It is hard to watch television these days and not come across some courtroom drama in which the suspect proclaims: “I take the Fifth!” Oh, no! The detectives and prosecutors pound the desk and punch the wall.
For starters, let's read the pertinent part of the Fifth Amendment to the United States Constitution: “No person shall be…compelled in any criminal case to be a witness against himself…”
So let's say you get a call from an SRO demanding that you appear and answer questions about some alleged misconduct. Your lawyer asks what you know. Your lawyer isn't happy. He warns you that there could be a separate criminal investigation into the same matter. If you answer the SRO's questions and they touch on the same matters in the criminal case — wow, that could be a mess. You could implicate yourself in a criminal case and become a defendant. They could put you in jail or make it more difficult to cut a deal with the prosecutors. You ask, “Can't I just take the Fifth?”
Go back and re-read the Fifth Amendment excerpt above. It pointedly says that you can't be compelled in a “criminal case” to testify against yourself. Exactly. An SRO lacks the power to “incriminate” you, because it is neither a state nor federal prosecutor — its cases are not tried in a criminal court but before a hearing panel. Further, SROs argue that they are private actors, in that they receive no federal or state funding and their boards/committees are not populated with members appointed by the government.
And so, if you do refuse to testify before an SRO, the regulator can, and most likely will, bar you for failing to cooperate in its investigation. No big deal, you say — I'll agree to testify at the SRO after the indictment is issued (and you're not named) or after the trial is over and you are exonerated. That offer is made all the time by folks in your position and it's usually turned down by the SROs. It's hardball and they're playing the bat.
Prosecutors and SRO regulators play a chummy game of pressing you between a rock and a hard place. They know all too well that where the government can't force you, the SRO may just be able to coerce you. Thankfully, after years of pooh-poohing such complaints, the SEC and the courts are beginning to listen. Perhaps in time someone will successfully prove that there is too close a nexus between government prosecutors and SRO regulators, and allow respondents to assert their Fifth Amendment right before an SRO.
A recent case remanded to the NYSE on appeal to the SEC offers some hope. In the Matter of the Application of Warren E. Turk for Review of Disciplinary Action Taken by the NYSE, (http://sec.gov/litigation/opinions/2007/34-55942.pdf, June 22, 2007), Turk was barred by the NYSE for asserting his right to the Fifth Amendment. To prove that the NYSE was not a private actor (and that he should be entitled to Fifth Amendment protection), Turk argued that:
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The SEC and the NYSE requested Turk's testimony concerning his activities as a specialist within one month of each other;
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The SEC and the NYSE brought charges in connection with their respective investigations of NYSE specialists on the same day in April 2005, and the United States Attorney brought criminal charges against other NYSE specialists three days after the SEC and the NYSE brought their proceedings;
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Press releases issued by the SEC, the NYSE and the United States Attorney in connection with their investigations indicated that the regulators cooperated with and assisted each other; and
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Turk's employer told him when removing him from the NYSE trading floor and placing him on administrative leave, that it was acting upon a request by the United States Attorney's office.
On remand, the SEC ordered that Turk is allowed to seek discovery from the NYSE in his effort to prove it engaged in government action. The SEC conceded that not every such defense deserves discovery and a hearing, but it was persuaded that Turk had raised some credible points concerning the nexus between the NYSE and the government.
Writer's BIO: Bill Singer practices law at Stark &Stark, and is the publisher of RRBDLAW.com