SEC press release creates waves in Boston criminal trial

Mon Mar 25, 2013 5:17pm EDT

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(Reuters) - A U.S. federal judge in Boston wants answers from a U.S. Securities and Exchange Commission attorney, questioning whether a news release about an investment adviser may have tainted a separate criminal trial of the same individual on a tax matter.

Legal experts say the SEC attorney has become ensnared in a rare and unusually strict enforcement of a local court rule that some believe is at odds with constitutional protections on free speech.

U.S. District Judge Mark L. Wolf has ordered SEC attorney Julie Riewe to explain why her comments about investment adviser Gregg Caplitz did not violate a rule prohibiting lawyers from making "extrajudicial statements" that could taint a jury pool.

She must turn in her response to the court by Tuesday.

In a March 18 press release, the SEC announced it had obtained an emergency court order to freeze Caplitz's assets on allegations that he and his firm Insight Onsite Strategic Management were using $1.1 million raised from investors for purposes other than the hedge fund they claimed to manage.

In the release, Riewe, a deputy chief in the SEC's asset management enforcement unit, said Caplitz and his firm "conjured up a hedge fund to lure longtime clients into investing substantial amounts of money that became nothing more than a slush fund to pay bills for others."

Caplitz is also a defendant in a separate, pending criminal tax case in the same federal court district, that is slated for trial in September.

Riewe should "address whether she was aware when she made her statement that Gregg D. Caplitz is also a defendant in a pending criminal case ... and whether she or the SEC have communicated or cooperated with government agents," wrote Wolf, a judge who has challenged government parties in the past, in an order issued last week.

Legal experts say that Wolf's effort to enforce the court's extrajudicial statement rules is rare.

On the few occasions when similar rules are enforced by judges, they tend to involve high-profile criminal matters like the case of Durham County District Attorney Michael Nifong, who was disbarred in 2007 for making improper pre-trial statements in the Duke lacrosse rape case.

But those familiar with Wolf's career say the SEC should take his order seriously.

"He is a stickler for rules. That is No. 1. He takes the rules against generating pre-trial publicity very seriously," said Harvey Silverglate, a civil liberties and criminal defense attorney in Boston.

A clerk in Wolf's chamber was not immediately available for comment.

Wallace "Gene" Shipp, the bar counsel for the District of Columbia bar, said he could not speak specifically to this matter.

Generally, though, he said if a judge is not satisfied in this type of instance, he can hold an attorney in contempt or file a complaint with the court's local grievance committee or with any bar association where the lawyer is admitted.

Riewe is licensed with the bar associations in Washington, D.C. and California.

Riewe referred all questions on Wolf's order to SEC spokesman Kevin Callahan, who said the agency "will respond to the court with the information requested."

Jane Peachy, Caplitz's attorney in the criminal tax case, declined to comment. However, Jeffrey Denner, the attorney for a co-defendant in the criminal matter, said he was aware of Wolf's order, but he would reserve his comments for court.

Andrew Perlman, a professor at Suffolk University Law School, said Wolf is ultimately trying to determine whether Riewe's comments were "in some way offering an opinion about the guilt of the defendant" in the ongoing criminal matter.

If she was working with prosecutors, he said, then the odds of finding a violation "are more likely." But Perlman said on their face, the comments do not seem like a flagrant violation.

The Massachusetts district court's rules state that "no lawyer or law firm" should publicly disseminate statements if there is a "reasonable likelihood that such dissemination will interfere with a fair trial."

Legal experts, however, say the SEC still has the constitution on its side, and a 1991 Supreme Court decision in Gentile vs. State Bar of Nevada.

In that 5-4 decision, the high court ruled somewhat narrowly on just how much lawyers' speech could be restricted, saying it could be limited only if the speech would pose a "substantial likelihood of material prejudice" to the proceedings.

The Massachusetts court's rule, by contrast, is far more sweeping, and some experts including Stephen Gillers, a professor of law and ethics specialist at New York University's School of Law, believe that the rule violates First Amendment speech protections.

"It is probably unconstitutional," Gillers said. "The Massachusetts District Court would be well-advised to revisit its rules."

The criminal case is US. v. Gregg D. Caplitz, et al, U.S. District Court, District of Massachusetts, No. 12-10015.

The civil case is Securities and Exchange Commission v. Caplitz, et al, U.S. District Court, District of Massachusetts, No. 13-10612.

(Reporting By Sarah N. Lynch in Washington and Nate Raymond in New York; Editing by Tim Dobbyn)

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