In an unusual legal move, the
Securities and Exchange Commission
has agreed to turn over grand jury testimony from a criminal investigation of
A.R. Baron & Co.
Bear Stearns & Co.
to a former top Bear Stearns executive now facing securities-fraud charges in the case.
The SEC is sharing the highly secretive testimony with
, who served as president of
Bear Stearns Securities
when it handled clearing operations for the now-defunct micro-cap broker Baron.
That could give Harriton an edge in any possible future criminal prosecution, according to legal experts. It also could mean details of the Baron-Bear Stearns clearing deals gathered by the grand jury -- normally the most guarded of information in a criminal prosecution -- eventually could be made public if Harriton's civil case goes to trial and they become part of the proceeding, says Judith Starr, SEC assistant chief litigation counsel.
The SEC obtained the grand jury testimony from the Manhattan District Attorney's office before Bear Stearns agreed to a civil settlement of the case in August.
After Bear Stearns settled, Harriton resigned from the company and vowed to fight SEC securities-fraud charges against him personally. Now, with those civil charges still pending, the SEC is required by its own rules to share the grand jury documents with Harriton, Starr says.
"We're trying to throw this man out of the industry," Starr says. "All of the factual materials get turned over. If it's in our investigative files, we have to turn it over." That this includes grand jury testimony is an anomaly.
"In general, the SEC does not get grand jury minutes," says James Coffee, a professor at the
Columbia University School of Law
. "The usual flow of information is the reverse way. It happens all of the time that SEC information is given to the grand jury."
The turn of events means Harriton will have the grand jury testimony while the Manhattan District Attorney's office is continuing a criminal investigations of parties related to Baron's activities, legal experts say.
Although the district attorney has prosecuted more than a dozen former Baron officials for securities fraud, it hasn't charged Harriton.
Having the grand jury testimony could give Harriton a distinct legal advantage if he faces criminal prosecution, says Paul Rothstein, a law professor at the
Georgetown University Law School
"He can start preparing his defenses. It can be a tremendous advantage for him to know in advance. It gives him tremendous lead time," Rothstein says. "The New York authorities must have given this all consideration."
Harriton's lawyer in the SEC case, Howard Wilson, didn't respond to a request for an interview Tuesday. Bear Stearns declined to comment.
District Attorney Robert Morgenthau also wouldn't comment, a spokesman says. The district attorney's office hasn't confirmed it has an ongoing investigation of Baron and Bear Stearns, though it's been widely reported.
Bear Stearns in August agreed to a $38 million settlement of SEC charges related to its clearing operations with Baron. The company didn't admit or deny wrongdoing, but agreed to cease and desist from future securities violations.
Harriton has denied any wrongdoing related to the Baron clearing arrangement. In legal filings in the SEC case, Harriton has argued that the SEC and
National Association of Securities Dealers
knew of Baron's "illegal activities," and not only failed to warn him and Bear Stearns, but caused Bear Stearns to continue clearing for Baron.
The SEC's decision to turn over the grand jury testimony to Harriton could have another consequence. It could mean at least parts of the grand jury testimony will be made public, once the agency's civil action against Harriton is completed, Starr and legal experts agree. That would be nearly unprecedented.
Typically, even federal grand jury documents aren't handed over to regulatory authorities such as the SEC. Although not as restricted, state grand jury testimony also rarely is given to securities regulators because state prosecutors don't often delve into securities fraud, legal experts say.
The exception is Morgenthau, who, unlike his prosecutorial counterparts elsewhere, does actively pursue securities cases.
Therein lies the reason the SEC has the grand jury testimony involving the Bear Stearns and Baron clearing in the first place. The Manhattan District Attorney had sought an order from the
New York State Supreme Court
, releasing the grand jury materials, to assist the SEC, Starr says.
"We're working together fairly closely," Starr says, adding: "It's unusual for us to be working with state prosecutors."
Jonathan Kord Lagemann, a New York lawyer representing investors in three legal actions against Bear Stearns related to the Baron stock clearing, welcomed the prospect of the grand jury testimony being made public. "The public will know the full extent of Bear Stearns' fraud," he says. "All the details will come to light."