Can I Talk to Coworkers During an SEC Investigation??

Speaking with a coworker during an SEC investigation is not automatically federal witness tampering. Section 1512(b) criminalizes communication with another “with intent to corruptly persuade[s] another person in any of the following ways: (1) to withhold testimony…; (2) to alter or destroy evidence…; or (3) to hinder, delay, or prevent the communication of information relating to a federal offense to a federal law enforcement officer or judge.” As our legal experience tells us, conversations during federal securities investigations may have the above potential to trigger liability, but these conversations do not necessarily fall under Section 1512(b)’s prohibitions.

Can Speaking With a Coworker During an SEC Investigation Trigger a Section 1512(b) Charge?

While speaking with a coworker may not automatically trigger a Section 1512(b) charge, knowingly coordinating a false account of a corporate security transaction can potentially evidence corrupt persuasion under 18 U.S.C. § 1512(b).

Can Asking Someone to Conceal Evidence During an SEC Investigation Trigger a Section 1512(c)(1) Charge?

Yes, asking someone to conceal evidence during an SEC investigation can potentially trigger a charge under 18 U.S.C. § 1512(c)(1). This section prohibits acting “corruptly alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding.” Importantly, the term “official proceeding” does not solely refer to judicial proceedings and criminal investigations. The SEC’s enforcement staff may share evidence with the Department of Justice (DOJ) and other law enforcement regulators as well. For this reason, efforts to conceal evidence during an SEC investigation could expose an individual to liability under Section 1512(c)(1).

Can Asking Someone to Avoid Contact With an SEC Investigator Trigger a Section 1512(b) Charge?

Yes, asking someone to avoid contact with an SEC investigator can also trigger a charge under 18 U.S.C. § 1512(b) in certain scenarios. However, the statute’s language explicitly includes efforts to “prevent or delay” testimony.

When Does Talking to a Coworker Become Witness Tampering?

As we noted above, Rule 21F-17 protects whistleblowers who communicate with the SEC, but it doesn’t protect individuals who engage in witness coordination or evidence concealment. If you discuss an ongoing investigation with a coworker, you must be careful not to do either of these things (which are forms of witness tampering). If you do, you could face criminal prosecution under 18 U.S.C. § 1512, which expressly applies to investigations “before a federal agency,” including the SEC.

What Are the Possible Penalties for Attempting to Coordinate False Testimony or Conceal Evidence During an SEC Investigation?

There are several different potential penalties for attempting to coordinate false testimony or conceal evidence during an SEC investigation. The potential penalties for coordinating a false witness account under Section 1512(b), in particular, include:

• A maximum of 20 years of federal imprisonment
• A fine or both imprisonment and a fine

What Does it Mean to “Corruptly Persuade” Another Person to Coordinate False Testimony, Conceal Evidence, or Delay Testimony?

The U.S. Supreme Court explained what it means to “corruptly persuade” another person to coordinate false testimony, conceal evidence, or delay testimony in Arthur Andersen LLP v. United States, 544 U.S. 696, 705-06 (2005): “The phrase ‘corruptly persuade’ . .. may be explained in light of Section 1512(b)’s explicit references to ‘corrupt’ persuasion in subsections (b)(1), (2), and (3) . .. By referring to ‘corruptly persuade’ in subsection (b)(1) and the other corresponding provisions, the statute includes the concept of ‘corrupt’ in subsection (b). The definition of corrupt is found in the precedent that discusses the analogous concept of corrupting a juror in Section 1512(b) and in the precedent that discusses the analogous concept of corruptly influencing a grand jury in 18 U.S.C. § 1512(b) . .. and, as noted by the concurring opinion, ‘the defendant must have a consciousness of wrongdoing . .., i.e., know that what he is doing is unlawful.’”

Does Section 1512(b) Apply to Coordinating False Accounts of Events that Are Unrelated to an Official Proceeding?

Section 1512(b) only applies if the person being persuaded is “to influence, delay, or prevent the testimony of any person before any official proceeding . .. or to cause another person to withhold a record, document, or other object from an official proceeding . . ..” For this reason, when talking with a coworker, you must be careful to avoid not just coordinating false witness testimony or hiding evidence. In addition to avoiding anything that could trigger liability under Section 1512(b)(1) and (2), you must avoid corruptly persuading your coworker “with intent to (i) deter another person from testifying or communicating in an official proceeding, or (ii) cause another person to withhold documents or information from an official proceeding.” Under 18 U.S.C. § 1512(b)(3), knowingly attempting to deter or obstruct communication with an SEC investigator is also witness tampering.

What can I safely discuss or share at work?

What Investigation Details Should I Share at Work?

If you learn of an SEC investigation, you should prudently share the details only with people who actually need to know. By sharing unnecessary information you could potentially increase the risk of violating SEC rules against tipping off individuals about investigations and trigger unnecessary scrutiny from the SEC.

Do I Have a Confidentiality Obligation Regarding the SEC’s Requests?

If you received a request from the SEC in an SEC investigation, you will generally not have any government-imposed confidentiality obligation. By all accounts, the SEC is not required to impose a confidentiality obligation, and it is willing to allow parties to discuss requests and responses with the media if necessary. However, if you do, you must be careful not to inadvertently provide guidance to witnesses.

How Public or Private Are SEC Investigations?

SEC investigations are ordinarily nonpublic until an enforcement action. At this stage, however, the SEC staff may not want to disclose certain details of the investigation and may specifically request that you not warn certain witnesses. As discussed above, if you violate this request, you could potentially trigger liability for witness tampering under Section 1512(b)(3).

What Records Should I Preserve?

When litigation or an investigation is reasonably anticipated, parties are required to preserve all relevant records. Generally, this preservation duty is limited to documents, electronic files, and other materials relevant to the investigation that a party has in its possession, custody, or control, subject to any applicable privilege exceptions. When you have concerns about your company’s document preservation policy, you should consult with experienced in-house or outside counsel right away.

If you are concerned about potentially waiving your Fifth Amendment right against self-incrimination or attorney-client privilege, you should also consult with an experienced attorney as well.

When you learn of an SEC investigation, you should promptly seek guidance from a securities law attorney or SEC defense attorney to understand the legal implications of your role. While you are entitled to talk with your coworkers about whether to cooperate with the SEC, you should also be careful to avoid doing so when it involves your attorney-client privileged conversations.

Can I Talk to My Coworkers?

Yes, employees covered under Section 7 of the NLRA have the right to discuss the investigation or attempt to intervene in a concerted manner. This means that employees can freely share information and form an opinion about whether they should cooperate with the SEC. As explained above, however, when you do discuss the SEC’s investigation, you should be careful not to do so in a way that increases your legal exposure.

What about Other Protections?

There are some other protections as well. For example, for example, the common-interest doctrine preserves the attorney-client privilege. Under this doctrine, separately represented parties who share a common legal interest do not waive the attorney-client privilege when they exchange protected information with each other. For example, if two coworkers each retain their own attorney and both face exposure in the same SEC investigation, they may share privileged information with each other under a common-interest arrangement without waiving the attorney-client privilege. However, this is not a standalone privilege, but a rule that allows companies to maintain privilege when they share common-interest materials.

Can I refuse SEC requests, subpoenas, or company interviews?

Can I Decline SEC Requests for Information, Testimony, or Documents?

Whether you can decline an SEC request depends on the circumstances. If you received a request from the SEC to voluntarily provide information, testify, or provide documents, then you may decline to do so if you choose. However, if you received a subpoena for information, documents, or testimony, then you may only decline to do so if you can successfully challenge the subpoena. Otherwise, if you ignore a subpoena issued by the SEC, the SEC may file an action in federal court to enforce the subpoena, and the court will compel you to comply unless you have a valid Fifth Amendment privilege against compelled self-incrimination.

Is the Fifth Amendment a Blanket Privilege?

No, the Fifth Amendment is not a blanket privilege. It is not an absolute right to ignore a subpoena, but an absolute privilege against compelled self-incrimination. For this reason, you must invoke the Fifth Amendment carefully to ensure that you are making use of your full constitutional protections. In other words, while you may be able to avoid testifying at the SEC’s request, this privilege only applies to compelled testimony. And even then, this constitutional protection only covers testimony that could potentially incriminate you. You do not have the absolute right to ignore a subpoena, but instead, a right to refuse to answer specific questions or provide documents that could potentially incriminate you.

How Do I Invoke My Fifth Amendment Rights to Avoid Self-Incrimination?

In order to invoke your Fifth Amendment rights and avoid self-incrimination during an SEC investigation, you will generally have to invoke your Fifth Amendment protections on a question-by-question basis. If you have concerns about your Fifth Amendment rights and need to learn more, be sure to consult with an experienced attorney as soon as possible.

Do I Have Legal Protection for Refusing an Interview with My Employer?

In most cases, at-will employees do not have legal protection for refusing interviews with their employers. As a result, if you are required to interview with your employer during an SEC investigation, you can potentially be terminated for refusing to do so. However, if you are a union-represented employee, then you may be entitled to representation during your investigatory interview, as explained below.

What Are My Rights as a Union-Represented Employee?

If you are a union-represented employee, then you are entitled to request representation when you face an investigatory interview that has a reasonable possibility of resulting in discipline. If you do request representation, then your employer must either grant the request and allow your union representative to attend, discontinue the interview, or offer you the choice between continuing without representation and having no interview at all; neither your employer nor your union is required to supply a representative for you.

What Happens if My Employer Disciplines Me for Refusing to Respond to a Request?

As we noted above, while you are entitled to avoid self-incrimination in SEC investigations, your employer may be entitled to pursue disciplinary action. In fact, if you do not have legal protection to avoid an interview with your employer, you can be terminated for refusing to participate in an interview. This means that, in many cases, employees who refuse interviews with their employers are liable for termination or other disciplinary action.

Can You Find Out if Employees Refused to Participate in an Interview During an SEC Investigation?

Yes, if you are in charge of managing an SEC investigation, you can find out whether employees have declined to participate in internal interviews. If you determine that employees have declined, you can seek the advice of legal counsel before taking further action. This will avoid unnecessary risks for your company and ensure that you are complying with the law.

This is the point at which most people call a lawyer. Spodek Law Group takes federal criminal defense cases nationwide from its New York and Los Angeles offices.

What can company and defense lawyers legally do?

What Is the Scope of Company Counsel’s Representation?

Company counsel ordinarily represents the entity being investigated, and he or she can’t represent employees during an SEC investigation. As a result, when employees participate in internal interviews, you will typically be presented with an “Upjohn Warning.” This is a disclosure statement identifying company counsel’s client, and identifying who, if anyone, will hold the attorney-client privilege. With this in mind, it is imperative that employees understand the scope of company counsel’s representation.

Can Company Counsel Disclose Employees’ Statements to Investigators?

If your company is being investigated by the SEC and you are interviewed by company counsel, then your company can generally waive the privilege and disclose your statements to the SEC. While this is common, there are some exceptions to this general rule. We strongly encourage employees to seek independent legal counsel in these situations.

Can I Hire My Own Independent Counsel?

Yes, if you are being targeted in an SEC investigation, you should seek your own independent legal counsel as well. If you’re worried about whether company counsel could jeopardize your legal defense, this is especially important. While you cannot choose which counsel your company hires, you are entitled to choose your own legal representation, and defense counsel who are not at your company, but who have extensive experience representing employees and executives in SEC investigations, can provide you with the same level of representation that company counsel provides.

Can I and Other Employees share Joint-Defense Information?

Yes, but as we discussed above, employees who share joint-defense information must be careful not to coordinate witness testimony or conceal evidence. While employees can share information with each other under a joint-defense agreement, if the individuals are co-defendants in an SEC investigation, you must not use joint-defense information to obstruct the SEC’s efforts, or to coordinate witness testimony.

Similar to the above, in cases of mutual defense, defense counsel’s obligations are limited to ensuring that their client’s defense is reasonably effective and that they aren’t knowingly obstructing a client’s efforts to comply with a subpoena. For this reason, employees who are co-defendants in an SEC investigation must be careful to engage independent defense counsel if there is a conflict with their interests that prevents their current defense counsel from which to satisfy their duty of loyalty.

Can Employees Coordinate Their Defense Strategies with One Another?

Yes, but again, this comes with the same caveats. While employees can coordinate their defense strategies, employees who are targeted in an SEC investigation must be careful to avoid taking any steps to knowingly obstruct compliance with subpoenas, hide documents, coordinate a false account, or do anything else that could be construed as witness tampering under Section 1512(b) or Section 1512(c).

Are Employees Entitled to an “80/20” Defense Against Involuntary Termination in SEC Investigations?

No, the SEC doesn’t recognize an “80/20 rule” (or any other numerical quota system), and no federal securities law allows employees to assert “innocent mistake” for an event that occurred. If you have made a mistake or unintentionally violated the law during an SEC investigation, reach out to an experienced attorney to discuss your situation.

Can My Employer Stop Me From Contacting the SEC?

No. Rule 21F-17 prohibits all employers from directly or indirectly interfering with individuals’ ability to report alleged securities law violations to the SEC. This rule applies to public and private employers. While companies’ attorneys routinely include confidentiality provisions in contracts to protect companies’ trade secrets, confidentiality agreements are not lawfully allowed to prohibit employees from communicating with the SEC, either directly or through their lawyers.

Do I Have Legal Protection If My Employer Retaliates Against Me for Contacting the SEC?

If you engage in protected whistleblower activities during an SEC investigation, then you are protected against retaliation under several different federal statutes, depending on the circumstances. Most importantly, if you provided information, documents, or testimony to the SEC that contributed to the agency’s discovery of securities-law violations, then the Dodd-Frank Act’s whistleblower protections should shield you from retaliation as well. If you qualify as a “whistleblower” under the Dodd-Frank Act, you may be entitled to financial compensation if you were retaliated against for making a protected communication to the SEC as well.

What Are the Whistleblower Protections for Sarbanes-Oxley (SOX) Violations?

If you are a protected whistleblower under SOX (specifically, under § 806), then you are also protected from retaliation for internal reports of financial fraud or securities law violations made under the Act’s guidelines, which are outlined in Section 2121 l. However, if you need to pursue an SEC whistleblower retaliation claim, you must file a complaint with the U.S. Department of Labor (DOL) within 180 days of retaliation.

Do I Qualify for a Whistleblower Award for Blowing the Whistle to the SEC?

If you received illegal treatment after blowing the whistle, you may still qualify for a whistleblower award. For example, if you meet the legal requirements to make a Rule 21F-17 claim, this doesn’t necessarily make you eligible for a whistleblower award. If you’re eligible for an award, it is generally required that the individual who reported the suspected wrongdoing voluntarily provided original information that contributed to the SEC’s deciding to pursue a covered action against the entity involved. If you are eligible, your financial award may range from 10% to 30% of the financial sanctions imposed, if sanctions exceeded $1 million.

Should I Contact the SEC to Report Illegal Activity during an SEC Investigation?

If you have any information about illegal activity during an SEC investigation, then you should contact an experienced whistleblower attorney right away.

How Long Can SEC Investigations Continue?

As discussed above, SEC investigations don’t have a universal completion deadline, and they can last for years. After you testify at the SEC, you can expect the investigators to ask for additional testimony, additional documents, or ask you to return for another interview or other form of appearance. When testifying before the SEC, you can only expect to have an opportunity to decline testifying when you are first asked to testify. After your testimony, you must consider how the SEC decides to close the case. Sometimes the SEC closes an investigation without ever bringing forward civil or criminal charges, and sometimes the SEC proceeds to pursue civil or criminal enforcement. As long as the SEC closes the case without filing charges or indicting anyone, no action will be taken against the entity involved. However, if you believe you may be a potential target of the SEC investigation, you should consult with an experienced defense attorney as soon as possible.

Another thing to consider is that SEC investigations may expand beyond their original allegation. The SEC staff is free to examine any additional information that comes to light during the investigation. When you disclose documents that are not directly relevant to the investigation, or when you uncover other potential allegations against your company while working with your defense counsel, you should inform your defense attorney right away.

Finally, you should also be aware that tolling agreements are used in SEC investigations. Under a tolling agreement, parties to a lawsuit or investigation agree to suspend the statute of limitations defense. While tolling agreements are commonly used to extend the amount of time the SEC has to file an action or seeking enforcement from a third party, tolling agreements are voluntary agreements that are not usually enforced by the courts in civil litigations.

What is the Median Time to File for Enforcement in an SEC Investigation?

According to the SEC’s 2020 report, “The median time to file for enforcement was 21.6 months from the date an investigation opened.” On average, investigations were completed in 34 months in 2020, down from 37 months in 2019.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 212-300-5196.