• Be Ready for Intensified Government Attention
  • October 31, 2008 | Authors: Stuart F. Pierson; Jacob "Jake" A. Lutz
  • Law Firms: Troutman Sanders LLP - Washington Office; Troutman Sanders LLP - Richmond Office
  • The national, now global, financial crisis is driving state and federal regulators to dig much more deeply and examine far more broadly the practices and portfolios of all businesses engaged in financial transactions.  The Justice Department, FBI and state attorneys general are joining in; and Congress is demanding that federal authorities find and punish the culprits.  Banks, thrifts, securities firms, insurance companies, mortgage companies, mortgage brokers and other financial institutions, their directors and officers, are prime targets of this regulatory and law enforcement surge.  Each federal agency with regulatory jurisdiction will be maneuvering to prove its forceful effects.  While the SEC will take the lead with major public companies, OCC, FDIC, OTS, the Federal Reserve and the FTC will concentrate their scrutiny on all companies with any impact in the financial industry, searching for evidence of bank fraud, deceptive, unsafe and unsound practices, and violations of consumer protection laws. 

    The Justice Department knows its lawyers and the FBI alone cannot investigate more than a small portion of the potential criminal violations in the struggling financial sector.  They will take a different approach, cooperating very quietly “behind the curtain” with all the investigating regulators.  When a potential criminal violation appears, they will coordinate the agency’s regulatory and civil acquisition of evidence with the needs of a potential criminal prosecution.  Although federal prosecutors have been challenged and occasionally sanctioned for such unseen conduct, there is nothing inherently wrong with hiding one path of a parallel investigation.  Grand juries are, after all, conducted in secret.  The word to the wise, then, is to assume that criminal jurisdiction is a serious risk whenever regulatory review is intensified or a major loss has occurred.

    Unlike the Justice Department’s reaction to criticism of its recent efforts to require waiver of counsel privileges, regulatory agencies, typified by the SEC, have little concern about requiring waiver in a serious case.  Once that waiver is given, all the material on the same topic is available, not only to the SEC, but to every other component of the federal government.  Careful preparation and comprehensive foresight can significantly reduce the risk that achievement of a regulatory benefit will turn into an unwarranted criminal review.