Hypothetical:  A bank executive is served with an investigative testimonial subpoena by a bank regulator. Believing she may be the target of the investigation, the executive is unsure of how to proceed. She knows that by testifying, her statements may be used against her in a subsequent criminal proceeding, but is also aware that a refusal to testify could be used against her in a civil action.

As counsel to the bank executive, how do you advise your client? 

In a recent article for the New York Law Journal, Partner Jeffrey Alberts – head of Pryor Cashman’s White Collar Defense + Investigations practice – and Associate Mark Weiner examined the legal implications of remaining silent before banking regulators. 

The Right to Plead the Fifth 

“The starting point for a legal analysis of how to respond to a subpoena to testify as part of a bank investigation is determining whether the witness may refuse to answer questions by asserting rights under the Fifth Amendment,” the co-authors explained. 

A witness may invoke their Fifth Amendment rights if they reasonably believe that their answers could be used against them in a criminal prosecution, or could lead to other evidence that might be used for the same purpose. And, because the Fifth Amendment privilege is liberally constructed, “demonstrating the possibility of prosecution, regardless of the court or regulatory body’s assessment of the actual likelihood of prosecution, should be sufficient,” Alberts and Weiner said. 

“Anything You Say May Be Used Against You”

If a witness testifies pursuant to a subpoena issued by a regulator, their testimony can be used by the government at a later criminal trial, provided the government does not act in bad faith in its pursuit of the regulatory proceedings. 

Moreover, since different regulators have different policies regarding the nature of disclosures made to witnesses, Alberts and Weiner recommend that bank regulators be asked to confirm the following information in writing:

• Whether there are any parallel investigations or proceedings;
• What the witness’s status is within the regulatory investigation; and
• What the witness’s status is within any parallel investigation or proceeding.

Negative Consequences of Invoking the Fifth

While a decision not to testify cannot be used against a defendant in a criminal trial, the same cannot be said for a civil action.

Other adverse consequences witnesses may face include “preclusion orders relating to evidence the witness later attempts to introduce that might have been refuted by the witness’s testimony or evidence obtained due to that testimony. ”

An Important Caveat on SROs and Requests for Stays

Additionally, Alberts and Weiner cautioned: “the Fifth Amendment does not apply to self-regulatory organizations (“SROs”), such as FINRA. It applies only to government agencies. SROs can, and often do, automatically sanction defendants for refusing to testify.”

In some instances, a defendant may want to consider requesting a stay of the civil proceeding pending resolution of the criminal matter, although banking regulators and courts are not always willing to grant such requests. 

Still, while a regulatory agency or presiding court may limit a defendant’s ability to introduce evidence as a result of their invoking the Fifth Amendment, the defendant maintains the right to cross-examine witnesses and potentially introduce her own witnesses and documentary evidence.

Further, no civil monetary penalties or prohibition orders barring an executive from banking will be issued solely as a result of their pleading the Fifth.

Conclusion

When advising a client who has been subpoenaed to testify by a banking regulator, Alberts and Weiner emphasized that one must “carefully consider the possible use of the evidence sought in a potential future criminal proceeding. While the consequences at the civil level for invoking the privilege may be significant, they generally pale in comparison with possible jail time.”

The full NYLJ article can be read here.

More About Pryor Cashman’s White Collar Defense + Investigations Practice

Led by a former U.S. Attorney, our White Collar Defense + Investigations practice tenaciously defends our clients’ interests at all stages of investigations and prosecutions; from responding to subpoenas and document requests to aggressive representation at trial. We leverage our knowledge of how government investigators build their cases to minimize – and in many cases eliminate – our clients’ criminal and civil liability.

To learn more about our experience in this area, please visit our practice page.