Responding to an SEC Investigation: What You Need to Know
Receiving word that you or your company is the subject of an investigation by the U.S. Securities and Exchange Commission (SEC) can be a distressing event. The SEC is the top law enforcement agency responsible for enforcing federal securities laws. Its mission is to protect investors by making financial markets as fair and honest as possible. The SEC is headquartered in Washington, D.C. and has regional offices across the United States. The SEC investigates violations of the federal securities laws and also has the power to bring a civil enforcement action against individuals or companies that violated the securities laws.
Should you be subject to an SEC investigation, securing a defense team and cooperating with the SEC are some of your most critical first steps. Your defense team can help you navigate through the proceedings and represent your interests throughout the investigation. While it is important to cooperate with the SEC to avoid potential further violations, you should also be careful not to simply provide any information that the SEC requests. Doing so might open the door to further investigations.
What Triggers an SEC Investigation?
The SEC investigates violations of federal securities laws. The SEC’s most typical enforcement actions are against persons or companies accused of: insider trading; accounting fraud; misleading disclosure of information on securities; stealing customers’ funds or securities; and selling unregistered securities. The SEC’s Division of Enforcement is responsible for investigating these violations. It can recommend the agency bring civil enforcement actions in federal court or before an administrative law judge.
When a violation is discovered, the SEC will often conduct an investigation to determine if the purported violation did occur. The SEC can learn about a potential violation in many ways. For instance, it could be a whistleblower who reports the violation, the SEC’s own market surveillance activities, investor tips and complaints, or news reports that mention a certain violation. After the SEC discovers a potential violation, the SEC will launch an investigation to look into the matter. For example, if you are a corporate executive, the SEC might send a subpoena to your company for information that is relevant to the investigation. In the investigation phase, the SEC will gather evidence and determine if a violation did occur. If the SEC finds the evidence supports a finding that a violation did occur, the SEC will recommend an enforcement action. In this scenario, the SEC might bring a civil enforcement action against your company. The SEC can also refer the case to federal prosecutors for criminal prosecution if it thinks the conduct is egregious enough.
Why Should You Cooperate with the SEC?
Cooperating with the SEC shows that you are willing to work with them. The SEC will negotiate with you and your defense counsel to gather the necessary information for its investigation. If the SEC determines that you did not violate the law, the SEC can close the investigation. In this scenario, the SEC will send you a termination letter notifying you that it is closing its investigation. If the SEC decides that you did violate the law, the SEC can bring a civil enforcement action against you in federal court or before an administrative law judge.
It is important to note that the SEC can also refer its cases to the Department of Justice (DOJ) for criminal prosecution. If the evidence that the SEC discovers is particularly egregious, the SEC can refer the case to the DOJ for criminal prosecution. In this scenario, you might have to defend yourself in a federal criminal case. Federal prosecutors may charge you with criminal securities fraud, which is typically a felony that can carry prison time.
What Happens During an SEC Investigation?
SEC investigations are typically confidential. When the SEC investigates a particular violation, it does not mean that it will file charges against you. Further, the SEC does not mean that a violation definitely occurred. Instead, the SEC will use its investigative resources to determine if a violation occurred. During the investigation, the SEC may request documents and testimony from witnesses. For instance, the SEC might send a subpoena to your company to request information that is relevant to the investigation. If the SEC decides that a violation did occur, it will recommend an enforcement action by bringing a civil enforcement action or administrative proceeding.
What Are Some Defense Strategies for SEC Investigations?
There are many defense strategies for SEC investigations. The right defense strategy depends on the facts of your case. Some common defense strategies for SEC investigations include:
- The information that the SEC is requesting is not relevant to the investigation.
- The information that the SEC is requesting is already available to the public.
- The information that the SEC is requesting is privileged.
- The information that the SEC is requesting is proprietary and confidential.
- The information that the SEC is requesting is unreasonable to produce.
- The information that the SEC is requesting is too burdensome to produce.
- The information that the SEC is requesting is too costly to produce.
- The information that the SEC is requesting is not material.
- The information that the SEC is requesting is not in your possession, custody, or control.
SEC Subpoena Attorneys
Contact Spodek Law Group today at 212-300-5196 for a free and confidential consultation regarding your SEC investigation.
