Are SEC, DOJ Getting Too Cozy?


Senator Charles Grassley (R–Iowa) recently focused his sights on an important issue involving co-operation between the Securities and Exchange Commission and the Department of Justice. The ranking Republican on the Senate Judiciary Committee recently fired off biting inquiries to the heads of both federal agencies regarding how they share information when they are both investigating the same allegations.

Grassley’s probe was instigated by statements made by Robert Khuzami, the SEC’s Director of Enforcement, at a New York securities law conference last November. Discussing the SEC’s new initiative to encourage financial executives to report fraud in exchange for reduced penalties, Khuzami said that in this circumstance, the SEC will inform people being investigated about whether or not the Justice Department has any interest pursuing actions against them. After all, it would be difficult to strike a deal with the SEC unless the target has assurance that the Justice Department is not waiting in the wings.

Here’s the common scenario. Often, the SEC and DOJ will have interests in the same matters, with the SEC looking at possible civil penalties and the DOJ at criminal prosecution. It makes sense for the two agencies to share their findings with each other. So people being investigated by the SEC are quite aware of the possibility that, if the SEC is investigating, so well may the DOJ – and that the information they provide to the SEC may very well be passed on to the DOJ. That could make the target of an SEC investigation reluctant to talk to the SEC, fearing that any cooperation could lead to criminal charges being brought by the DOJ.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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