The recent string of cases brought by the Securities and Exchange Commission in connection with the US Attorney’s Office against members of SAC Capital for insider trading has shone a bright light on the world of SEC investigations. Though all financial professionals surely hope that they will never be involved in an SEC investigation, the truth of the matter is that many unfortunately will.
Receiving a subpoena from any government agency can be a worrisome event in anyone’s life, but for a financial professional, receiving a subpoena from the Securities and Exchange Commission can be especially intimidating. More often than not, the recipient may be confused as to, “Why is the SEC contacting me?”
Individuals are typically contacted by the SEC for two reasons: 1) You are the subject of its investigation; or 2) The SEC believes you may have valuable information related to its investigation of an entity or someone else.
In either case, you may be subpoenaed to provide documents (called a subpoena “duces tecum”) or to testify (called a subpoena “ad testificandum”), or both.
Subpoenas for documents are generally straightforward in that they list specific types or categories of documents that must be produced to the SEC by a specific date. To comply with the subpoena, the recipient must produce all responsive documents by the due date.
When the SEC calls individuals in to provide testimony, it will be in what is commonly referred to as an “on the record” interview (or “OTR” for short). Subpoenas for testimony will also be rather straightforward in that the recipient will know when and where they will need to appear to testify, but will typically not contain any clues as to what the testimony will be about. However, in advance of the OTR, you may be required to provide documents related to certain transactions, individuals, businesses, etc. that you will likely be questioned on in your OTR. You also may be questioned on documents or testimony provided by others.
When you receive a subpoena, the first thing you should do is contact a securities industry law firm that understands these matters. It is important to get a copy of the formal order of investigation, which will tell you some more detail about the investigation about which you have been called to testify or produce documents.
It is important to be properly prepared for responses to subpoenas, both for testimony and for documents. Now that you are involved in an investigation and potential litigation, ordinary words could have new meaning. Something that may seem harmless in an ordinary discussion could have a different meaning in a legal context – potentially exposing you to liability.
Once you have responded to subpoena and/or appeared at your OTR, the SEC may choose to formally charge you or it may determine that it will not pursue any action against you. While, the latter is certainly the preferred option, the former is certainly the most concerning. The SEC may pursue you civilly or criminally (typically through the U.S. Attorney’s Office).
More often than not, individuals are pursued civilly, either in court or in an administrative proceeding before an administrative law judge. Prior to being formally charged, individuals are often given the opportunity to settle their matter and consent to certain sanctions. The more common civil sanctions usually include revocation/suspension of professional licenses (i.e. Series 7, 24, etc.), disgorgement (i.e. paying back any profits earned from the illegal conduct), and monetary fines. Criminal charges can also result in imprisonment among other penalties.
Given the magnitude of the potential penalties you may be facing, from the moment you receive an SEC subpoena, your focus needs to be on protecting yourself, your savings, your reputation, and your license(s).
To do that, the very first questions that need to be addressed are: Who is the target of the SEC’s investigation? Is it definitely me? Could it be me? Is it someone I work for/with? Is it someone I did business with? Is it someone I continue to do business with?
Unfortunately, the answers to these questions are often not readily apparent. While SEC subpoenas are usually specific in what they request, they are often equally as vague with respect to the subject of the investigation and offer few clues to the untrained eye.
As a result, from the very first moment the SEC contacts you, experience can be your best ally. For most people, when they receive a subpoena from the SEC it is their first (and hopefully only) experience being subpoenaed. If you have do not have experience in dealing with the SEC, you may be unaware of protections available to you in both producing documents and when testifying. As a result, an unfortunate reality is that all too often, individuals may get themselves into more trouble by trying to handle the situation themselves.
Consulting with an experienced attorney could be the best move that you make when faced with such a potentially life-changing event. Now is not the time to be penny wise and pound foolish. The attorneys at Malecki Law have experience representing individuals in regulatory actions before the SEC as well as FINRA. Contact us for a free consultation. Various hourly-billing and flat-fee based options are available to make smart decisions from inception to the completion of your matter.