At some point in their careers, many financial professionals will find themselves on the receiving end of a subpoena from Securities and Exchange Commission (“SEC”) or a Financial Industry National Regulatory Authority (“FINRA”) 8210 Request. The receipt of such documents signifies the regulatory or self-regulatory agencies’ request for information and/or documents in relation to an investigation of a potential securities laws violation. While the Securities and Exchange Commission will formally issue a subpoena, FINRA sends parties the equivalent inquiry letter, often referred to as an “8210 Request.” Both entities can request the receipt of a wide range of information and a high number of documents within a short amount of time. Furthermore, recipients who do choose not to respond to these critical requests honestly could ruin their careers and lives. While the SEC subpoena and FINRA 8210 request may share some similarities, and as we have explained in this space before, there are many differences based on the powers allotted to the respective regulatory agencies.
The Securities and Exchange Commission is a federal government regulatory agency entrusted to develop national regulations and enforce federal laws. Upon reasonable suspicion of securities laws violations, the SEC can issue a subpoena to anyone. Meanwhile, FINRA is not an official government entity, but rather the security industry’s self-regulated membership organization. FINRA has the authority to request documents, information, and testimony from those under its’ jurisdiction in a FINRA 8210 letter. Both the SEC and FINRA run a similar on-the-record “OTR” interview, with the option of an attorney present in the event of a testimony request. However, the SEC offers more response flexibility, protections under the Fifth Amendment and investigation information access in comparison with FINRA.
In the face of a potential securities law violation, the SEC will often send subpoenas to the targets as well as any potential witnesses with information. A SEC subpoena can demand documents (duces tecum) or oral testimony (ad testifcandum) without including context. The SEC can start an investigation by presenting their suspicions in a formal order of investigation. Chiefly, a former SEC Enforcement attorney, John Reed Stalk alleges that there is a “low standard” of cause needed for approved subpoena issuance. The formal order of investigation mainly contains information regarding the scope and possible subjects of the investigation. Subpoenaed parties and their attorneys can request the order.
The stakes of responding to a SEC subpoena can be high given the unknown and potential consequences. Firstly, the failure of subpoenaed parties to answer truthfully to the SEC can result in contempt of court and other prosecution under federal laws. Be that is may, subpoenaed parties can legally object to provisions of the subpoena as well as plead their Fifth Amendment rights for protection against self-incrimination. Under the Fifth Amendment, “no person…shall be compelled in any criminal cases to be a witness against himself”. Regardless, SEC subpoenaed parties must elicit some form of response before the stated deadline.
Upon receipt of a response, the SEC has the power to charge the subpoenaed party civilly through court or administrative proceedings or criminally by referring charges to the Department of Justice. Therefore, SEC subpoenas could result in revocation/suspension of licenses, monetary fines, injunction, disgorgement or felonies. Before pressing charges, the Securities and Exchange Commission will usually offer a settlement to speed the process up. Alternatively, the Securities and Exchange Commission could end up never reaching out afterward, which might be the best possible outcome.
FINRA can also send a request for written documents and oral testimony to start an investigation, but there are slight variations from the SEC’s subpoena. Under rule 8210, FINRA has the right to “require a member, person associated with a member, or any other person subject to FINRA’s jurisdiction to provide information, orally, in writing, or electronically and to testify at a location specified by FINRA staff, under oath or affirmation administered by a court reporter or a notary public if requested, with respect to any matter involved in the investigation, complaint, examination or proceeding”. Such info requested through the FINRA 8210 inquiry letter could also include “books, records, and accounts of member firms”. Following Regulatory Notice 13-06, the scope of FINRA 8210’s letter now includes any documents that they have the legal right, authority, or ability to obtain from any party.
Responses to the FINRA 8210 request influence whether an investigation is subsided or continued with the potential for penalties through a Wells Notice. FINRA 8210 request can ultimately lead up to an OTR interview, enforcement proceeding or no response. FINRA can provide information to other entities like the Department of Justice “DOJ” for prosecution. A target or witness can be subject to parallel proceedings between SEC, FINRA, state securities regulators and other agencies like the DOF, US Postal Fraud Unit, IRS, and CFTC for example. The parallel proceedings can be both civil and criminal, as well as need to be carefully coordinated.
Since FIRNA is not a government agency, financial professionals do not have the same legal protections. Thus, a securities professional cannot plead the fifth in response to an 8210-inquiry letter. Instead, FINRA will suspend or bar unresponsive financial professionals from the industry.
What matters most for SEC subpoenas and FINRA 8210 requests alike is that recipients correctly respond or face the consequences. Both agencies are not obligated to provide a response or specific investigation context beyond the written requests. Therefore, recipients must contact a lawyer that is familiar with the SEC, FINRA rules and securities laws for guidance throughout the process. A skilled securities regulatory attorney will not only be able to help you adequately respond but also vigorously defend your rights throughout the investigation. Our securities attorneys have years of experience with helping clients respond to FINRA and SEC enforcement inquiries.