A civil trial between the Securities and Exchange Commission (SEC) and businessman Steve Chen is slated to begin January 10, 2017. The case, filed in April, accuses Chen and his company, USFIA, of financial fraud. Criminal charges are anticipated to follow the civil proceedings.

The parties are already in conflict over the discovery process. The SEC wants all information exchanged by November 18, 2016. Chen favors a phased approach, wanting his own testimony held until last. He argues the allegations are too complex for a compressed timeline. Prosecutors for the SEC suspect this is a delay tactic. They believe Chen’s testimony will likely uncover further discovery needs, potentially pushing the trial into late 2017 if his proposal is accepted.

A significant dispute centers on USFIA’s amber reserves. A court-appointed receiver assessed these reserves as having “limited intrinsic value.” However, Chen has demanded the preservation of all seized amber and gemstones. His stated reason remains unclear, but insiders suggest Chen may intend to bring in a third-party expert to declare the amber valuable. This would allow him to claim investors received something of worth, a common defense in fraud cases.

Tensions also appear high between Chen and his legal team. Chen invoked his Fifth Amendment right against self-incrimination. He simultaneously filed eleven affirmative defenses, including one claiming he acted in good faith based on legal advice. The SEC has indicated it will seek communications between Chen and his lawyers to verify this claim. If these conversations reveal that legal counsel merely approved questionable compliance schemes, prosecutors could use this against Chen and potentially his attorneys.

Further complicating matters, a receiver currently holds control over these attorney-client communications. This receiver has the authority to waive attorney-client privilege. Chen will likely object to any waiver, but his objections may prove unsuccessful. His strong opposition to releasing these communications suggests they contain damaging information.

While public criminal charges against Chen have not yet been filed, they are expected. Details may emerge before the January 2017 trial date. For now, the civil case is laying the groundwork. Disagreements over discovery, questionable asset valuations, and dubious legal advice are all pieces falling into place. Criminal prosecutors are expected to have ample evidence when they formally bring their charges.