice Department employees are both employees of the same entity, the federal government of the United States of America.

If an SEC lawyer were loaned to the Department of Justice to work on a criminal securities fraud prosecution that the DOJ didn't have anyone qualified to prosecute due to lack of financial industry knowledge, I do not believe that the limitation that you assert exists would apply.

Search Warrants, Wiretaps and Arrest Warrants Are Generally Only Available In Criminal Cases

Generally speaking, search warrants, wiretaps, and arrest warrants are investigative tools available only in criminal investigations, and in the absence of exigent circumstances, may only be issued upon a showing to a neutral magistrate or judge, supported by a sworn statement showing that probable cause exists that a crime has been committed and (1) in the case of an arrest warrant, that the person named committed that crime, and (2) in the case of a search warrant or wiretap, that the search or wiretap will reveal evidence of that crime.

Exceptions To The General Rule

The main exceptions to this general rule is that arrest warrants may issue in a civil case (i) to compel the attendance of a witness who fails to make a timely response or appearance to a subpoena after being personally served in a timely manner with that subpoena, (ii) to compel someone to attend a quasi-criminal contempt of court hearing, and (iii) to arrest someone who have been held in contempt of court. In criminal contempt proceedings, contempt of court is a crime that is just prosecuted using an unusual procedure. In the case of subpoena enforcement and civil contempt enforcement the infringement on an arrestee's right is limited in that compliance with the court's order will promptly result in the person arrested being freed. Also in subpoena and civil contempt cases the person arrested does not get a criminal record as a result (although they may get an arrest record), so there are no collateral consequences to the proceeding as there would be a criminal case.

The Legal Basis For This Rule

These limitations are a function of the 4th Amendment to the United States Constitution which states:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

The implied term that "probable cause" means probable cause that a crime has committed and that the object of the search or seizure is connected to that crime is a long standing interpretation of the 4th Amendment through case law.

This interpretation has been applied and has been enforced via the exclusionary rule in federal criminal prosecutions since Weeks v. United States, 232 U.S. 383 (1914) (the U.S. Supreme Court definitively applied the 4th Amendment exclusionary rule to state criminal prosecutions under the selective incorporation doctrine via the 14th Amendment in Mapp v. Ohio, 367 U.S. 643 (1961)).

The meaning of probable cause, however, is even older than the exclusionary rule (before which, a civil rights action would have been the primary remedy for a violation). But, federal criminal prosecutions were extremely rare in the first 90-150 or so years of the existence of the federal government because the scope of federal government activity relative to state government activity was much smaller, and because the combined scope of all government was smaller in a less complex economy.

Wire Taps Are 4th Amendment Searches

The determination that a wiretap was a search for 4th Amendment purposes was confirmed by the U.S. Supreme Court in Katz v. United States, 389 U.S. 347 (1967).

Policy Considerations

The investigatory tools of search warrants, wire taps and arrest warrants, are frequently obtained ex parte and secretly (until the search, wiretap or arrest is complete), because the law considers it likely that defendants facing potentially lengthy incarceration will risk disobeying court orders and destroy evidence to avoid those consequences.

In a criminal case, the assumption that the defendant is basically a law abiding person which applies in civil cases no longer holds true once probable cause has been demonstrated to an independent magistrate, even though the defendant is presumed innocent for the purpose of an ultimate trial.

The policy purpose of this rule is to allow "people to be secure in their persons, houses, papers, and effects" from government intrusions allowing them privacy, comfort and security as a basic human right. The 4th Amendment is the way that the law balances those privacy interests and the compelling interest of the state in punishing crime so as to deter people from committing crimes.

Securing Evidence In Civil Cases

What Are Civil Cases?

Civil cases are case where only money judgments and injunctive awards which do not involve incarceration if obeyed are potential punishments, and are generally considered less serious than criminal charges for which incarceration and various other collateral consequences are available as punishments, for a variety of procedural purposes.

Most civil cases are brought by private parties, but governmental officials, usually in regulatory agencies, can also bring civil cases.

In civil cases, it is generally assumed that defendants and their lawyers, facing the limited stakes that they do, will comply with court orders and will cooperate in providing testimony and documents rather than upping the stakes to criminal obstruction of justice charges and civil spoilation of evidence charges.

Obtaining Evidence In Civil Cases

In civil cases, evidence must generally be obtained voluntarily from third parties, obtained involuntarily from the parties via the disclosure and discovery process of the rules of civil procedure (which were greatly expanded around the same time that the SEC was created in connection with a major overhaul of federal civil procedure that resulted in the federal rules of civil procedure in effect with amendments today), and via subpoenas. These discovery and subpoena tools are all basically derivative of the common law trial subpoena power, and certain other powers that were vested in courts of equity, which is constitutionally recognized in federal criminal trials in the 6th Amendment which includes a right "to have compulsory process for obtaining witnesses in his favor" and applies in civil trials by tradition, court rule and statute.

The SEC has statutory pre-litigation subpoena power even in the absence of a pending lawsuit between the SEC and the parties subject to the subpoena as do almost all other administrative agencies that enforce non-criminal law.

Also, because of the way that the securities laws enforced by the SEC are structured, it is possible to bring civil cases and try them without any need to resort to discovery or investigatory tools, based upon complaints filed by members of the public. For example, placing a newspaper ad offering to sell shares of stock without a registration of the offering with the SEC is a civil violation which can often be pursued in a civil case with a copy of the newspaper and the documents provided to a complaining witness by the defendants. In contrast, criminal charges almost always require third party evidence of criminal intent which is rarely publicly available.

Another useful tool in civil cases is that the 5th Amendment privilege against self-incrimination does not apply, so if the defendant refused to testify (perhaps claiming the 5th Amendment for fear of criminal consequences of truthful testimony) that refusal to testify can be used to infer that his testimony would have hurt him and to find civil liability.

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