Securities and Exchange Commission v. Berman

Background

The SEC alleged that Keith Berman and Decision Diagnostics Corp. made materially false and misleading public statements about the company’s purported development of technology that could accurately test for coronavirus and provide results in less than a minute. According to the complaint, the statements led to increases in Decision Diagnostics’ stock price and trading volume. The SEC alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

A grand jury had indicted Berman in a related criminal case in the District Court for the District of Columbia. The criminal charges involved the same alleged scheme and included securities fraud and making a false statement to the SEC.

Government’s Motion

The United States asked to intervene under Rule 24 of the Federal Rules of Civil Procedure and to stay, or pause, all discovery in the civil case until the criminal case ended. Berman and Decision Diagnostics consented to the motion. The SEC took no position on either request.

Intervention

Judge Preska held that the Government could intervene as of right because its motion was timely, it had an interest in preventing civil discovery from bypassing the more limited discovery available in the criminal case, and the civil parties did not adequately represent the Government’s interests in enforcing federal criminal laws. The court also held, alternatively, that permissive intervention was appropriate because the civil and criminal cases shared questions of law and fact and intervention would not prejudice the original parties.

Stay of Discovery

The court applied six factors concerning a stay of a civil case pending a criminal proceeding. It found substantial overlap between the two cases, noted that Berman had been indicted and that his criminal trial was scheduled to begin on July 12, 2021, and found no prejudice from delay because the SEC did not object. The court also determined that the defendants’ interests, judicial efficiency, and the public interest in protecting the integrity of the criminal proceedings supported a stay.

Ruling

The court granted the Government’s motion to intervene. It also granted the Government’s motion to stay discovery in the civil case as to Berman and Decision Diagnostics until Berman’s criminal case concluded. The clerk was directed to stay the action as to those defendants, and the Government was ordered to provide periodic status updates about the criminal case.