Parallel or Paralyzed? Sklena, Rule 804(b)(1), and the Costly Implications for Interagency Law Enforcement Efforts

Abstract

Many observers have called upon civil and criminal law enforcement agencies such as the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Department of Justice to conduct increased parallel proceedings to investigate alleged violations of the federal securities laws.  While courts have generally blessed a wide-ranging investigatory and prosecutorial license, a recent Seventh Circuit case, United States v. Sklena, injected renewed uncertainty into the scope of these joint ventures.  After the CFTC filed a civil complaint against two traders, the Commission’s civil enforcement action was temporarily stayed pending criminal proceedings initiated by the DOJ.  Before the criminal trial began, however, one of the traders died.  The remaining defendant, David Sklena, sought to introduce the trader’s testimony at trial under Federal Rule of Evidence 804(b)(1) under the theory that the CFTC and the DOJ were the “same party” and shared a “similar motive” under the rule.  Although the district court dismissed Sklena’s argument, the Seventh Circuit rejected the lower court’s Rule 804(b)(1) analysis and reversed Sklena’s conviction.

This Note explores the Sklena decision by tracing the district court’s and Seventh Circuit’s application of 804(b)(1), and examining the salient arguments in favor of and against the Sklenaapproach.  It then considers the consequences for law enforcement agencies that will necessarily flow from the Sklena decision.  This Note concludes that focusing on the transfer of human capital represents a superior way of aligning criminal and civil law enforcement agencies without disturbing existing legal and evidentiary standards.  Though Sklena’s rationale may similarly stem from a desire to foster close federal collaboration, this Note contends that incentivizing the interagency infusion of human capital can achieve this same outcome without the steep costs of judicial uncertainty and material federal resources.

The author would like to thank Professor Daniel Richman for his invaluable insight and guidance throughout the writing process. The author would also like to thank the editorial staff of the Columbia Business Law Review for their assistance in preparing this Note for publication.