Five Whistleblower Defense Strategies for Securities Fraud Allegations

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Brian Kuester
Attorney Brian Kuester
Whistleblower Defense Team Lead
Former US Attorney
Former District Attorney
Ellen Comley
Attorney Ellen Comley
Whistleblower Defense Team Lead
Senior Counsel
Roger Bach
Roger Bach
Whistleblower Defense Team Consultant
Former Special Agent (OIG)

Receiving a subpoena from the U.S. Securities and Exchange Commission (SEC), a whistleblower lawsuit, or being served with a Civil Investigative Demand (CID) is a huge moment for you or your brokerage firm. Suddenly, the threat of legal liability for securities fraud has become very real. The penalties can be substantial, and can include prison time in a state or a federal penitentiary.

You need experienced legal help.

The criminal defense and securities fraud defense attorneys at The Criminal Defense Firm have helped numerous suspects and defendants through these difficult times. No matter what stage your case is in, our experienced lawyers can guide you through it and minimize the legal liability that you are facing.

Here are five preliminary defense strategies that you and your attorneys can make use of in the early stages of a securities fraud allegation by a whistleblower.

1. Remember That the Investigation Will Not Go Away on Its Own

Many securities professionals and brokerage firm executives who receive whistleblower complaints that allege securities fraud see the allegations as bogus and without merit. The absurdity of the complaint often leads them to not take it seriously. They may delay in hiring a defense lawyer to represent their interests against the claims and do nothing to prevent the subsequent investigations from escalating.

In the meantime, the whistleblower and law enforcement are collecting evidence unchallenged. In many cases, the information that they uncover could have been legally kept away from them, had the suspect invoked their rights and taken precautions. Even if there are numerous reasons to suspect the whistleblower’s credibility, if they are not pointed out from the very outset, law enforcement personnel are unlikely to be aware of them. As a result, the case will move forward as if the whistleblower’s claims are true, rather than completely unreliable.

The best time to attack seemingly absurd whistleblower claims is immediately. By undermining the case from the very start, you can keep it from building and becoming more than just an inconvenience.

2. Do Not Talk to Law Enforcement Agents

However, taking affirmative action to combat a whistleblower’s allegations of securities fraud does not mean arranging a time to speak with state or federal investigators who are looking into the allegations. When whistleblowers work hand-in-hand with law enforcement agents, investigators will be privy to information that you will not have, including lots of the details in the whistleblower’s claims. If you talk openly with law enforcement agents, chances are very high that something that you say will unknowingly incriminate you when taken in context with something that they know.

Additionally, if you speak with law enforcement agents and say something untruthful or even just misleading about the allegations, it can lead to further criminal charges for lying to police.

3. An Internal Investigation is an Essential Component of Most Defense Strategies

Once you have learned of the whistleblower allegations, a pivotal step is to conduct an internal investigation to find out if they actually have any merit to them. Lots of securities fraud suspects have gone with their gut feeling that the claims are groundless, only to learn that there were criminal violations of state or federal securities laws going on in their firm without their knowledge.

Conducting a thorough internal investigation accomplishes numerous things after an allegation of securities fraud. Two of these benefits stand out from the others.

First, it gives you a much better idea of what you are dealing with. The internal investigation will let you know whether the allegations are true, false, or somewhere in between. This opens your eyes to the threats and should inform your next moves.

Second, should there be any wrongdoing found by the internal audit, you can point to the audit as evidence that you or your firm is taking its compliance obligations seriously and worked diligently and immediately to find out if there were any violations. Not conducting an internal investigation makes it seem as if there was a culture of turning a blind eye on potential wrongdoing, which can make defending your firm much more difficult.

4. Active Defense Strategies Often Pay Off

Once you have a securities defense lawyer on your side and have digested the results of the internal investigation, opening a dialogue with the law enforcement personnel that are working with the whistleblower can be a wise move to make in certain circumstances. By doing so, you can get a better idea of the strengths and weaknesses of the whistleblower’s case. It also lets you begin to work away at those weaknesses by presenting exculpatory evidence that was unearthed during your internal investigation.

In many cases, taking a quick, firm, and aggressive initial stance on defense can overwhelm the whistleblower’s case against you or your firm and convince law enforcement that intervening in the case is not worth it. Once the whistleblower is left on his or her own, their ability to wreak havoc on your securities company or your trading future is drastically mitigated. In many cases, the case against you fizzles.

5. Be Open to Resolving Strong Cases Early On

If the internal investigation reveals that there is some merit to the allegations being made by the whistleblower, it is important to be open to potential resolutions that are in your long-term interests. By ending a case quickly, it can prevent it from escalating even more. Even if the resolution hurts, it can mitigate the damage. In many cases, you may be able to resolve a case to avoid criminal liability for securities fraud and only face civil or even just administrative consequences, instead.

5 Frequently Asked Questions That the Securities Fraud Defense Lawyers at The Criminal Defense Firm Get

When is the Best Time to Hire a Defense Lawyer?

Right away.

If you have been served with a whistleblower complaint or lawsuit that alleges securities fraud, you need to understand that law enforcement agents will have typically already been investigating you for months. Letting them continue to do so without getting an experienced defense lawyer on your side can let them gather even more evidence uncontested.

In many cases, it can be wise to get a criminal defense lawyer on your side even earlier. One of the most important factors that can determine the outcome of your case is whether the government decides to intervene in it. This decision is made very early in your case. Having skilled defense lawyers there to persuade prosecutors that the case is not worth their time can drastically increase the odds of a win.

Are These Cases Civil or Criminal?

Securities fraud cases involving a whistleblower can be civil or criminal, depending on whether evidence is uncovered that you had an intent to defraud people. An intent to defraud is an element in a criminal case for securities fraud. If proven, you can face prison time for the offense.

Just because you did not intend to defraud the alleged victims, though, does not mean that you will get off without a penalty. Even if it was a mistake, if people lost money through your negligent conduct you can still be held liable for it. You just will not get thrown into prison. However, the financial penalties can be overwhelming.

Can I Still Get Penalized if It Was Just a Mistake?

Yes, you can still be held civilly liable for securities fraud if you did not intend to defraud anyone. While prison time is no longer on the table in these cases, you can still face a massive monetary judgment to pay back the investors’ losses.

This potential outcome is crucial to appreciate. It means that a case involving a criminal charge for securities fraud does not end if you can prove that you did not have the necessary intent to defraud. Instead, while the criminal charges will fizzle, civil allegations will still remain and subject you to massive penalties.

What Sets The Criminal Defense Firm Apart from Others?

There are several reasons why The Criminal Defense Firm is different from other law firms in your area. Probably the most important is the fact that The Criminal Defense Firm only employs senior-level attorneys to provide the legal work in your case. No junior associates. Not even any paralegals.

This means that you can rest assured that all of the legal work done in your defense has been performed by a lawyer that has handled cases just like yours before. Other firms often tout the experience of their leading lawyers to draw in clients, but then delegate those clients’ cases to associates that may have only just passed the bar exam. We don’t.

Why Don't You Call Your Firm the Best Securities Fraud Defense Firm?

Because we think that those sorts of claims are better left to our prior clients, many of whom have left glowing testimonials about the work we provided for their cases.

Contact the Securities Fraud Defense Attorneys at The Criminal Defense Firm

If you have learned that you or your securities firm is being accused of securities fraud and that a whistleblower’s information is a key part of the investigation, you need legal help and you need it now. The experienced securities fraud defense lawyers at The Criminal Defense Firm have helped countless regulated securities professionals protect their rights and their future by insulating them from liability in the early-goings of a whistleblower allegation.

Contact them online or call their national law office at (866) 603-4540.

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