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In early 2000, FLIR Systems Inc., an Oregon-based corporation, came under scrutiny for possible violations of federal securities laws. Stringer, 521 F.3d at 1191-92. By early June 2000, the SEC began a formal investigation of the company and its executives, who were alleged to have participated in a scheme to inflate earnings to hit revenue targets. Id.; Stringer, 408 F. Supp. 2d at 1084. Shortly after the commencement of the investigation, SEC staff attorneys met with the U.S. Attorney's Office in Oregon to "coordinate the ongoing SEC investigation with a possible criminal investigation." Stringer, 521 F.3d at 1192. Within days of the meeting, the U.S. Attorney's Office opened a criminal investigation. Id.

However, throughout the period of June 2000 through early 2003, the U.S. Attorney's Office pursued a "laying in the weeds" strategy of not taking any action that would alert FLIR officers and employees to the fact that there was an ongoing criminal investigation, or that criminal prosecutors or federal agents were interested in the conduct being investigated by the SEC. The U.S. Attorney's Office delayed surfacing its investigation in part to facilitate the SEC's ability to obtain testimony from people, who might invoke their Fifth Amendment privilege if they were aware of the criminal investigation, and in order to avoid negatively effecting the SEC's settlement discussions with FLIR and a FLIR employee.

The SEC, having encouraged the U.S. Attorney's Office to pursue this "laying in the weeds" strategy, facilitated the criminal investigation in a number of ways. The SEC had its Los Angeles-based staff attorneys take the testimony of FLIR officers and employees in Oregon so that the U.S. Attorney's Office would have venue to prosecute any false testimony given during the SEC investigation. Id. at 1193. The Assistant U.S. Attorney ("AUSA") assigned to the case instructed the SEC staff attorney on how to question the witnesses, "so as to create the best record possible in support of false statement cases against them." Id. The SEC and U.S. Attorney's Office agreed to take steps to keep the existence of the criminal investigation secret from witnesses who had been subpoenaed to testify. Id. In furtherance of this agreement, the SEC staff attorney instructed a court reporter at one of the testimony sessions not to tell the attorney for the witness or FLIR's attorney that there was an AUSA assigned to the case. Id. In addition, when Mr. Stringer's attorney asked the SEC staff attorney prior to a scheduled testimony session whether there was an ongoing parallel criminal investigation, the staff attorney declined to answer, but pointed to the SEC's standard disclosure Form 1662, which disclosed that the SEC often made its files available to United States Attorneys' Offices. Id. at 1193-94. Finally, the SEC provided transcripts and documents collected during its investigation to the U.S. Attorney's Office. Id. at 1192.

The SEC's and the U.S. Attorney's Office's strategy of closely and secretly coordinating their parallel investigations yielded significant results. In September 2002, two of the three defendants entered into consent decrees with the SEC and agreed to pay penalties, disgorgement and pre-judgment interest. Id. at 1194. The U.S. Attorney's Office received testimony transcripts and documents for individuals it had identified to the SEC as subjects or targets of a criminal investigation. Id. at 1192. One year later, a grand jury indicted three people, who had given testimony to the SEC, for securities, mail and wire fraud. Id. at 1195.

Defendants filed motions to dismiss the indictments and to suppress statements they had made to the SEC, arguing that their Constitutional rights to due process and their Fifth Amendment privilege had been violated by the conduct of the SEC and the U.S. Attorney's Office in using a civil SEC investigation to gather evidence for a criminal investigation. Id. at 1195. The district court dismissed the indictments and suppressed the statements and other evidence, holding that the government had "abused its authority to conduct parallel proceedings," and had "violated defendants' Fifth Amendment due process rights by using trickery and deceit to conceal the criminal investigation from defendants . . . and conducting a criminal investigation under the auspices of a civil investigation." Id. The court characterized the government's conduct as "so grossly shocking and so outrageous as to violate the universal sense of justice." Stringer, 408 F. Supp. 2d at 1089. In suppressing the statements and other evidence obtained by the SEC, the court found that the defendants had not voluntarily waived their right against self-incrimination, and that the manner in which the SEC had obtained documents and other information from the defendants amounted to an unreasonable search and seizure in violation of the defendants' Fourth Amendment rights. Id. at 1090. The government appealed.

On appeal, the Ninth Circuit disagreed with the district court's rulings concerning the parallel proceedings issues. The court of appeals held that the government has an absolute right to conduct bona fide parallel investigations that are not carried out in bad faith. Stringer, 521 F.3d at 1196. Finding it significant that the SEC investigation was initiated prior to the criminal investigation, that the investigation led to SEC sanctions and was conducted pursuant to the SEC's own civil enforcement jurisdiction, the court found no evidence that the SEC investigation was conducted in bad faith solely to obtain evidence for a subsequent criminal prosecution, or as a pretext for gathering information to be used by the federal prosecutors. Id. at 1196-99.

The court of appeals similarly rejected the district court's conclusion that the Stringer defendants' waiver of their Fifth Amendment privilege had been ineffective because they had not been told of the ongoing criminal investigation. Id. at 1197. In contrast to the district court, the Ninth Circuit ruled that the SEC standard disclosure Form 1662 advised the defendants of their Fifth Amendment rights, and appropriately and sufficiently warned them that any statement or information they furnished to the SEC could be used in a subsequent criminal investigation. Id. The Ninth Circuit noted that the SEC went even further by warning each defendant prior to testimony that the facts developed in the investigation might constitute violations of criminal laws. Id. The court held that the defendants' decision to testify in the face of this notice and these warnings constituted an effective waiver of the Fifth Amendment privilege. Id.

Finally, the Ninth Circuit disagreed with the district court's conclusion that the government had lulled the defendants into turning over incriminating evidence by engaging in "trickery and deceit." The Ninth Circuit held that, "a government official must not 'affirmatively mislead' the subject of parallel civil and criminal investigations 'into believing that the investigation is exclusively civil in nature and will not lead to criminal charges.'" Id. at 1198. Although the appellate court acknowledged that the SEC had cooperated in the U.S. Attorney's Office's effort to keep the criminal investigation a secret, the court found no misconduct on the part of the government because the record did not show that any government lawyer made any misleading statements or affirmative misrepresentations. Id. at 1198-99.

The appellate court was not moved by the fact that the SEC staff attorneys clearly intended to prevent disclosure to the defendants of the existence of the criminal investigation, and that one staff attorney had instructed court reporters to refrain from mentioning the AUSA's involvement in the investigation. Id. at 1199-1200. The court noted that "the SECs Form 1662 explicitly warned defendants that the civil investigation could lead to criminal charges. . . ." Id. Given the disclosures to the defendants by the SEC's Form 1662 and the fact that the defendants were represented by counsel at the time they testified in the SEC investigation, the Ninth Circuit reasoned that, "the possibility of criminal investigation should have been well known to both the defendants and their counsel." Id. Finding no deception or affirmative misconduct on the part of the government, the court of appeals vacated the lower court's decision and remanded the case for further proceedings. Id. at 1201.

A little over two years passed between the lower court's drastic decision in Stringer to dismiss the indictments and suppress evidence, and the Ninth Circuit's decision approving the government's conduct in the case. There is little doubt that the initial decision in Stringer, coupled with a similar decision by the Alabama district court in United States v. Scrushy, 366 F. Supp. 2d 1134 (N.D.A.L. 2005), presented a major challenge to the way in which the Department of Justice ("DOJ") and the SEC had been conducting their parallel investigations. Anecdotal evidence suggests that after the Stringer district court decision and the Scrushy decision, the "lay in the weeds" strategy that the DOJ employed in Scrushy and Stringer may have been used less frequently. In some instances, when defense counsel questioned the SEC about whether there was an ongoing parallel criminal investigation, the SEC provided defense counsel with the name of an AUSA, or counsel was later contacted by an AUSA who was in charge of a parallel criminal investigation. In addition, rather than refusing to answer the question outright, the SEC reportedly began advising counsel that if the possibility of a criminal investigation was an important consideration for the witness, then counsel should assume that there was a parallel investigation being conducted.

With the Ninth Circuit's approval of the government's tactics in conducting parallel investigations in Stringer, it remains to be seen whether the "laying in the weeds" strategy employed in Stringer will gain new favor with the SEC and U.S. Attorneys' Offices around the country. Given this uncertainty, the prudent practitioner is well-advised to assume that federal prosecutors are conducting a parallel criminal investigation and may in fact be directly involved in the SEC's choice of venue for testimony and in fashioning the SEC's questions.