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Getting nabbed for insider trading used to mean the legal equivalent of a slap on the wrist. Not anymore. More often than not, a Securities and Exchange Commission inquiry also means an investigation by the FBI, federal prosecutors or both. Their more aggressive approach to enforcing securities laws in the Bay Area has civil litigators calling in criminal defense specialists more often and much sooner than they did three years ago. “It’s a whole new world out there. The civil securities defense bar has woken up to the reality that these cases [can be] prosecuted criminally,” said Nanci Clarence, a longtime criminal defense lawyer in San Francisco. The Clarence & Snell partner said half of her practice is now defending people charged with securities-related crimes. Three years ago, she didn’t have any such cases. In about the same period, white-collar criminal defense lawyer Douglas Young has doubled the size of his practice at Farella Braun & Martel to six lawyers because of bigger demand. The stepped-up cooperation appears to have started with Northern California’s U.S. Attorney Robert Mueller III. When he took over the office in 1998, Mueller made securities crimes a priority. He tapped seasoned New York federal prosecutor Leslie Caldwell to lead the charge. Then in early 2000, Caldwell was put in charge of a special securities fraud unit, which now has seven lawyers. “One of the main priorities I set … was to make sure we had a good relationship with the SEC,” said Caldwell. Working separately, she said, was unwieldy and inefficient and her mission was to streamline the process. “Lawyers are aware of our presence now. They’re taking us into account when deciding how to advise clients,” Caldwell said. Since 1999, the FBI and the U.S. Attorney’s Office each dedicated seven-member units to securities-related crimes. In the same time, the SEC swelled its enforcement ranks by 30 percent. Now, the three agencies regularly work in concert when it comes to investigating possible accounting fraud, insider trading or stock manipulation. They’ve also trained one another in how to spot criminal activity and how to conduct investigations so they lead to quicker indictments. The three agencies have hinted their relations have warmed. The heads of each held a rare joint press conference last September to announce fraud indictments following the merger of HBO & Co. and McKesson Corp. And close connections have led to criminal charges in one high-profile insider trading case. In April, Malcolm Wittenberg, the head of Crosby, Heafey, Roach & May’s patent practice, was indicted on felony insider trading charges. Wittenberg had already settled a similar case with the SEC. He agreed to repay the $14,000 he allegedly profited through insider trading as well as more than $15,000 in penalties and interest. Wittenberg is scheduled to go to trial in September, said Young, who is defending the lawyer Robert Friese, who helped negotiate Wittenberg’s SEC settlement, said criminal prosecution in such a case is overkill. “The civil settlement was more than enough under the circumstances,” said Friese, a partner with San Francisco’s Shartsis, Friese & Ginsburg. Friese is leading a push for more up-front guidance from the SEC and prosecutors on whether cases will be handled criminally or civilly. He’s circulated a letter calling for more dialogue with prosecutors. “We want a little more consideration and objective standards and perhaps more senior review before someone should be face-to-face with a criminal investigation,” Friese said. Prosecutors and the SEC are mum on the number of cases they’re investigating, although the SEC disclosed that half of its cases are also under investigation by U.S. Attorneys. At the FBI’s securities-crimes unit, the some 50 cases currently under investigation are also the targets of the SEC or a federal prosecutor. “We’re doing a lot of joint investigations, which were unheard of,” said Neil Smith, supervisory special agent for the FBI’s securities-crimes unit. “In the old days, you would do an investigation and bring it to the prosecutor.” But large accounting fraud cases involving millions of dollars — the kind the FBI is likely to take on — are too complex for prosecutors to sit out, Smith said. With an indictment as the goal, Smith said, “you have to have an investigative strategy.” The U.S. Attorney’s Office is also more receptive to take on securities fraud cases than in prior years, said Helane Morrison, the head of the SEC’s San Francisco office. “It’s a higher priority case than it used to be,” said Morrison. Better coordination among the agencies may make investigations run smoother, but it’s created new headaches for Valley defense lawyers. Until recently, charges leveled by the SEC for insider trading were handled in federal civil court. Lawyers negotiated a settlement with the SEC, and at worst, the client paid a fine without having to admit any wrongdoing. Settlement negotiations with the SEC aren’t so cut-and-dried anymore, say civil defense lawyers who are boning up on criminal law. Negotiating a settlement with the SEC doesn’t always mesh with defense strategies in a criminal matter. “It definitely changes the risks associated with these cases,” said David Furbush, a Brobeck, Phleger & Harrison partner. Civil securities lawyers have to start thinking about bringing in criminal lawyers sooner and in some cases, instructing clients to plead the Fifth Amendment if called in for questioning, Furbush said. Furbush will be part of an Association of Business Trial Lawyers panel next month for civil litigators who need to bone up on dealing with criminal investigators. The SEC’s Morrison said there already is an uptick in the number of people who seek constitutional protections from testifying. “It’s more complicated,” said Daniel Bergeson, partner of San Jose, Calif.’s Bergeson Elipoulos. “They’re criminalizing cases that would otherwise not be a criminal case.”

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