An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Written: June 17, 2013
On the morning of December 18, 1992, two brothers were shot and killed in their Houston, TX, home. There were no witnesses to the murders, but a neighbor who heard gunshots saw someone run out of the house and speed away in a dark-colored car. Police recovered six shotgun shell casings at the scene.
The ensuing investigation led police to Genovevo Salinas, who had been a guest at a party the victims hosted the night before they were killed. Police visited Salinas at his home, where they saw a dark blue car in the driveway. He agreed to hand over his shotgun for ballistics testing and to accompany police to the station for questioning.
The Interview
The police interview lasted about one hour and was deemed “non-custodial” – meaning the Salinas was free to leave. Apparently Salinas was not read his Miranda warnings during the interview, during which he answered the police officer’s questions. At some point, the police asked whether Salinas thought that his shotgun “would match the shells recovered at the scene of the murder.” In response to that question, Salinas “[l]ooked down at the floor, shuffled his feet, bit his bottom lip, cl[e]nched his hands in his lap, [and] began to tighten up.” After a few moments of silence, the officer asked additional questions, which Salinas answered.
Following the interview, police arrested Salinas on outstanding traffic warrants but prosecutors concluded that there was insufficient evidence to charge him with the murders, and he was released. A few days later, police obtained a statement from a man who said he had heard Salinas confess to the killings. Based on that statement, prosecutors decided to charge Salinas, who, by this time, had absconded.
Found
In 2007, police discovered Salinas living in the Houston area under an assumed name. He did not testify at trial; however, over his objection, prosecutors used his reaction to the officer’s question during the 1993 interview as evidence of his guilt.
Tried And Sentenced
The jury found Salinas guilty, and he was sentenced to twenty years in prison. The Texas State Court of Appeals and Court of Criminal Appeals affirmed, rejecting Salinas’s claim that the prosecution’s use of his silence in its case in chief violated the Fifth Amendment. The case was appealed to the U.S. Supreme Court. GENOVEVO SALINAS, PETITIONER v. TEXAS (US Supreme Court, 570 U.S. __, No 12-246, June 17, 2013).
Sounds Of Silence
On appeal the Supreme Court concluded that petitioner Salinas’s Fifth Amendment claim failed because he did not expressly invoke the privilege in response to the officer’s question.
SIDE BAR: ALITO, J., announced the judgment of the Court and delivered an opinion, in which ROBERTS, C. J., and KENNEDY, J., joined. THOMAS, J., filed an opinion concurring in the judgment, in which SCALIA, J., joined. BREYER, J., filed a dissenting opinion, in which GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined.
The Court held that in order to prevent the Fifth Amendment privilege against self-incrimination from shielding information not properly within its scope, a witness who “desires the protection of the privilege . . . must claim it” at the time he relies on it.
The Court has recognized two exceptions to that requirement:
- a criminal defendant need not take the stand and assert the privilege at his own trial;
- a witness’ failure to invoke the privilege against self-incrimination must be excused where governmental coercion makes his forfeiture of the privilege involuntary.
In affirming the lower courts’ rulings, the Court found that Salinas had agreed to accompany the officers to the station and was free to leave at any time. Moreover, the Court rejected what Salinas purportedly sought to advance as a third exception to the express invocation requirement:
- A witness chooses to stand mute rather than give an answer that officials suspect would be incriminating.
Although Salinas claimed that reliance on the Fifth Amendment privilege was the most likely explanation for his silence, the Court held that such silence is “insolubly ambiguous” because, for example, petitioner might have declined to answer the officer’s question because he was
- trying to think of a good lie;
- embarrassed; or
- protecting someone else.
As such, not every such possible explanation for silence is probative of guilt, but neither is every possible explanation protected by the Fifth Amendment. The Fifth Amendment guarantees that no one may be“compelled in any criminal case to be a witness against himself,” not an unqualified “right to remain silent.” The Court has long required defendants to assert the privilege in order to subsequently benefit from it, and this rule has not proved difficult to apply in practice.
Thundering Silence?
The Dissent asserts that:
[S]alinas’ silence derived from an exercise of his Fifth Amendment rights. This Court has recognized repeatedly that many, indeed most, Americans are aware that they have a constitutional right not to incriminate themselves by answering questions posed by the police during an interrogation conducted in order to figure out the perpetrator of a crime. See Dickerson v. United States, 530 U. S. 428, 443 (2000); Brogan v. United States, 522 U. S. 398, 405 (1998); Michigan v. Tucker, 417 U. S. 433, 439 (1974). The nature of the surroundings, the switch of topic, the particular question—all suggested that the right we have and generally know we have was at issue at the critical moment here. Salinas, not being represented by counsel, would not likely have used the precise words “Fifth Amendment” to invoke his rights because he would not likely have been aware of technical legal requirements, such as a need to identify the Fifth Amendment by name. . .
Written: June 17, 2013
On October 26, 2011, the Securities and Exchange Commission ("SEC") filed a Complaint in SEC v. Andrey C. Hicks and Locust Offshore Management, LLC (D. Mass. 2011) alleging that the defendants had committed fraud in connection with the offer and sale of shares in the Locust Offshore Fund, Ltd., a pooled investment fund purportedly incorporated in the British Virgin Islands, which turned out to be wholly fictitious.
On March 20, 2012, the U.S. District Court for the District of Massachusetts entered final default judgments in favor of the SEC finding both defendants jointly and severally liable for of $2,512,058.39 in disgorgement and prejudgment interest. The Court also imposed a civil penalty on Locust Offshore Management, LLC in the amount of $2,512,058.39, and a civil penalty on Andrey C. Hicks in the amount of $2,512,058.39.
Whistleblower Claims Filed
On April 3, 2012, the SEC's Office of the Whistleblower posted a Notice of Covered Action 2012-27 for the Locust Matter and four claimants filed timely whistleblower award claims.
On December 19, 2012, The Claims Review Staff ("CRS") issued a Preliminary Determination recommending the approval of the claims of Claimants #1, 2, and 3 in the amount of five percent (5%) each of the monetary sanctions collected; however, the CRS also recommended the denial of the claim of Claimant #4.
The CRS found that Claimants # 1, 2, and 3 had voluntarily provided original information to the SEC that led to the successful enforcement of the Locust matter; and, accordingly, the CRS recommended that each such award be set in the amount of 5% of monetary sanctions collected. Those recommendations were approved by the SEC.
An Unhappy Camper
On February 19, 2013, Claimant #4 submitted a response contesting the Preliminary Determination.
In December 2011, Claimant #4 had submitted a tip to the SEC about "securities fraud committed by many brokers/dealers/traders involved with naked shorting" of the securities of a firm whose name is redacted in the SEC's public release. Claimant #4's tip alleged that the fraud had occurred as early as 2003 through 2005.
Apparently Claimant #4 had submitted several similar tips about this matter, but the SEC deemed his information to be vague and determined to take no further action. In confirming the recommendation of denial by its CRS, the SEC deemed that “none of Claimant #4 tips contained information on the Locust Matter, nor did they even mention the Locust Matter defendants…”
Further, the SEC Complaint against the defendants alleged that they had “made misrepresentations when soliciting individuals to invest in a purported hedge fund controlled by defendants, and did not make any allegations concerning naked short selling, which was the subject of Claimant #4 tips.”
In conclusion, the SEC found that Claimant #4's tips “did not lead to the successful enforcement of the Locust Matter because it neither caused the Commission to open its investigation nor significantly contributed to the success of the enforcement action.”
Bill Singer's Comment
As these awards mark only the second such event since the inception of the SEC's whistlblower program, whistleblowers and their legal counsel would do well to learn the lessons as to what likely will and will not earn a recommendation for an award. In sustaining the denial of a Whistleblower Award to Claimant #4, the SEC admonishes that:
To be considered for an award under Section 21F, a whistleblower must voluntarily provide the Commission with "original information" that leads to the successful enforcement of a covered judicial or administrative action or related action. 15 U.S.C. § 78u-6(b)(1). Under Rule 21F-4(b)(1)(iv), information will be considered "original information" only if it was provided to the Commission for the first time after July 21, 2010. 17 C.F.R. § 240.21F-4(b)(1)(iv). Further, as relevant here, original information "leads to" a successful enforcement action if either: (i) the original information caused the staff to open an investigation, and the Commission brought a successful action based in whole or in part on conduct that was the subject of the original information; or (ii) the conduct was already under investigation, and the original information significantly contributed to the success of the action. Rule 21F-4(c)(1)-(2), 17 C.F.R. § 240.21F-4(c)(1)-(2).
The information Claimant #4 provided prior to July 21, 2010, including the information re- submitted after July 21, 2010, is not "original information" and therefore does not provide a basis for a whistleblower award. With regard to the information Claimant #4 submitted after July 21, 2010, Claimant #4 fails to articulate any connection or nexus between this information and either the opening of the investigation or the success of the enforcement action in the Locust Matter.Further, we find no evidence whatsoever after our review of the record that Claimant #4 information was used in either the investigation or litigation of the Locust Matter; indeed, the record indicates that Claimant #4 information was not used in any Commission investigation or enforcement action. Accordingly, the information Claimant #4 provided after July 21, 2010 did not lead to a successful Commission enforcement action and therefore does not provide the basis for a whistleblower award.
In a nutshell:
- A whistleblower must voluntarily provide the SEC
- with "original information"
- that leads to the successful enforcement of a covered judicial or administrative action or related action.
In the Matter of the Claim for Award in connection with SEC v. Andrey C. Hicks and Locust Offshore Management, LLC, 1:11-cv-11888-RGS (D. Mass. 2011) Notice of Covered Action 2012-27 (ORDER DETERMINING WHISTLEBLOWER AWARD CLAIM, Securities Exchange Act Of 1934 Release No. 69749; Whistleblower Award Proceeding File No. 2013-1 / June 12, 2013).
WATCH:
READ:
- Inadvertent Email Production By Securities And Exchange Commission Raises Concerns About Whistleblower Tips
- Premiere Episode of SIDE BAR WITH BILL SINGER on Reuters Insider
- First SEC Whistleblower Bounties Awarded And Denied
- Securities And Exchange Commission Video Walks Informants Through Whistleblower Process
- New SEC Whistleblower Rules: How can you file and collect the big bucks?
Written: June 16, 2013
On June 11, 2013, Dan Jamieson of InvestmentNews appears to have broken the story that the Financial Industry Regulatory Authority's ("FINRA's") District 7 Regional Director Mitch Atkins had resigned. READ: "Finra's Florida regional director resigns / Atkins had oversight for Florida, Atlanta, New Orleans." Atkins had been with FINRA and its predecessor NASD since 1993, and in 2005 became the first director of FINRA's Boca Raton Office. Jamieson reported, in part:
“Mitch resigned to pursue other interests,” confirmed Finra spokeswoman Nancy Condon in an email.Reached by phone, Ms. Condon declined further comment.
On June 14, 2013, Reuters' Emily Flitter blew the lid off of this developing story when she revealed that:
READ:"FINRA director in U.S. resigns after old theft indictment surfaces" (Reuters by Emily Flitter).[A]tkins pleaded guilty in December 1993 to one charge of charitable bingo fraud, according to a copy of court records reviewed by Reuters.Court records reviewed by Reuters state that Atkins was sentenced in January 1994 to a year of probation, 100 hours of community service and $1,000 in fines for the bingo fraud. . .
In an update to his article, Dan Jamieson offered more context:
[M]r. Atkins was indicted on a felony and a misdemeanor charge in March 1993. The felony charge was dismissed in late 1993 when Mr. Atkins pleaded guilty to the misdemeanor charge.He was sentenced in early 1994 to conditional probation, 100 hours of community service, a $500 charitable contribution, and a $500 fine. The misdemeanor charge against him was set aside and the court record supposedly expunged in March 1994 after Mr. Atkins had complied with the terms of his sentence. . .
READ: "Ex-broker: I forced out regional Finra director / Evansen claims he made SRO aware of 1993 criminal charge against Atkins" (InvestmentNews by Dan Jamieson).
SIDE BAR: It is my understanding that there is another developing aspect to the Atkins story, but given that what has been conveyed to me is largely based on rumor and innuendo, I will leave it for the press to fully and fairly investigate the bona fides of that story rather than comment on it at this time.
Bill Singer's Comment
For too long there has been a puzzling double standard by which those in regulated industries are forced to disclose their backgrounds but those who regulate those same industries are exempted from similar disclosure. As an advocate for regulatory disclosure by registered persons, I have similarly called for a "what's good for the goose is good for the gander" approach that would mandate the same open record for those at the Securities and Exchange Commission, FINRA, and the full spectrum of federal, state, and self-regulatory regulation.
As I stated in "The Death Of The Salesman" (August 8, 2009) (NOTE: An "FSP" is a Financial Service Professional; Ed: highlighting added):
Unified Disclosure DatabaseSimilarly, the public should be entitled to easy access to a single unified database for all FSPs . Additionally, the information provided should not depend upon whether you contact one regulator or another. We need to create a centralized, public database that is easily accessible via the Internet and has a user-friendly interface backed up by a supportive customer service staff.As a lawyer, I personally welcome uniformity among all professional databases, including those in my profession, in the medical profession and in the financial services community. What’s good and fair for one should be the same for all. Further, whatever disclosure is mandated for those in these regulated professions should also be mandated for those who do the regulating–and I would also urge the inclusion of all elected officials at local, state and federal levels. What’s good for the goose is good for the gander. Sunshine is good for all living things.