Can I Assert Privilege Over Documents in an SEC Subpoena??

A subpoena does not extinguish an otherwise valid attorney-client privilege. While an SEC subpoena may request privileged materials, asserting the privilege can be a proper basis for withholding such materials from production. When asserting the privilege, the party that relies on the privilege will bear the burden of proving all elements required to establish the privilege. If the party is unable to establish the privilege in its entirety, the assertion will be insufficient to block the subpoena, and the SEC may seek to enforce the subpoena through the federal courts.

An SEC subpoena can demand production of documents, disclosure of testimony under oath, or both. A key difference between an SEC subpoena and a federal grand jury subpoena is the scope of the Fifth Amendment privilege. The Fifth Amendment protects individuals against compelled self-incrimination, and this privilege applies in civil cases as well as criminal cases. However, there is a fundamental difference between an individual’s privilege against compelled self-incrimination and the ability to withhold confidential documents from disclosure. The Fifth Amendment protects against compelled testimonial self-incrimination, but it does not protect confidential information generally.

Individuals who are the target of SEC investigations can rely on the Fifth Amendment privilege in the same way that defendants in criminal cases can. Corporations cannot rely on the Fifth Amendment privilege against self-incrimination.

What documents are actually privileged in an SEC investigation?

Are attorney-client communications privileged in an SEC investigation?

Federal courts have the authority to compel disclosure of attorney-client communications falling within the crime-fraud exception, and this includes communications made in furtherance of alleged securities fraud. The attorney-client privilege is intended to preserve confidentiality, and this privilege protects communications made to an attorney for the purpose of obtaining or rendering legal advice. Specifically, the communication must be made: (i) in confidence; (ii) in the course of a professional relationship between client and attorney; and, (iii) for the purpose of obtaining or rendering legal advice. Additionally, the party asserting the privilege must show that it had an objectively reasonable expectation of confidentiality.

Notably, confidential business records are not privileged merely because they are secret. In fact, when corporations copy attorneys on documents, this copying does not automatically render the documents privileged. In many cases, the primary purpose of the communication is to obtain business advice rather than legal advice, and thus, the attorney-client privilege does not apply.

What makes a document considered to be an attorney-client privileged communication?

An attorney-client communication must be made “in confidence” in order to be protected. Similarly, an attorney-client communication must be made “for the purpose of” obtaining or rendering legal advice in order to be protected. This means that an individual or corporation that receives a subpoena must show that (i) it intended the communication to be confidential, and (ii) the circumstances involved show that it was reasonable to assume that it would remain confidential.

While any information provided to a company’s or individual’s lawyer is typically considered confidential, documents that are inadvertently disclosed can lead to waiver of privilege. Furthermore, while any information provided to a company’s or individual’s lawyer should be in furtherance of providing or receiving legal advice, the actual content of the communication can sometimes be purely business advice. If the primary purpose of the communication was to receive business advice rather than legal advice, the communication may be discoverable.

What is the work-product protection and how does it apply in an SEC investigation?

The work-product protection applies to documents and tangible things prepared by or for a party or the party’s representative in anticipation of litigation. This protection is distinct from the attorney-client privilege and covers a broader range of documents. It also applies to third-party work products as well.

Work-product includes: (i) opinion work product (what the attorney is thinking or what is in the attorney’s head), and (ii) factual work product (the material that the attorney had in their possession at the time of their representation). Opinion work product receives heightened protection under the work-product doctrine. Factual work product, however, may be discoverable if the SEC can show substantial need and undue hardship. In recent years, several federal courts have adopted the principle that factual work-product protection should be the “norm” when preparing for litigation and should not be overcome as easily as it was once overcome in order to protect a party’s or attorney’s ability to defend their client.

How should I review email chains and mixed-purpose documents?

What if some of the information is privileged and some is not?

While the content of a communication between an individual or corporation and their legal counsel may be privileged during an SEC investigation, the underlying facts contained within that communication are generally not. This means that if the SEC can show that the information is otherwise discoverable, then the fact that the communication was with legal counsel does not protect the information from disclosure.

How should I review email chains for privilege?

When reviewing email chains in an SEC investigation, each message in the chain must be subjected to its own privilege analysis. As a result, the party asserting the privilege must review and make a separate decision to either withhold or disclose each message in the chain.

How do email attachments factor in?

Attachments to emails sent or received in an SEC investigation also require an independent privilege analysis. This means that a privileged email attachment can be withheld even if the email containing the attachment must be produced, and vice versa.

What if a document contains both privileged and nonprivileged information?

If a document contains both privileged and nonprivileged content, and if the privileged content can be separated from the nonprivileged content, the privileged portions should be protected while the nonprivileged portions should be produced.

Which law governs the privilege analysis?

In federal subpoena-enforcement proceedings in U.S. District Court, federal common law ordinarily governs the privilege analysis. However, pursuant to Federal Rule of Evidence 501, if the state law provides the decision rule for the specific case involved, the state law will apply. If federal and state law provide different rules for a specific privilege, the federal courts have discretion in how to apply them, which can create complexities for parties preparing for litigation.

How should I handle communications that seek both legal and business advice?

There are two tests for determining whether communications that seek both legal and business advice are privileged. Some courts ask whether the client’s primary purpose was to get legal advice, while other courts apply a broader test. Regardless of which test applies, a privilege label is often necessary but cannot protect substantively nonlegal communications.

If any of this describes your situation, it is worth talking it through with counsel. Spodek Law Group can be reached at 212-300-5196.

How do I assert privilege without missing the SEC deadline?

Are SEC subpoenas different from information requests?

Formal SEC investigations authorize the issuance of subpoenas for the production of records, compelling individuals and corporations to produce records to the SEC. Conversely, informal information requests are voluntary in nature. Recipient companies and individuals respond to informal requests at their discretion. In contrast, failing to timely and accurately respond to a subpoena can lead to sanctions in federal court.

What is a privilege log?

When responding to an SEC subpoena, recipients will often produce a privilege log listing the specific items they intend to withhold from production. In this privilege log, the recipient will state the legal ground they are asserting to withhold the documents. This identifies what the recipient is withholding and why it is protected by a privilege.

When is the deadline for responding to a subpoena?

The deadline for responding to an SEC subpoena is usually listed in the subpoena as a “return date.” The date by which you must produce documents, a privilege log, or other materials will typically be this return date. While some articles suggest that you need to disclose the existence of the privilege to the SEC 72 hours prior to the return date, this is not the case. Instead, the return date controls, although you should be careful to comply with any other instructions you receive from the SEC staff on the case.

Does the SEC have universal regulations for privilege logs?

While there is no universal SEC regulation establishing the format, requirements, and timeframes for privilege logs in connection with investigative subpoenas, individual subpoena-issuing attorneys may include specific instructions requiring the production of a privilege log. The SEC also instructs subpoena recipients that they may not withhold privileged documents without disclosure and that the failure to produce a privilege log when one is requested may result in sanctions for failure to comply with the subpoena.

What are the Rules of Evidence 502(b) and 502(d)?

Under Federal Rule of Evidence 502(b), the disclosure of privileged information does not always result in a waiver of privilege. Under Rule 502(b), an inadvertent disclosure of privileged information is excused if: (i) the disclosure was inadvertent; (ii) the party disclosing the information took reasonable steps to prevent the disclosure; and, (iii) the party promptly took reasonable steps to rectify the error, including, if applicable, following Federal Rule of Civil Procedure 26(b)(5)(B). Reasonable steps are often evaluated in light of the amount of information and complexity of the matter involved, and Rule 502(b) specifically applies to disclosures made to federal agencies, i.e., the SEC.

Rule 502(d) provides protection in the case of accidental disclosure of privileged material as well. Specifically, Rule 502(d) allows parties to seek an order from the court that expressly states that a disclosure of privileged information by one party “does not constitute a waiver in this or any other proceeding.” This safeguard is often more desirable than Rule 502(b) in SEC investigations, where a waiver under Rule 502(b) may be more difficult to avoid due to the nature of the materials produced and the time spent preparing them.

Can I disclose the subpoena or investigation without waiving privilege?

What are the consequences of sharing information with an external auditor?

Disclosure of attorney-client communications to a nonadversarial third party will not typically destroy a work-product protection. Conversely, the disclosure of an attorney-client communication to an external auditor, regardless of the auditor’s neutrality, will typically destroy the attorney-client privilege. Similarly, disclosure of an attorney-client communication to a nonadversarial external auditor will destroy the attorney-client privilege but will likely preserve the party’s work-product protection.

How does the party’s disclosure of a privilege label affect its ability to assert a privilege?

A party’s disclosure of a privilege label does not by itself establish a privilege. The existence of a privilege is established by the parties’ submission of evidence that establishes all elements required by the relevant privilege in the situation involved. Conversely, if a party has already disclosed a privilege label and then fails to establish a valid privilege by all pertinent elements, the party’s failure to establish the privilege will not, by itself, result in a waiver.

Does disclosure to the SEC constitute a waiver of privilege against private litigants?

The answer to this question is generally yes. While the SEC can maintain the confidentiality of a party’s confidential information once it is produced in response to an SEC subpoena, parties must be prepared to potentially lose attorney-client or work-product protection as a result of the government’s disclosure to private litigants. Federal courts generally do not allow parties in federal litigation to assert “selective waiver” of privilege, where disclosure was made only to the government.

What if the government is bound by a confidentiality agreement not to share information with private litigants?

Similar to the issues that arise with selective waiver, federal courts generally hold that even if the government is bound by a confidentiality agreement not to share information with private litigants, this does not generally result in preservation of a party’s privilege over materials produced under a subpoena.

As a result, when engaging with the SEC staff, individuals and corporations should make sure that they do so in coordination with their counsel so that they can take all appropriate steps to preserve the attorney-client privilege and work-product protection for any materials and communications produced during the inquiry.

Is an SEC investigation a confidential proceeding?

Formal SEC investigative proceedings are generally nonpublic under 17 C.F.R. § 203.5, which provides that, unless otherwise ordered by the Commission, all formal investigative proceedings shall be non-public; separately, 17 C.F.R. § 203.2 and § 240.0-4 bar Commission officers and employees from disclosing non-public investigative information without authorization from the Commission or its General Counsel. However, this Rule does not prohibit a party that has received an SEC subpoena from disclosing the existence of a subpoena.

As discussed below, while parties that are the targets of an SEC investigation will be able to maintain the nonpublic nature of the SEC investigation in most cases, they must be careful to avoid accidentally making voluntary disclosures that would provide the government with the ability to waive the privilege over materials produced during an inquiry.

What happens if the SEC rejects my privilege claim?

Does compelled production of attorney-client privileged information lead to waiver?

In many cases, when a court compels production of attorney-client privileged information, the disclosure of that information under compulsion of law or judicial order does not result in a waiver of attorney-client or work-product protection. This is true even if a party failed to properly assert the privilege prior to judicial enforcement. However, parties and their counsel should still make reasonable efforts to protect confidential and privileged information from disclosure.

If a party’s assertion of attorney-client or work-product protection is unsupported, the SEC may seek federal court enforcement of its subpoena. If a federal court deems the subpoena to be validly issued, the party may be forced to produce the materials at issue, either with or without protection.

Is an SEC subpoena a court order?

No, an SEC administrative subpoena is not a self-enforcing judicial order. Instead, it is an order issued under the SEC’s subpoena authority in connection with its enforcement of Exchange Act regulations. As explained above, under 15 U.S.C. § 78u(c) and the SEC’s Exchange Act regulations, if the SEC fails to obtain compliance with an SEC subpoena, the SEC can seek federal enforcement of its subpoena. While the subpoena is not self-enforcing, violation of a judicial order enforcing an SEC subpoena is a violation of a federal court order that can result in contempt sanctions.

Can I file a motion to quash SEC investigative subpoenas?

No, Federal Rule of Civil Procedure 45’s motion to quash does not apply to SEC investigative subpoenas. Rather, the SEC must enforce its investigative subpoenas by filing an enforcement action in a U.S. District Court. Recipient parties have the opportunity to oppose enforcement at that stage.

For matters in the District of Columbia or the Eastern District of Virginia, the deadline to file in response to a motion to enforce depends on the local rules and orders of those courts. However, for most other U.S. District Courts, recipient companies and individuals must file responses to SEC enforcement actions within 14 days.

Can the SEC prosecute me if it uncovers criminal evidence during its inquiry?

While the SEC cannot prosecute crimes, it will share information uncovered during its inquiries with the U.S. Justice Department when criminal violations are suspected.

At Spodek Law Group, our team represents clients in criminal investigations as well. If our representation of an individual or corporation has uncovered evidence of potential criminal violations, we will advise our clients accordingly, and our team of lawyers will begin assisting our clients with their response.

Get Advice on Your Situation

If you want someone to look at the specifics of your case, Spodek Law Group handles federal criminal defense nationwide from New York and Los Angeles. The firm has been practicing since 1976 and its motto is simple: we owe loyalty to only you. Call 212-300-5196.