How Long Do SEC Settlements Take?
The SEC’s Enforcement Division is Aggressive in Pursuing Civil and Criminal Penalties in Federal Court. If Your Company is Under Investigation, An Experienced SEC Defense Law Firm Can Help You Avoid Unnecessary Delays.
For companies facing investigations by the U.S. Securities and Exchange Commission (SEC), time is a critical factor. The SEC’s investigations can be time- and resource-intensive, and they can disrupt companies’ day-to-day operations. While the SEC is quick to accuse companies of violating the federal securities laws, it can be slow to admit when it is wrong and back down.
For companies facing investigations by the SEC’s Enforcement Division and/or facing criminal securities fraud charges from the U.S. Department of Justice (DOJ), settling can help mitigate costs, avoid risks, and provide for a timely resolution. But, the path to settlement after an SEC subpoena or Wells Notice is not always clear, nor is it straightforward. There are multiple steps involved in securing a settlement with the SEC (and the DOJ), and moving through these steps efficiently requires the insights and advice of experienced SEC defense counsel.
Chris Quick is a former Special Agent with the FBI’s Financial Crimes Section and the Internal Revenue Service Criminal Investigation (IRS-CI) division. He is currently a consultant who works closely with our legal team to protect clients during federal law enforcement investigations. Chris has more than 30 years of experience, including experience testifying for the government in federal district court.
Do you need to settle an investigation with the SEC? If so, our legal team can help. Our attorneys work together to provide strategic, timely, and results-oriented federal defense. When you need to resolve your SEC investigation promptly, you cannot afford to leave anything to chance.
Settling with the SEC: Four Key Considerations
So, how long do SEC settlements take? Ultimately, the answer to this question depends on how your company decides to approach its investigation. Here are some key considerations:
- Was there a Securities Law Violation? – First, it is important to determine whether the SEC’s investigation has merit. If it does not, then settling would be unwise. Rather than settling, the better course of action is to challenge the SEC’s allegations and seek to have the investigation terminated without charges being filed.
- Is the SEC Committed to Its Position? – If the SEC’s investigation is legitimate, are the SEC’s personnel willing to engage in good-faith settlement negotiations? If the SEC is convinced that it has a strong case, then it may be unwilling to negotiate—at least until it is convinced that it has more to lose than to gain by pursuing charges.
- Do You Need to Involve the DOJ? – If the SEC is threatening to refer your company’s investigation to the DOJ, then it may be necessary to involve the DOJ in your settlement negotiations. This adds a layer of complexity to the negotiations as well as the investigation itself.
- Can You Afford to Settle? – Finally, regardless of whether your company should settle, it is worth considering whether your company can afford to settle. The SEC routinely pursues extremely high fines and penalties, so it will be important to determine whether your company can accept the SEC’s demands, or whether it is necessary to continue fighting instead.
SEC Settlements: Seven Steps to Success
How quickly can companies get through these steps? Again, the answer to this question depends on the circumstances involved. The best way to facilitate a timely resolution is to engage experienced federal securities defense counsel as soon as possible. Once you engage counsel, your legal team will be able to guide your company through the process of settling with the SEC, which involves:
- Engaging the SEC’s Enforcement Division – The first step is to engage the SEC’s Enforcement Division directly. At this point, your company’s defense counsel must begin working with the SEC’s personnel to gain an understanding of the nature and scope of the investigation.
- Assessing the Allegations at Issue – Next, your company’s defense counsel must assess the allegations at issue. Again, the SEC will often launch investigations that are based on little to no justification, and when this is the case, you need to know that your company can—and should—challenge the SEC’s investigation on substantive grounds.
- Assessing Your Company’s Potential Liability – Along with assessing the allegations at issue, your company’s defense counsel will also need to assess your company’s potential liability. Are high fines and other penalties at stake? If the SEC refers your company’s investigation to the DOJ, could this result in federal criminal conviction?
- Developing a Settlement Strategy – Once your company’s defense counsel has a clear understanding of both the allegations at issue and your company’s potential liability, defense counsel will then need to develop a settlement strategy. Your company’s settlement strategy should be based on the current posture of your company’s SEC investigation, and it should be designed to convince the SEC’s personnel that settlement is in the government’s best interests.
- Approaching the SEC with a Settlement Proposal – After developing a settlement strategy, the next step is to put this strategy into action. This starts with approaching the SEC’s Enforcement Division with a settlement proposal. Making the first offer can help set the tone for negotiations and influence the settlement terms that emerge.
- Negotiating with the SEC – After making an initial settlement proposal, the next step is to engage in negotiations with the SEC’s Enforcement Division. Negotiations at this stage will typically be focused on the financial terms of a potential settlement as well as any additional terms that will apply. For example, the SEC may require your company to accept a compliance monitor as a term of settlement, and you will want to ensure that your company is not subjected to a compliance monitor that is overly burdensome.
- Finalizing Settlement Terms – When your company’s defense counsel is able to secure favorable settlement terms, then counsel will work to ensure that the settlement agreement is drafted in such a way that its terms are clear and enforceable. After finalizing the terms, the company’s representatives will need to sign the settlement agreement, and the SEC’s Enforcement Division will then sign—closing the investigation and avoiding the risk of additional litigation.
The SEC’s Enforcement Division Prioritizes Certain Cases for Settlement
In some cases, it will make more sense to settle than others. The SEC’s Enforcement Division tends to prioritize certain cases for settlement, and defense counsel should be able to assess whether your company’s case is likely to be among them. Some examples of cases that are (and are not) likely to be high priorities for SEC settlement include:
- Are There Multiple Companies Under Investigation? – When the SEC is investigating more than one company in relation to the same or similar alleged violations of the federal securities laws, it will often seek to settle these companies’ investigations collectively. Performance-based settlements in particular have become more common in these cases.
- Is There a Lot of Money at Stake? – When there is a lot of money at stake, the SEC will often seek to resolve cases through settlement instead of spending the time and resources required to litigate. However, larger settlements also require a greater depth of investigation, which can add time to the process.
- Is the Conduct at Issue Unambiguously Unlawful? – If the conduct at issue is clearly prohibited by the federal securities laws, this can also help facilitate a timely settlement. In these cases, the SEC has little to gain from spending the time and money necessary to litigate.
- Is the Conduct at Issue Unambiguously Lawful? – If the conduct at issue is clearly legal, then the SEC should terminate its investigation promptly. However, if the SEC is convinced that a violation has occurred, a timely settlement may not be possible until defense counsel are able to convince the SEC’s personnel that they are wrong.
- Are There Novel Issues (or Lack Thereof) Involved? – The SEC’s Enforcement Division has recently shown an increased propensity to pursue settlements in cases involving novel issues. When a company is being accused of breaking new ground in a way that violates the federal securities laws, the SEC may be more interested in working with the company to resolve the issues at hand.
- Are There Ongoing Violations? – When there are ongoing violations, the SEC may have more incentive to resolve the investigation through settlement. This is particularly true in cases involving systemic violations that are not easily identified.
- Is the SEC Concerned that Settlement Will Set a Bad Precedent? – If the SEC is concerned that settlement could set a bad precedent, then the SEC may be less inclined to settle. In these cases, it may be necessary to continue fighting in order to avoid undue risk.
Speak with a Federal Securities Defense Attorney with Spodek Law Group
If your company is facing an SEC investigation and you would like to discuss your company’s options in confidence, contact Spodek Law Group. Call 212-300-5196 or contact us online to arrange a confidential initial consultation today.
