What do insider trading, the financial crisis, and the BP oil spill have in common? They may all result (or have resulted) in both criminal investigations and civil suits. We will see how these parallel proceedings develop as the government ramps up its insider trading investigations. As reported by the Washington Post, the Justice Department has spent the past few years looking into criminal instances of insider trading. The FBI is now executing search warrants to further the criminal investigations. The SEC is conducting its own probe. The SEC recently filed suit against a former Deloitte Tax LLP partner who allegedly passed confidential information as part of an insider trading scheme; the UK Financial Services Authority filed charges against others involved in the scheme. Civil lawsuits by private parties likely will follow.
We have all heard of criminal defendants who “plead the Fifth.” That is, in a criminal case, a defendant may invoke his rights under the Fifth Amendment to the United States Constitution and decline to testify. At trial, the judge and jury may not use the defendant’s invocation of the Fifth Amendment as evidence of guilt.
But what happens when the same defendant is called to testify in a civil lawsuit or administrative action? May a defendant “plead the Fifth” in civil proceedings? A defendant indeed may assert his rights under the Fifth Amendment and decline to answer questions in a civil proceeding when he fears the answers may incriminate him. The implications, however, can be quite severe. In contrast to a criminal case, when a defendant “pleads the Fifth” in civil litigation, his silence may be used against him. The judge and jury accordingly may consider the defendant’s refusal to testify as evidence of his liability.
Given these consequences, the defendant and his lawyer must carefully consider the potential outcomes should the defendant be called to testify in a civil proceeding. The safest course is generally to protect the defendant from a criminal conviction to the extent possible. But there is no easy answer, and this dilemma will continue to confront counsel when a client faces the prospect of parallel criminal and civil proceedings.