Guide to White-Collar Criminal Defense: Federal v. State Investigations

An Overview and Guide to the Differences in Federal v. State Investigations

An Overview and Guide to the Differences in Federal vs. State Investigations

The United States legal system operates under dual sovereignty, meaning federal and state governments maintain distinct legal jurisdictions. While federal investigations often make headlines due to their scope and resources, state investigations play a pivotal role in addressing crimes that directly impact local communities, such as murder, drug possession and sexual asault. For individuals and businesses navigating these systems, understanding the nuances is essential to building an effective defense. These differences can significantly impact how cases are investigated, prosecuted, and ultimately resolved. This guide provides a comprehensive look at these distinctions, with a particular focus on Massachusetts and New York for state-level investigations.

1. Overview of the U.S. Legal System

As an initial matter, understanding what crimes come under which jurisdictions is important. Generally, all federal crimes can be prosecuted as state crimes, but not all state crimes can be prosecuted as federal crimes as there federal crimes involve distinct jurisdictional issues.

Federal vs. State Jurisdiction

• Federal Jurisdiction:

  • Handles violations of U.S. Code, such as securities fraud, tax evasion, and drug trafficking.

  • Investigations are typically led by federal agencies like the FBI, DEA, or SEC.

  • Cases often involve interstate or international elements, or other specific characteristics that warrant the involvement of federal authorities.

  • Generally, federal investigations are “proactive” meaning that the agencies or prosecutors learn about ongoing criminal activity (or historical activity) and investigate to determine whether anyone can be charged.

• State Jurisdiction:

  • Addresses crimes under state laws, ranging from theft and assault to white-collar crimes like small-scale fraud.

  • Focuses on crimes with a direct impact on local residents.

  • Investigations are managed by state and local law enforcement agencies, including district attorneys and state attorneys general.

  • Generally, state investigations are “reactive,” meaning that someone reports that a crime was committed or the police arrest someone, and then prosecutors investigate to prove the case at trial.

2. State Investigations: Massachusetts and New York

Massachusetts Investigations

In Massachusetts, state investigations often involve a combination of local police departments, the state police, district attorneys, and the Massachusetts Attorney General’s Office.

Grand jury proceedings are a fundamental component of the investigative and prosecutorial process in the Commonwealth. According to Massachusetts Criminal Procedure Rule 5, a grand jury typically consists of 23 jurors, but a quorum of 13 is required to proceed. At least 12 jurors must agree to issue an indictment.

The grand jury’s role is to determine whether there is probable cause to believe a crime has been committed and that the accused should be formally charged. Unlike trial juries, grand juries do not decide guilt or innocence. These proceedings are conducted in secrecy to protect the integrity of the investigation, safeguard witnesses, and prevent undue influence on jurors. Prosecutors present evidence and call witnesses, and attorneys for witnesses are permitted to be present during their testimony but may not participate in the proceedings. This differs significantly from federal grand jury investigations, where attorneys are not allowed in the grand jury room. Witnesses may consult with their attorneys during the process to ensure their rights are protected.

Key areas of focus for state investigations in Massachusetts include:

• Consumer Protection and Financial Crimes:

  • The Attorney General’s Office is highly active in prosecuting consumer fraud, deceptive business practices, and financial crimes. Much of this is accomplished by using grand juries to build cases and collect evidence.

  • Recent cases have targeted scams involving elder financial abuse and fraudulent healthcare billing.

• Public Corruption and White-Collar Crimes:

  • Massachusetts has seen a rise in investigations into public officials and business leaders for corruption and embezzlement.

  • Examples include cases related to misuse of public funds and conflicts of interest in state contracts.

• Cybercrimes:

  • State agencies work closely with local police to address identity theft, phishing schemes, and unauthorized access to data systems. In Massachusetts, state investigations of cybercrimes often involve a combination of local police departments, district attorneys, and the Massachusetts Attorney General’s Office.

  • Likewise, for crimes such as “pig butchering” or crypto theft, people often report these directly to local police rather than federal agents.

• Crimes of Violence and Sexual Assault

  • The Commonwealth will generally (but not always) have the sole ability to prosecute crimes of violence such as assault, murder, and other forms of violence.

  • Nearly all sexual assault cases are prosecuted by state investigators.

• Low-Level Narcotics trafficking and possession

  • Both federal and state authorities can prosecute narcotics trafficking. State investigators target smaller trafficking networks, while federal investigators target large-scale organizations.

  • The Commonwealth primarily prosecutes lower-level crimes such as narcotics possession.

New York Investigations

New York’s legal and financial hub status, as well as its population, means that its state investigations often involve sophisticated crimes with significant economic impact. In short, crimes that most likely would have gone “federal” in other jurisdictions will be tackled on the state or local level in New York.

One distinguishing feature of the state’s investigative process is the defendant’s right to testify before the grand jury. Under New York law, a defendant who is the subject of a grand jury investigation has the right to provide testimony, a procedural safeguard that can offer a unique opportunity to present their side of the story directly to the jury. Before testifying, potential targets must thoroughly evaluate the risks of doing so with their lawyers.

Grand jury proceedings in New York are also different in that hearsay is not allowed. The rules of evidence must be followed, meaning that witnesses generally have to testify (there are certain exceptions). This differs from other states and federal practice significantly, where prosecutors can typically present hearsay to the grand jury. For example, a witness may provide a statement to the FBI, and then the FBI agent can testify as to that statement in the grand jury even though it is hearsay. In New York, the witness herself must testify.

Other than that, grand jury practice is relatively the same as in other jurisdictions. Typically composed of 23 jurors, the grand jury’s role is to determine whether sufficient evidence exists to issue an indictment. Unlike trial juries, grand juries do not decide guilt or innocence; instead, they assess whether there is probable cause to believe that a crime has been committed. These proceedings are conducted in secrecy, and the prosecution presents evidence, calls witnesses, and seeks an indictment where appropriate.

• Financial Crimes:

  • The New York Attorney General’s Investor Protection Bureau investigates securities fraud and Ponzi schemes.

  • New York’s Martin Act provides broad authority to prosecute financial misconduct.

  • Local District Attorneys also prosecute financial crimes. The Manhattan District Attorney, for example, regularly competes with federal prosecutors as to who will prosecute significant financial misconduct.

• Real Estate and Tax Fraud:

  • State investigators frequently handle cases involving fraudulent property valuations, tax evasion, and misuse of housing subsidies.

• Healthcare Fraud:

  • The Medicaid Fraud Control Unit is a national leader in identifying and prosecuting fraudulent billing practices by healthcare providers.

3. Initiating and Developing an Investigation

Federal Investigations:

• Many times there is no witness reporting a crime. The SEC, for example, develops investigations by looking at pattern trading activity that they obtain from FINRA. This information then gets passed on to the US Attorney’s Office.

• Typically involve federal agencies with specialized task forces. These are often resource-intensive cases. Wiretap cases, for example, require a significant financial commitment to pay people to listen to and transcribe all the calls.

• Long timelines due to the complexity of cases. Many cases stretch on for years, and many cases are charged shortly before the statute of limitations expires (typically five years).

• Federal investigations rely more on grand juries, wiretaps, and advanced forensic tools to analyze digital evidence.

State Investigations (Massachusetts and New York):

• Initiated by complaints from citizens, whistleblowers, or law enforcement observations. More narrowly focused on local or state-specific issues.

• Often begin with subpoenas, witness interviews, or forensic audits. Or, the citizenry simply reports that a crime has been committed to the local police station.

• Tend to move faster than federal investigations due to localized focus.

4. Defense Strategies: Federal vs. State Cases

Federal Prosecution:

• Federal investigations are typically led by U.S. Attorneys (i.e. Assistant US Attorneys), who are part of the Department of Justice. These attorneys “call the shots” and heavily influence how the case develops.

• If a target of an investigation becomes aware of an investigation - i.e. a witness is called to testify in the grand jury - the target should hire an attorney immediately. It is critical to develop a strategy for going forward.

• Possible strategies include engaging with the federal prosecutors - this is done to potentially head off charges. A well-crafted presentation demonstrating exactly why no crime was committed can often make the difference between charges and no charges.

• Other strategies include waiting and monitoring the investigation, conducting your own review of the evidence, or even doing nothing. Strategy is fact-determinative and varies tremendously from case to case.

State Prosecution (Massachusetts and New York):

• State investigations are typically run more by the police (local or state) and other actual law enforcement agencies. There is much less opportunity to present a well-crafted presentation to the prosecutors in order to head off charges.

• However, it is critical first to determine who is “in charge.” Sometimes a police officer will be working directly with a prosecutor to develop the case. Other times, the police detective may be working the case solo.

• In either situation, knowing the players and local statutes is critical. State officials often arrest first and prosecute later. In such a circumstance, there may still be time post-arrest to get the charges dismissed. This rarely happens at the federal level.

• In a longer-term state investigation, it is critical to know what witnesses have said in the grand jury or to prosecutors. Working together with other attorneys makes this possible.

5. How Dynamis LLP Can Help

At Dynamis LLP, we have extensive experience in handling both federal and state investigations. Our team understands the complexities of working across jurisdictions, with a deep focus on Massachusetts and New York legal systems.

What We Offer:

• Tailored Defense Strategies: Expertise in both federal and state-specific laws, and dealing with regulators on both the state and federal level.

• Compelling presentations: At Dynamis, we take great pride in heading off charges before they are filed. We don’t wait until its “too late.” We take a proactive approach - working with prosecutors and other government officials - to do our best to make sure our clients are never charged in the first place.

• Proven Track Record: Significant success in high-profile cases involving white-collar and financial crimes. We have headed off charges in multiple cases, and once charges have been filed, we have gotten indictments dismissed.

• Client-Focused Representation: Dedicated to protecting your rights and reputation.

Conclusion

Understanding the differences between federal and state investigations is essential for anyone facing legal peril. Whether the case involves federal agencies or state prosecutors in Massachusetts, New York or elsewhere, having experienced legal representation is crucial to navigating these challenges.

Contact Dynamis LLP today to learn how we can help you navigate the complexities of federal and state investigations with confidence and expertise.If you are an organization or individual facing a situation requiring an aggressive, robust response to a government inquiry or even an active case, contact attorneys at Dynamis LLP or email whitecollar@dynamisllp.com today.