What Finance Professionals and Accountants Need to Know About Federal Grand Jury Subpoenas from the Southern District of New York

Receiving a federal grand jury subpoena from the United States Attorney’s Office for the Southern District of New York (SDNY) can be an unsettling experience. Whether you are a certified public accountant (CPA), chief financial officer (CFO), controller, investment banker, auditor, hedge fund employee, compliance officer, or other financial professional, a subpoena does not necessarily mean that you are the target of a criminal investigation. However, it does mean that federal prosecutors believe you may possess information relevant to an ongoing grand jury investigation.

The Southern District of New York is widely recognized as one of the nation’s most active federal prosecutorial offices, handling complex investigations involving securities fraud, wire fraud, insider trading, money laundering, tax crimes, healthcare fraud, Foreign Corrupt Practices Act (FCPA) violations, cryptocurrency offenses, sanctions violations, and other sophisticated financial crimes.

Because statements made to a federal grand jury or to federal investigators can have significant legal consequences, anyone who receives a subpoena should consult experienced counsel before responding.

What Is a Federal Grand Jury?

A federal grand jury is an investigative body authorized to determine whether there is probable cause to believe a federal crime has been committed. Unlike a trial jury, the grand jury does not decide guilt or innocence.

Federal prosecutors use grand juries to:

• Compel witness testimony;
• Obtain business records and electronic data;
• Review financial documents;
• Investigate complex financial transactions; and
• Determine whether to seek an indictment.

Grand jury proceedings are conducted in secret under Rule 6(e) of the Federal Rules of Criminal Procedure, which protects the confidentiality of the proceedings and limits the disclosure of grand jury materials.

Federal Grand Jury Subpoenas

Federal grand jury subpoenas are generally issued pursuant to Rule 17 of the Federal Rules of Criminal Procedure.

There are two primary types of subpoenas:

Subpoena Ad Testificandum

A subpoena ad testificandum requires a witness to appear before the grand jury to provide testimony under oath.

Witnesses are questioned by Assistant United States Attorneys (AUSAs). Neither the witness’s attorney nor a judge is permitted to remain inside the grand jury room during questioning. However, witnesses are generally allowed to leave the room to consult with their attorney between questions.

Subpoena Duces Tecum

A subpoena duces tecum requires the production of documents, electronically stored information (ESI), financial records, accounting work papers, emails, text messages, spreadsheets, and other materials relevant to the investigation.

These subpoenas frequently seek:

• General ledgers;
• Bank records;
• Tax returns;
• Audit work papers;
• Internal accounting communications;
• Financial statements;
• Compliance reports;
• Electronic communications; and
• Corporate records.

Failure to comply with a valid subpoena may expose a recipient to contempt proceedings.

Who Receives Grand Jury Subpoenas?

Finance professionals frequently receive subpoenas because they possess information concerning a company’s financial operations rather than because they are suspected of wrongdoing.

Individuals who may receive subpoenas include:

• •  Certified Public Accountants (CPAs);
• •  Chief Financial Officers (CFOs);
• •  Controllers;
• •  Bookkeepers;
• •  Internal auditors;
• •  External auditors;
• •  Investment advisers;
• •  Compliance officers;
• •  Treasury personnel;
• •  Hedge fund employees;
• •  Private equity professionals; and
• •  Corporate executives.

A witness may fall into one of several categories, including a fact witness, a subject of the investigation, or a target of the investigation. Determining where a witness falls within that spectrum is often an important part of defense counsel’s representation.

Statutes Frequently Investigated by the Southern District of New York

Although a subpoena itself does not identify the specific offense under investigation, SDNY grand jury investigations often involve allegations under statutes such as:

• 18 U.S.C. § 1343 (Wire Fraud);
• 18 U.S.C. § 1341 (Mail Fraud);
• 18 U.S.C. § 1344 (Bank Fraud);
• 18 U.S.C. § 1348 (Securities and Commodities Fraud);
• 18 U.S.C. § 1956 (Money Laundering);
• 18 U.S.C. § 1957 (Monetary Transactions in Criminally Derived Property);
• 18 U.S.C. § 371 (Conspiracy);
• 18 U.S.C. § 1001 (False Statements);
• 15 U.S.C. §§ 78j(b) and 78ff (Securities Fraud);
• 26 U.S.C. § 7201 (Tax Evasion); and
• 26 U.S.C. § 7206 (Filing False Tax Returns).

The applicable statutes depend on the nature of the investigation and the evidence presented to the grand jury.

Potential Defenses to Testifying Before the Grand Jury

Although a grand jury subpoena is a lawful court process, witnesses are not without legal protections. Several constitutional, statutory, and procedural defenses may be available depending on the circumstances.

Fifth Amendment Privilege Against Self-Incrimination

The Fifth Amendment to the United States Constitution protects individuals from being compelled to provide testimony that may incriminate them.

If truthful answers could reasonably expose a witness to criminal liability, the witness may invoke the Fifth Amendment privilege in response to particular questions. The privilege generally applies to testimonial communications and is assessed on a question-by-question basis.

In some cases, the government may seek to compel testimony by granting statutory immunity under 18 U.S.C. §§ 6002 and 6003. When valid immunity is conferred, a witness may be required to testify because the compelled testimony generally cannot be used against the witness in a subsequent criminal prosecution, subject to important legal limitations.

Attorney-Client Privilege

Communications between a client and an attorney made for the purpose of obtaining or providing legal advice may be protected by the attorney-client privilege.

However, not every communication involving a lawyer is privileged, and the privilege may not apply if an exception—such as the crime-fraud exception—is established.

Work Product Doctrine

Documents prepared by attorneys or at their direction in anticipation of litigation may receive protection under the work product doctrine. Whether the doctrine applies depends on the nature of the materials sought and the circumstances under which they were created.

Accountant Privilege

Unlike communications with attorneys, communications between an accountant and a client generally are not protected by a broad federal accountant-client privilege in federal criminal investigations.

Although certain tax practitioner communications may receive limited protection under federal law in some contexts, those protections contain significant exceptions and generally do not extend to criminal proceedings. Finance professionals should not assume that accounting records or communications are privileged.

Challenging the Scope of a Subpoena

In appropriate circumstances, counsel may seek to limit or challenge a subpoena that is unduly burdensome, overly broad, or seeks privileged materials. These issues are typically raised through negotiations with prosecutors or, when necessary, by filing an appropriate motion in federal court.

Risks of Testifying

Witnesses sometimes believe that cooperating without counsel demonstrates innocence. However, testimony before a federal grand jury is given under oath, and inaccurate or misleading statements can create significant legal exposure.

Federal prosecutors may compare grand jury testimony with:

• Emails;
• Financial records;
• Text messages;
• Trading records;
• Internal company documents;
• Telephone records;
• Other witness testimony; and
• Electronic communications obtained during the investigation.

Any inconsistencies may become important later in the investigation.

Why Experienced Counsel Matters

A lawyer representing a subpoena recipient can help:

• Evaluate whether the client is a witness, subject, or target;
• Analyze potential Fifth Amendment issues;
• Review subpoena requests for privileged or protected materials;
• Communicate with federal prosecutors;
• Prepare the client for testimony if testimony is appropriate;
• Seek modifications to document requests where warranted; and
• Protect the client’s legal rights throughout the investigation.

Early legal representation can significantly affect the course of a federal investigation. Oftentimes, defense counsel can ascertain whether it makes sense to voluntarily speak with prosecutors and answer their questions outside of the grand jury context. In many cases, prosecutors will decline to actually force a witness to testify in the grand jury where they are convinced that the witness has supplied truthful information in an interview sometimes called a “proffer.”

Conclusion

A federal grand jury subpoena from the Southern District of New York should never be ignored, but it also should not automatically be viewed as evidence that the recipient will be charged with a crime. Grand jury investigations are often broad in scope and may involve numerous witnesses with varying degrees of involvement.

For finance professionals and accountants, understanding the legal process, the governing rules, and the available constitutional protections is essential. Before producing documents or appearing before a federal grand jury, you should strongly consider contacting Matthew Galluzzo. Mr. Galluzzo is a former Manhattan prosecutor and experienced federal criminal defense attorney. He has successfully represented numerous individuals who received grand jury subpoenas pursuant to white collar crime investigations by the U.S. Attorney’s Office (S.D.N.Y.).