We’ve heard plenty about the lunacy of the corporate crime lottery. Larry has a whole blog archive on the topic, in case you missed any of his excellent posts on the topic. Start here and then check out the archive here.

Allow me to introduce you to Oregon’s contribution to the lottery: The Flir case. Here’s a recent report from the local paper, The Oregonian

Five years ago, J. Mark Samper and William N. Martin found themselves in every corporate executive’s nightmare — a federal investigation of alleged accounting fraud at their former employer, Flir Systems, Inc.

With evidence piling up at the U.S. Securities and Exchange Commission and the company cooperating, Samper and Martin in effect pleaded for mercy. They gave sworn testimony about questionable accounting tactics and their own role, settled with the SEC for hefty fines without admitting guilt, then put it all behind them.

Or so they thought.

What neither Samper, Martin nor their lawyer knew was that every bit of self-incriminating evidence they gave to the SEC was being handed over to the U.S. attorney’s office in Oregon. In September 2003, a grand jury indicted the pair, and their former Flir boss, J. Kenneth Stringer, on criminal charges worth years in prison.

Now, this information sharing is not uncommon and, under certain circumstances, I gather it’s perfectly legal. And this was pre-Enron–I imagine many fewer defense counsel fall into this trap these days. But the judge in this criminal trial was none to happy with what he viewed as a bait and switch:

But what was thought to be a slam-dunk criminal case exploded in the face of federal prosecutors last week when U.S. District Court Judge Ancer Haggerty dismissed indictments against the three. In a stinging ruling, Haggerty found that investigators used “trickery and deceit” that violated the constitutional rights of the accused.

More below the fold . . .

You may or may not recall that the same issue (in one form or another) has arisen in both Skilling’s trial (where he lost on the question whether the prosecutor could use evidence Skilling provided to the SEC seemingly because the testimony was provided to the SEC before the DOJ investigation began) and in Scrushy’s (three perjury counts were thrown out because the SEC and DOJ failed to disclose their cooperation (setting a so-called “perjury trap.”)).

Speaking of perjury traps, my favorite part of the Oregon case is this:

Echavarria [the SEC's attorney] e-mailed co-workers that spring, passing along advice from Robinson [the AUSA] about how best to conduct interviews to get false statements out of the former Flir executives, which could net additional criminal charges.

“Kent [Robinson] and I discussed the potential for false statements cases in this matter,” Echavarria wrote. “If Stringer or Samper lie to us on the record, Kent would like us to confront them on the record with evidence they are lying. This way, the number of stories these two jokers can tell at trial are limited. . . .”

Two thoughts:

1. Surely such behavior must chill cooperation by defendants in civil trials. But, of course, the government can’t really effectively streamline its behavior. Even if the interaction of criminal and civil proceedings leads to fewer convictions on net, who is in a position to do anything about it? I’m told that, in at least some US Attorney’s offices, these sorts of cases aren’t brought without a referral from the SEC. So perhaps the SEC is in a position to control the DOJ? Not likely. Any representations of forbearance by either the SEC or the DOJ would lack credibility. Of course defense counsel are in a position to exert some control, and these cases are nothing so much as a cautionary tale to attorneys. But do we really want defense counsel setting the government’s agenda? (that’s a rhetorical question).
2. Rulings like this one and Scrushy’s will make the Martha Stewart ploy (using the threat (or reality) of obstruction/perjury cases to pursue defendants in cases the government can’t win on the merits) much more difficult. Surely that’s a good thing.

UPDATE: Peter Lattman (WSJ Law Blog) is on the case.