Federal Parallel Proceedings: Civil and Criminal Cases

The civil investigation is the criminal investigation. You just don't know it yet. By the time someone tells you the Department of Justice has "taken an interest" in your case, you've already handed them everything they need to prosecute you. That's how this system works. That's what nobody explains until it's too late.

Welcome to Spodek Law Group. Our mission is to give you the information other attorneys won't share about federal investigations. We're going to tell you what practitioners know but rarely say publicly: the so-called "parallel" proceedings between civil and criminal cases aren't parallel at all. They're coordinated. They're strategic. And they're designed specifically to force you into an impossible choice.

The Department of Justice has a policy document - Justice Manual Section 1-12.000 - that explicitly calls for "early and regular communication between civil attorneys and criminal prosecutors." Read that again. The government's own policy tells prosecutors to coordinate. To share information. To work together. The civil attorneys and criminal prosecutors aren't running separate investigations. They're running one investigation with two labels.

The Fiction of "Parallel" - Why Civil IS Criminal

Here's the thing nobody tells you. Prosecutors let civil investigators take the lead on purpose. Not because the civil case is more important. Because civil discovery tools are more powerful. In a criminal investigation, you can invoke the Fifth Amendment. You can refuse to answer questions. You have constitutional protections. But in a civil investigation? The rules are completely different.

Civil Investigative Demands - CIDs - can be issued before litigation even starts. They compel the production of documents. They compel sworn testimony. And here's the kicker: the results get shared freely between civil and criminal investigators. Your civil cooperation becomes criminal evidence. Every single time.

In the Martoma case involving SAC Capital, the SEC shared every document it obtained through civil discovery with prosecutors in the Southern District of New York. SEC attorneys and SDNY prosecutors conducted twenty joint interviews of a dozen witnesses. The court later described it as "tightly coordinated and devastatingly effective." That's not parallel. Thats one investigation wearing two masks.

The DOJ's own guidance says prosecutors should consider "investigative strategies that maximize the government's ability to share information among criminal, civil, and agency administrative teams." They're not trying to hide this. Its published policy. But most defendants never read it untill there sitting in a criminal courtroom listening to their civil deposition being read aloud.

Think about the mechanics here. SEC investigators interview you. FBI agents sit in. Or they dont sit in - they just get the transcript later. Same difference. Your speaking to one agency but your really speaking to everyone. That testimony you gave trying to resolve a civil dispute? Its now on a prosecutor's desk. Your statements in the civil case become the foundation for criminal charges.

The CID Trap: How They Compel What Grand Juries Cannot

Most people don't understand why Civil Investigative Demands are the prosecutor's favorite tool. Heres why. Grand jury subpoenas have limits. If you're called before a grand jury, you can invoke your Fifth Amendment right against self-incrimination. The prosecutor cant force you to testify against yourself. That's a fundamental constitutional protection.

But CIDs work differently. There are issues by civil agencies - the SEC, FTC, EPA, HUD. There is a civil process. And in civil proceedings, you don't get the same Fifth Amendment protection. You can technically invoke it. But if you do, the court can draw an adverse inference against you. They can conclude that whatever you would have said must have been bad because you refused to say it.

So prosecutors figured out a workaround. Let the civil side issue the CID. Let the civil side conduct the interview. Let the civil side gather all the evidence. Then share everything with the criminal side. You testified under oath in a civil proceeding. Now that testimony sits in a criminal file. The Fifth Amendment protection you would of had in a criminal investigation? Completely bypassed.

This isnt an accident. This is a strategy. The increased use of CIDs has been catalyzed specifically because they can compel production of documents and testimony that grand juries can't. Criminal prosecutors now routinly allow the civil investigation to take the lead. They wait. They watch. They collect. And then they charge.

The CID arrives looking like routine regulatory inquiry. Answer these questions. Produce these documents. Appear for testimony. Most people think its just civil paperwork. Annoying but managable. What they dont realize is that criminal prosecutors are waiting on the other end. Everthing you provide goes straight into a criminal file. Every answer becomes potential impeachment material. Every document becomes Exhibit A.

Early Warning Signs: When Parallel Proceedings Are Coming

How do you know when your facing parallel proceedings? There almost never an anouncement. But there are warning signs that experienced defense counsel recognizes.

First: multiple agencies contacting you about the same conduct within weeks of each other. That's not a coincidence. Thats coordination. When SEC investigators call and then FBI agents show up asking similar questions, your in the middle of a parallel investigation. They already talked. They already shared notes. They already developed a strategy.

Second: questions during civil interviews that seem oddly specific about your mental state, your intent, what you knew and when. Civil agencies don't usually care about intent. They care about violations. When there's sudden focus on what was going through your mind, criminal prosecutors are probably dictating the questions.

Third: timing of civil lawsuit filing close to when you start feeling criminal heat. If an SEC enforcement action lands right around when you hear about a grand jury investigation, that's sequencing. There using the civil case to build the criminal case. The lawsuit forces you into discovery obligations that the criminal process alone couldn't achieve.

Fourth: your civil lawyers and criminal lawyers arent coordinating. If your getting completly different advice from each side, your already in trouble. Prosecutors will compare your positions. They will highlight contradictions. They will use inconsistencies as evidence of consciousness of guilt.

When you see any of these signs, you need unified defense counsel immediately.

The Impossible Choice: Fifth Amendment Destroys You Either Way

Heres were defendants get absolutly crushed. Your facing a civil case and a criminal case based on the same conduct. You have to make a choice. And every option destroys you.

Option A: Cooperate in the civil case. Answer questions. Produce documents. Give sworn testimony. Be a "good" defendant. But everything you say gets shared with criminal prosecutors. Your civil cooperation becomes your criminal confession. The deposition you gave trying to resolve a civil matter gets read aloud at your criminal trial.

Option B: Invoke your Fifth Amendment right. Refuse to testify. Stay silent. Protect yourself criminaly. But in the civil case, the court can draw an adverse inference. They can assume whatever you would of said was incriminating. You loose the civil case by default. And heres the irony - the SEC treats your invocation of the Fifth Amendment as a factor supporting referal for criminal prosecution. Your silence becomes evidence of guilt.

Option C: Try to thread the needle. Answer some questions, refer to others. Produce some documents, withhold others on privilege grounds. This sounds smart but its actually the most dangerous path. Partial answers create inconsistencies. Selective production looks like obstruction. You end up with the worst of both worlds - no Fifth Amendment protection but also no cooperation credit.

The Supreme Court made this clear in Baxter v. Palmigiano: "the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify." Damned if you talk. Damned if you dont.

Todd Spodek has watched clients walk into civil depositions thinking they were being cooperative and walk out having built the criminal case against themselves. There is no clean path here. There is only damage control.

How Martha Stewart Went to Prison for the Investigation, Not the Crime

Want to know how bad parallel proceedings can get? Look at Martha Stewart.

In December 2001, Stewart sold nearly 4,000 shares of ImClone stock. The SEC opened an investigation. The DOJ opened a parallel criminal investigation. Stewart was questioned by federal investigators about the sale.

Here's what most people get wrong about this case. Martha Stewart did not go to prison for insider trading. She was never convicted of insider trading. The insider trading charges were actually thrown out before trial.

She went to prison for lying to investigators during the parallel proceedings. Obstruction of justice. Making false statements. The investigation itself became the crime. She avoided a $51,000 loss on the stock sale. She lost millions in reputation and spent five months in federal prison - not for what she originally did, but for what she said while being investigated.

The SEC later settled its civil case. Stewart paid $195,000 - three times the losses she avoided. But the criminal conviction for lying during proceedings? That stuck. That sent her to prison.

This is the trap. Your trying to explain yourself in a civil context. Your trying to cooperate. Your trying to make this go away. And every word becomes potential evidence of obstruction if prosecutors decide your explanations were incomplete, evasive, or flat-out false.

Stewarts case illustrates the danger perfectly. She talked when she shouldnt of. She gave explanations that prosecutors later characterized as lies. The original conduct - the stock sale - was actualy dismissed. The talking became the crime. The parallel proceeding created the conviction that the underlying conduct never could have.

Catastrophic Mistakes: What Other Defendants Did Wrong

Learning from others failures might save you from making the same errors. Here are the mistakes that destroy defendants in parallel proceedings.

Mistake Number One: Treating civil and criminal as separate matters. One defendant hired a civil securities attorney to handle SEC inquiries and a completly different criminal attorney months later when DOJ appeared. The two lawyers never spoke. The client made statements to SEC that contradicted positions in the criminal case. Prosecutors noticed. They used the inconsistancies as evidence of guilt. The defendant lost both cases.

Mistake Number Two: Cooperating with civil authorities thinking it would help with criminal exposure. Another defendant sat for multiple SEC interviews, answered everthing fully, produced all documents, thought he was being cooperative. Every single answer became evidence at his criminal trial. His cooperation didnt help. It handed prosecutors a confession on a silver platter.

Mistake Number Three: Waiting too long to get counsel involved. A defendant recieved a CID and responded on his own, thinking it was just paperwork. By the time he realized he needed an attorney, he had already made statements under oath. Those statements were locked in. Criminal prosecutors used them to build an obstruction case when the defendant later tried to change his story.

Each of these mistakes was avoidable. But only if you understand that parallel proceedings arent separate proceedings. Only if you treat every civil contact as potential criminal exposure. Only if you get coordinated defense counsel from the beginning.

The 30% Reality: Why Courts Won't Save You

Maybe your thinking you'll get protection from the court. Maybe you'll file a motion to stay the civil case until the criminal matter resolves. That way you dont have to choose between self-incrimination and adverse inference. Smart strategy, right?

Stay motions succeed aproximately 30% of the time in the Southern District of New York, where most of these parallel proceedings happen.

Thirty percent. Seven out of ten defendants dont get relief. Courts have discretion under United States v. LaSalle Bank Corp., and stays arent automatic. The Constitution does not ordinarely require a stay of civil proceedings pending criminal matters. That's black letter law.

In the absence of substantial prejudice to the rights of the parties involved, courts have ruled that simultaneous parallel civil and criminal proceedings are "unobjectionable under our jurisprudence." The system treats your impossible choice as perfectly fine. It's not their problem.

Some defendants have tried arguing the government abused its power. In United States v. Stringer and United States v. Scrushy, defendants argued the government improperly used civil process to gather evidence for criminal prosecution. The district court in Stringer actually agreed and dismissed the indictments.

Then the Ninth Circuit reversed. The appeals court ruled that the SEC's withholding of knowledge of a parallel criminal proceeding was not "affirmatively deceitful." The government didn't have to tell you they were building a criminal case while you cooperated with the civil investigation.

Think about that. There building a criminal case. They're not telling you. And courts say thats fine.

93% Conviction Rate: By the Time They Charge, They've Already Won

Heres why all of this matters. By the time federal prosecutors decide to charge you criminally, theyve already built there case. Often with evidence you handed them yourself through civil cooperation.

The federal criminal conviction rate is 93%. According to DOJ statistics, in fiscal year 2022, fewer than 1% of federal criminal cases ended in acquittal - only 290 out of 71,954 defendants went to trial and were acquitted. Thats 0.4%. Less than half a percent.

Federal prosecutors dont file charges they might loose. They wait. They gather. They let the civil investigation do the heavy lifting. They use CIDs to compel testimony. They review your civil depositions. They compare statements. They look for inconsistancies. And only when there confident - only when they have enough to secure a conviction - do they bring criminal charges.

At Spodek Law Group, we see this pattern repeatedly. The investigation runs for months, sometimes years. The defendant cooperates with civil authorities, thinking cooperation helps. Then one day, the criminal charges arrive. And the defendant discovers that everything they said in civil proceedings is now Exhibit A through Z.

The timing here is critical. Criminal prosecutors have no statute of limitations pressure in most federal cases. They can wait. And they do wait. They watch the civil investigation unfold. They watch you make statements. They watch you produce documents. They watch you give deposition testimony. Then, when they've seen enough, when their case is built, they charge.

Understanding the timeline helps you make better decisions. Here's how parallel proceedings typically unfold.

Day 0: You receive a civil subpoena or CID from a regulatory agency. The SEC, FTC, or DOJ Civil Division wants documents and testimony. You might think its just civil. You might think it's manageable. But assume from this moment that criminal prosecutors are watching.

Days 30-90: The civil agency schedules your deposition or interview. Everything is being recorded. Everything is under oath. Everything will be shared. Your statements here become locked in. Changing them later looks like an obstruction.

Months 3-12: The civil investigation proceeds. Document production continues. Maybe theres a civil lawsuit filed. Maybe you're negotiating a civil settlement. All the while, criminal prosecutors are reviewing everything your producing in the civil case.

Months 12-36: If criminal charges are coming, this is typically when they arrive. By now, prosecutors have had time to review your civil testimony, compare statements, identify inconsistencies, and build their case. The indictment comes as a surprise to you, but it's been building for years.

Post-Indictment: Now you're in criminal court. And everything from the civil case gets introduced against you. Your deposition testimony is read aloud. Your document productions become exhibits. Your attempts to cooperate with civil authorities become confessions in criminal proceedings.

So what do you actually do? How do you navigate this?

First: assume parallel proceedings exist from day one. Any time a federal agency contacts you - SEC, FTC, EPA, DOJ, IRS - assume there coordinating with criminal prosecutors. Don't wait to find out. Operate under the assumption that every statement, every document, every interview is building a potential criminal case.

Second: hire coordinated defense counsel immediately. You need attorneys who understand both the civil and criminal implications. Not separate lawyers giving you conflicting advice. Not a civil attorney who doesnt understand criminal exposure. A coordinated team working from a single strategy. At Spodek Law Group, we handle both sides from the beginning because we know these aren't separate proceedings.

Third: never respond to a CID without counsel. Never sit for an interview without preparation. Never produce documents without review. Everything is evidence. Everything gets shared. Treat every civil request as if prosecutors are watching - because they probably are.

Fourth: consider seeking a stay. Yes, success rates are only around 30%. But that 30% is worth fighting for. If granted, a stay protects you from the impossible Fifth Amendment choice while the criminal matter resolves.

Fifth: understand your timeline. From the moment you receive civil process, the clock is ticking. Your criminal exposure starts growing the second you begin responding. Early intervention matters more in parallel proceedings than almost any other federal case.

Sixth: develop a unified litigation strategy. What your saying in the civil case must be consistent with what your saying in the criminal case. What your producing in civil discovery must be carefully analyzed for criminal implications. Your defense team needs to speak with one voice because prosecutors are listening to both proceedings.

The Path Forward Starts With One Call

The government has spent decades perfecting this system. They know civil discovery tools are more powerful than criminal ones. They know you cant invoke the Fifth Amendment without consequences. They know most defendants don't understand they're building a criminal case while thinking they're cooperating with a civil matter.

This isnt paranoia. This is how the system works. DOJ policy documents say so. Court cases prove it. The 93% conviction rate confirms it. By the time you realize what happened, its often too late.

But it doesnt have to be. With the right counsel involved early enough, you can navigate parallel proceedings without self-destructing. You can protect your Fifth Amendment rights while managing civil exposure. You can develop a coordinated strategy that addresses both proceedings without building a case against yourself.

Spodek Law Group has handled these cases for years. Todd Spodek has seen every variation of this trap. We know what prosecutors are doing. We know how they coordinate. And we know how to defend against it.

Call us at 212-300-5196 before you respond to any federal agency. Before you answer questions. Before you produce documents. Before you sit for a deposition. The civil investigation is the criminal investigation. You need counsel who understands that from the beginning.

The consultation is free. The mistake of waiting isnt.