What the SEC can and cannot do
The SEC is a civil enforcement agency. It can seek remedies such as injunctions, penalties, disgorgement, and industry bars, but it cannot bring criminal charges. It can, however, share information with the Department of Justice, and parallel criminal investigations do occur. Subpoenas are issued under a formal order of investigation, while voluntary requests for documents may come earlier. The staff's interest might lie in a company's disclosures, trading ahead of an announcement, or an offering, and you may be a witness rather than a subject. An investigation is not a finding of wrongdoing, and many inquiries close without enforcement action.
Responding to documents and testimony
Preserve relevant records immediately, including texts and messaging apps used for business. Production is often negotiated with the staff, including search terms and custodians. Testimony is taken under oath and transcribed, and you have the right to be accompanied by counsel. The Fifth Amendment privilege can be invoked, but in a civil matter the SEC may ask a fact-finder to draw a negative inference, so that decision needs careful thought. Knowingly false testimony or obstruction creates separate criminal exposure. Public companies should also consider whether the investigation needs to be disclosed to investors.
Later stages to plan for
If the staff decides to recommend charges, it typically sends a Wells notice, giving you a chance to submit a written response before the Commission decides. Many matters settle, and the terms of SEC settlements have shifted recently, including the agency's policy on public statements after settlement, so current practice should be checked. Witnesses can generally request a copy of their testimony transcript, although the staff may decline in some situations. Companies and individuals often have different interests, and individuals may need their own counsel. We help clients respond to an SEC investigation subpoena from the first production through any Wells process, while watching for parallel criminal or regulatory exposure.
