NEW YORK: An Introduction to Litigation: Specialist Firms in White-Collar Crime & Government Investigations

White-collar regulators continue to advance their agenda from the past four years with the government’s ongoing effort to reign in crypto, to bring cases at the intersection of white collar and national security, including sanctions violations and anti-money laundering actions, and to encourage corporate and individual self-reporting. Additionally, the Supreme Court will decide Securities and Exchange Commission v. Jarkesy, No. 20-61007, which challenges the SEC’s ability to bring enforcement actions through administrative proceedings. Because much of modern enforcement occurs within administrative agencies, as opposed to courts, the decision in Jarkesy could have wide ranging impact on the future of enforcement.

Crypto is Here to Stay but the Law Remains Unclear 

Despite the high-profile conviction of Sam Bank-Friedman in the Southern District of New York following the collapse of FTX, crypto advocates have had some victories this year. The Securities Exchange Commission (SEC) approved Bitcoin’s and Ether’s exchange traded funds. A judge in the Southern District of New York rejected the SEC’s claim that Coinbase acted as an unregistered broker but allowed other claims to proceed to discovery in Securities and Exchange Commission v. Coinbase Inc. et al., 23-cv-4738 (S.D.N.Y.). Industry supported regulation appears to be making some progress in Congress.

The SEC and the Department of Justice (DOJ) continue to try to regulate crypto through enforcement and criminal actions, leaving the law muddled and companies and individuals at risk. High profile cases proceeding at this time, in addition to the Coinbase suit, include Securities and Exchange Commission v. Schueler, No. 23-cv-05749 (E.D.N.Y), which will test law enforcement’s reach in policing borderless crypto transactions and will test who can be named as defendants in the US for activity on decentralized platforms. United States v. Hill et al., 24-cr-82 (S.D.N.Y), where New York federal prosecutors charged the founders of Samourai Wallet, a crypto-mixing firm, with conspiracy to commit money laundering and operating an unlicensed money transmitter business. On April 9, 2024, Uniswap Labs announced that it had received a Wells notice from the SEC. Uniswap Protocol is the largest decentralized trading and automated market making protocol on Ethereum, having reportedly processed over USD2 trillion worth of transactions since first launching in 2018.

Sanctions Violations and Anti-Money Laundering 

The DOJ has increased its scrutiny of companies and individuals which access the US financial system when doing business with Russia, Iran, and other adversaries. 2023 was also a record year for U.S. sanctions enforcement by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), which assessed over USD1.5 billion in penalties, including its highest ever resolution in a settlement with Biance Holdings, Ltd. It is expected that the wars in Ukraine and Israel will continue to drive this trend upwards. The DOJ has added staff to its bank integrity enforcement units and pledged increased cooperation with OFAC and its foreign counterparts. This poses challenges for companies and individuals doing business internationally as sanctions including who and what is sanctioned and regulations relating to ownership and control of entities differs in the US, the UK, and the EU. Additionally, in March 2024, the DOJ along with the Departments of Treasury and Commerce, jointly announced an intention to more aggressively pursue foreign nationals living and doing business abroad whose transactions utilize US financial institutions or involve US companies.

Voluntary Self-Reporting 

The DOJ is continuing to build on the Monaco Memo which was issued in September 2022 by Deputy Attorney General Lisa Monaco to incentivized corporate voluntary self-reporting and the naming of individual executives by offering companies a greater likelihood of avoiding an institutional guilty plea and fines reduced by as much as 50-75%. In April 2024, the DOJ announced a pilot program for voluntary self-reporting for individuals. Under this pilot program individuals with criminal exposure, other than CEOs, CFOs, government officials and leaders of the scheme, who come forward and report their misconduct may be eligible to receive a non-prosecution agreement (NPA). Culpable individuals will receive an NPA if they:

 (1) voluntarily,

(2) truthfully, and

(3) completely self-disclose original information regarding misconduct that was unknown to the department in certain high-priority enforcement areas,

(4) fully cooperate and are able to provide substantial assistance against those equally or more culpable, and

(5) forfeit any ill-gotten gains and compensate victims.

The DOJ has said that the “pilot program is designed to provide predictability and certainty by offering a pathway for culpable individuals to receive an NPA for truthful and complete self-disclosure to the department.” The standards the DOJ will apply to meet these criteria are likely to be high. For example, the self-reporting must be to the DOJ’s Criminal Division, must be done in the absences of any ongoing government investigation, and the individual must agree to testify. Defense lawyers will certainly move cautiously when considering this option for clients and it will be interesting to see if the number of NPAs meaningfully increases.

Jarkesy, and the Future of Administrative Enforcement Proceedings 

Securities and Exchange Commission v. Jarkesy, No. 20-61007, was argued before the Supreme Court on November 29, 2023. The issues are:

(1) whether the SEC’s administrative enforcement proceedings seeking civil penalties in fraud cases violate the Seventh Amendment;

(2) whether the SEC’s ability to choose to enforce the securities laws through an agency adjudication instead of a district court action violate the nondelegation doctrine; and

(3) whether for-cause removal protections for administrative law judges violates Article II of the Constitution.

Defense lawyers and some Article III judges have long expressed concerns about the SEC bringing cases in its own administrative proceedings and while an SEC loss in Jarkesy, is unlikely to be the undoing of the administrative state, if the Supreme Court finds that the Seventh Amendment extends to any deprivation of liberty or property by the federal government, it will substantially limit the SEC’s and other agencies’ ability to bring actions outside of courts.