SEC Settlement vs. Going to Trial: What You Need to Know
1. Not All SEC Settlements Are Created Equal
As the SEC explains, “[m]ost SEC investigations are resolved by settlement. . . .” But this does not mean that all settlements are the same.
While entering into a settlement may allow you to avoid the risks of going to trial, it will still involve a finding of liability for some type of securities law violation. Even if you are able to negotiate a non-monetary settlement (which can be extremely difficult, depending on the circumstances at hand), the SEC will likely seek an order requiring enhanced compliance, additional reporting, and possibly other obligations as well.
In order to determine whether a proposed settlement is worth pursuing (or whether you should instead take your chances at trial), you need to know exactly what the settlement entails. Once you have this information, then you can weigh the burdens of the proposed settlement against the risks and potential cost of continuing to fight. If you are facing an SEC enforcement action, our former SEC enforcement attorneys can help you make an informed and confident decision about how to approach the settlement process.
2. Having Leverage in Settlement Negotiations Is Key
As with any settlement negotiation, having leverage is key. The more leverage you have, the more negotiating power you will have—and the better your chances of securing a favorable outcome.
Ideally, you will want to be able to show the SEC that it will not prevail at trial. If you can poke holes in the SEC’s case and show that the SEC will have difficulty convincing a judge or jury to find you liable, the SEC may be forced to take a more conciliatory approach toward settlement. If you can’t do this, then you will need to shift your efforts toward either negotiating a settlement with the SEC or preparing to go to trial.
3. In Some Cases, Settling with the SEC Offers a Win-Win Solution
In some cases, a settlement can offer a win-win solution for both sides. If you made a mistake in the past but have since cleaned up your practices, then a settlement with the SEC could allow you to avoid an enforcement action. While settling won’t necessarily shield you completely from liability, it can at least mitigate the risks involved.
If a settlement with the SEC is viable, the terms of the settlement will be critical. You will need to make sure that you are able to avoid any unnecessary risk, and you will want to build as much flexibility into the settlement as possible. As with any contract, the terminology in an SEC settlement agreement is key—and you will need to make sure that you have a clear understanding of what every word means before you execute the agreement.
4. In Some Cases, Going to Trial Might Be the Best Option
If settling with the SEC is not viable—either because the SEC is unwilling to settle on acceptable terms or because you believe you can win at trial—then your only option may be to prepare for trial. Your trial strategy will need to be tailored to the circumstances at hand, and it will need to be based on a solid understanding of the facts, the law, and the SEC’s evidence and strategies.
As we mentioned above, SEC enforcement actions are high-stakes matters. The outcome of your trial could have a significant impact on your business’s operations, as well as on your personal finances and reputation. As a result, it is important to approach trial preparation with the seriousness that it deserves.
5. You Can Pursue both Settlement and Trial Preparation Simultaneously
In many cases, it will make sense to pursue both settlement and trial preparation simultaneously. By doing so, you can put yourself in the best position to achieve a favorable outcome—whether that means settling with the SEC or going to trial.
Pursuing both settlement and trial preparation simultaneously can also put pressure on the SEC to settle. If you are prepared to go to trial, the SEC may be more inclined to settle on favorable terms, rather than risk losing at trial. This can give you an advantage in settlement negotiations, and it can help you achieve a more favorable outcome.
6. When Deciding Whether to Settle or Go to Trial, You Need to Consider the Full Range of Potential Outcomes
When deciding whether to settle or go to trial, you need to consider the full range of potential outcomes. This includes not only the potential financial consequences, but also the potential reputational and operational consequences as well.
For example, a settlement with the SEC could involve a significant financial penalty, as well as a commitment to enhanced compliance and reporting. This could have a significant impact on your business’s operations and finances. Similarly, a trial could result in a finding of liability, which could have a significant impact on your business’s reputation and ability to operate in the future.
It is important to carefully weigh the risks and potential consequences of both options before making a decision about how to proceed. By doing so, you can make an informed and strategic decision that is in your best interests.
7. In the Event of an SEC Investigation or Enforcement Action, Avoiding Liability Should Be Your Top Priority
Ultimately, the goal of any SEC settlement or enforcement action should be to avoid liability. Whether this means settling with the SEC or going to trial, the objective should be to achieve a favorable outcome that allows you to move forward without the burden of liability.
If you are facing an SEC investigation or enforcement action, it is important to work with experienced legal counsel to develop a comprehensive strategy that is tailored to your specific needs and circumstances. By doing so, you can put yourself in the best position to achieve a favorable outcome and protect your business’s interests.
