Opinion
02 Civ. 8855 (LAK)
February 27, 2003
ORDER
The Securities and Exchange Commission ("SEC") brought this action in November 2002, alleging violations of the federal securities laws and seeking injunctive and other relief against Beacon Hill Asset Management LLC ("Beacon Hill") as well as relief against a number of other entities. The SEC also is pursuing an investigative proceeding regarding Beacon Hill.
Subsequent to the commencement of this action, the United States Attorney for the District of New Jersey obtained access to the SEC investigative files for use in a criminal investigation. A grand jury now is investigating allegations of securities fraud and other misconduct involving alleged losses of more than $300 million. The government has intervened in this action and seeks a stay of (a) Rule 26(a)(1) and certain other discovery, and (b) production of transcripts of SEC testimony, notes of interviews with, and any form of discovery that would create statements of any person whom the government certifies may be called as a witness in the criminal investigation or any ensuring prosecution. The SEC has no objection to the relief sought by the government. Beacon Hill professes its consent, but complains that the form of the stay sought by the government would enable the Commission to continue its private investigation while foreclosing Beacon Hill from pursuing discovery in this action. The relief defendants in principle do not oppose the stay either, but seek leave to inspect and copy documents that Beacon Hill previously produced to the SEC in this action.
The factors pertinent to such applications include prejudice to the government's investigation, prejudice to the interests of the civil parties in prompt resolution of their disputes, the interests of non-parties, the courts' interest in judicial economy, and the public interest. See, e.g., Trustees of Plumbers and Pipefitters National Pension Fund v. Transworld Mechanical, Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995). The principal concern with respect to prejudicing the government's criminal investigation is that its targets might abuse civil discovery to circumvent limitations on discovery in criminal cases. E.g., SEC v. Downe, 1993 WL 22126, at *12 (S.D.N.Y. 1993). As is evident, the government has tailored its request for relief to address this concern. Moreover, there is clear evidence that Beacon Hill is avidly pursuing discovery in this action with a view to finding out what has passed between various entities and the United States Attorney's office.
Beacon Hill's position is without merit. It has shown no reason why the SEC should not be permitted to continue its investigation in tandem with the United States Attorney. The two agencies have different public responsibilities, the SEC to protect the integrity of the securities markets and, in some instances, to seek compensation on behalf of victims of violations of our securities laws and the United States Attorney to detect and prosecute criminal violators of those laws. The fact that the United States Attorney has focused on Beacon Hill does not, in and of itself, give it immunity vis-a-vis the SEC. Nor is there any reason to permit Beacon Hill to use the pendency of this action to gain an advantage that is not ordinarily afforded to subjects of criminal investigations or to interfere with the government's inquiries.
Beacon Hill invokes the principle of reciprocity, arguing that it has produced many documents to the SEC without receiving any in return. The unstated premise of this argument, however, is that the government seeks to block all discovery against the SEC. This premise is inaccurate, as the Court's summary of the relief sought reveals.
The relief defendants contend that they should be given access to the documents previously produced to the SEC by Beacon Hill. As no claims are asserted against them, and as the action cannot proceed to resolution while the stay is in effect, they cannot be prejudiced by the delay the government seeks.
Accordingly, the government's motion is granted. The following categories of discovery are stayed until June 30, 2003 or further order of this Court:
(a) Rule 26(a)(1) discovery.
(b) Rule 34 requests by Beacon Hill served absent consent of the United States Attorney for the District of New Jersey or leave of this Court.
(c) Production of transcripts of SEC testimony and notes of interviews of any person whom the United States Attorney for the District of New Jersey certifies may be called as a witness before the grand jury or in any ensuing criminal proceeding.
(d) Depositions, interrogatories, requests for admission, and any other discovery that would create statements of any person whom the United States Attorney for the District of New Jersey certifies may be called as a witness before the grand jury or in any ensuing criminal proceeding.
(e) Discovery of materials obtained by the SEC in its investigative proceeding entitled In the Matter of Beacon Hill Asset Management, LLC.
SO ORDERED.