Can I Fight an SEC Subpoena??

Can I Challenge or Narrow an SEC Subpoena?

An SEC subpoena is neither a criminal charge nor a finding of guilt. Refusing to comply with an SEC subpoena requires the SEC to seek enforcement of the subpoena in federal district court. Unreasonably broad or burdensome subpoenas can be narrowed or the request for information denied.

What Should I Do to Preserve Information Requested in an SEC Subpoena?

To preserve information requested in an SEC subpoena, recipients must preserve responsive paper records, messages, electronically stored information, and all other relevant data. At Spodek Law Group, we provide custom-designed preservation protocols tailored to the specific fact pattern involved.

What Is an SEC Formal Order?

A formal order is a document that authorizes the designated SEC staff member to issue an SEC investigative subpoena. When served with an SEC subpoena, witnesses can request to see the formal order authorizing the subpoena. Under 17 C.F.R. § 203.7(a), the witness is entitled to be shown the formal order upon request, but a copy for retention is furnished only with the approval of a senior Division or Regional Office official, and withholding a copy does not by itself make the subpoena unenforceable.

Can I Ignore an SEC Request for Information if There Is No Formal Order?

If there is no formal order, the SEC staff member cannot force the witness to provide information. Instead, the SEC must rely on the witness’s voluntary cooperation in a criminal or civil investigation. As a result, informal SEC information requests generally do not have the same enforcement capabilities as SEC subpoenas.

Can the SEC Issue Subpoenas to Witnesses, Businesses, and Brokerage Firms?

Yes, Section 21(b) of the Exchange Act authorizes the SEC to issue subpoenas requiring both testimony and production of books, papers, and documents. SEC subpoenas are used to compel witnesses, businesses, and brokerage firms to provide the requested information.

What Happens if I Do Not Comply with an SEC Subpoena?

Can the SEC Issue a Contempt Order?

An agency subpoena is not a court order. While the SEC has subpoena power, it does not have the power to issue a contempt order. If you refuse to comply with the SEC’s subpoena, the SEC must apply to a federal district court for a subpoena-enforcement order. Then, if you refuse to comply with the court’s subpoena-enforcement order, the court can issue a contempt order and impose contempt sanctions.

How Does the SEC Enforce an SEC Subpoena?

Section 21(c) of the Exchange Act authorizes federal district courts to order “the production of books, papers, documents, or other records” and “the attendance and testimony of witnesses” where there is "contumacy by, or refusal to obey a subpena issued to, any person" by the SEC. To enforce its subpoena, the SEC must apply for a subpoena-enforcement order in federal district court.

When Should I Challenge or Narrow an SEC Subpoena?

If you intend to challenge or narrow an SEC subpoena, your best opportunity to do so will typically be in opposition to the SEC’s application for subpoena enforcement. This is because the application for subpoena enforcement provides a record you can use on appeal if the court issues a subpoena-enforcement order over a valid objection.

What Is a Subpoena-Enforcement Case?

An SEC subpoena-enforcement case is generally a summary judicial proceeding. It will typically be heard by a judge rather than a jury, and it will focus on the SEC’s ability to establish the validity of its subpoena versus the recipient’s ability to present a convincing objection.

Does Subpoena Enforcement Mean I Am Being Charged?

No. SEC subpoena enforcement is not an adjudication of whether securities laws were violated, whether you committed any wrongdoing, or whether you should be charged. It is a preliminary step in an investigation, and there are no presumptive allegations of wrongdoing involved. As a result, the SEC typically need not establish probable cause to obtain subpoena enforcement.

Can the SEC Pursue Obstruction Charges for Noncompliance?

Unless your refusal to comply with an SEC subpoena constitutes criminal or civil obstruction, the SEC’s only enforcement option is to seek a subpoena-enforcement order. This means that, in many cases, the SEC cannot pursue further action unless it has first pursued (and won) a subpoena-enforcement case. Civil obstruction claims require the SEC to establish the statutory elements of the violation, and criminal obstruction charges must be brought by the U.S. Department of Justice, which would have to prove each element of the offense, including a specified wrongful intent.

What Arguments Can Defeat or Narrow an SEC Subpoena?

Do I Need to Argue That the SEC’s Subpoena Should Be Dismissed or Quashed?

In SEC subpoena-enforcement proceedings, the courts typically seek to quash, modify, or deny enforcement of the subpoena rather than dismiss it. Quashing the subpoena makes it invalid and not enforceable in court. Narrowing a subpoena involves quashing the non-enforceable provisions and requiring only the enforceable provisions be met. Denying enforcement prevents the SEC from compelling obedience through judicial action.

Does Federal Rule 45 Apply?

Federal Rule of Civil Procedure 45 includes a fourteen-day deadline to serve objections. However, this provision is not applicable. Because an SEC subpoena is not issued in a pending case and it does not apply to SEC investigative proceedings, a federal Rule 45 objection is generally not sufficient to narrow or defeat enforcement.

What Is the Standard for SEC Subpoena Enforcement?

In the case of SEC v. Arthur Young & Co., 584 F.2d 1018 (D.C. Cir. 1978), the U.S. Supreme Court established a three-part test for SEC subpoena enforcement. To prevail in a subpoena-enforcement case, the SEC must establish that: (i) the investigation is for a legitimate purpose, (ii) the investigation is within the SEC’s statutory authority, (iii) the information requested is relevant to the investigation, and (iv) the SEC has complied with applicable administrative procedures.

What Is the First Prerequisite for SEC Subpoena Enforcement?

The first prerequisite for SEC subpoena enforcement is that the SEC’s investigation be “for a legitimate purpose.” This means the SEC staff member has authority to seek the information (i.e., there is a formal order) and the investigation is conducted with no improper purpose. In practice, this means the SEC staff must conduct their investigation for the purpose of protecting the public, not for an extraneous or unlawful purpose.

What Is the Second Prerequisite for SEC Subpoena Enforcement?

The second prerequisite for SEC subpoena enforcement is that the SEC’s investigation is “within the scope of the SEC’s authority.” The SEC’s investigative authority is broad, but it is not unlimited. If the investigation falls outside the scope of the SEC’s authority, the SEC cannot enforce the subpoena.

What Is the Third Prerequisite for SEC Subpoena Enforcement?

The third prerequisite for SEC subpoena enforcement is that “the materials requested are relevant to the investigation.” While the standard for relevancy is low, the requested records, documents, and other items must be relevant.

What Is the Fourth Prerequisite for SEC Subpoena Enforcement?

The fourth prerequisite for SEC subpoena enforcement is that “the SEC is treating the subpoena according to administrative procedure.” When the SEC issues an investigative subpoena, it must adhere to all applicable procedures, and the subpoena recipient can challenge any failure to comply with the procedures.

Can Recipient Negate the SEC’s Subpoena Enforcement Ability Through Allegations of Agency Bad Faith?

A recipient alleging “bad faith” on the part of the SEC must be able to meet an exacting evidentiary standard. To prove “bad faith,” the recipient must be prepared to show that the SEC has the subpoena “as a means of avoiding liability” or “as a means of harassing the recipient.”

Is it Necessary That the SEC’s Subpoena Not Be Impermissibly Indefinite?

Yes, in order to survive a challenge and qualify for enforcement, it must be clear what records, documents, and other items the SEC requires. For example, if the subpoena requires documents reflecting “all aspects of the relationship between Company X and Company Y,” the subpoena is impermissibly indefinite.

What Should I Do Before the SEC Deadline?

How Long Do I Have to Respond to an SEC Subpoena?

The SEC subpoena will control. There is no single period of time that is universally applicable. While you can negotiate with the SEC for more time, any negotiated deadline will be included in the subpoena’s plain language.

Are SEC Extensions Guaranteed?

Extensions are not guaranteed. SEC staff members may grant extensions upon request, but whether it is appropriate to seek an extension and whether the SEC agrees will depend on many factors. If you need an extension, you will need to present the request and justify the extension.

What Are the Risks of Negotiated Productions?

The SEC’s staff members typically accept negotiated productions for records and documents. However, any negotiated terms to limit the date range, the number of custodians, the search terms used to identify relevant records, or the categories of records to be produced may be binding. If you improperly redact or withhold any information or items, this could be considered unlawful noncompliance.

Can I Negotiate Rolling Productions of Responsive Records and Documents?

In many cases, rolling productions can be a feasible way to reduce the burden on the SEC subpoena recipient without eliminating the underlying obligation. While rolling productions will typically not eliminate the possibility of an SEC investigation or enforcement action, they can be an effective tool for showing compliance, mitigating perceived delays, or avoiding unnecessary subpoenas.

What Are the Common Components of Preservation?

Preserving data and records often requires suspending automatic deletion and routine document-destruction policies. While automatic deletion can present a challenge for preserving information for civil or criminal investigations, the cost of doing so should be avoided if possible.

Are There Any Ethical Obligations to Preserve Evidence?

Yes, Model Rule 3.4(a) of the Model Rules of Professional Conduct requires compliance with civil, criminal, and administrative laws, including the SEC’s subpoena power. Specifically, “ a lawyer shall not unlawfully obstruct another party’s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value.”

Do I Need to Expect a Wells Notice?

In many cases, a Wells notice will be issued. However, receiving a Wells notice is not guaranteed. The decision to issue a Wells notice is discretionary, and it can be omitted if the SEC investigates a suspected violation that results in a guilty plea or other settlements.

Is a Wells Notice a Finding of Liability by the SEC Commission?

No, a Wells notice is not a finding of liability by the SEC Commission. Rather, a Wells notice informs a recipient that the SEC’s investigative staff intends to recommend that the SEC Commission consider filing an enforcement action against a recipient. When issuing a Wells notice, the SEC provides an opportunity for the recipient to respond and object to the enforcement recommendation.

If you are facing this situation, Spodek Law Group handles federal criminal defense matters nationwide, from offices in New York and Los Angeles.

Can I Refuse to Answer Questions in SEC Testimony?

What Is the Nature of SEC Testimony?

When called to testify by the SEC, a witness is typically given the opportunity to be sworn in and receive testimony in the presence of a court reporter. Witnesses subpoenaed by the SEC do have the right to counsel under 17 C.F.R. § 203.7(b), and witnesses in SEC investigations can retain the services of experienced defense counsel.

What Role Does Counsel Play in SEC Testimony?

When a witness retains the services of experienced defense counsel, the counsel will work to: (i) gain clarity regarding the scope of the SEC’s inquiry, (ii) assess whether the SEC’s inquiry is warranted and (iii) defend against SEC scrutiny. Counsel will also review any relevant records, documents, or other information, and, if appropriate, assist with presenting the witness’s testimony in a clear and honest manner that protects the witness to the fullest extent possible under the circumstances.

Is Counsel Permitted to be Present During SEC Investigative Testimony?

Yes, 17 C.F.R. §203.7 permits witnesses who receive subpoenas for testimony during the SEC’s investigative process to have counsel present. The section clarifies that witnesses’ counsel “may advise the witness before, during, and after the examination.” If the witness’s counsel needs to supplement the testimony, they may do so, “by briefly questioning the witness following the examination.”

Do I Have a Fifth Amendment Right Not to Incriminate Myself?

The Fifth Amendment to the U.S. Constitution protects individuals against compelled testimonial self-incrimination. In investigations initiated by federal agencies like the SEC, the Fifth Amendment protection prohibits witnesses from being required to provide answers to any questions that could lead to criminal charges.

Should I Invoke the Fifth Amendment as a Privilege Against All Questions?

In most cases, invoking the Fifth Amendment is not appropriate when a witness asserts their privilege against self-incrimination. Instead, a question-by-question analysis will typically be warranted. When you answer a question, you should answer as clearly and honestly as possible. When you have a valid reason for not answering, you will rely on your privilege to withhold the answer. The best strategy for dealing with questions to which you object is to determine whether you can answer without testifying to facts that are the subject of the privilege.

Does the Fifth Amendment Provide Blanket Immunity for Corporate Investigations?

No, the Fifth Amendment protects individuals, not corporations, from testifying in civil or criminal enforcement. In corporate investigations, a corporation cannot claim privilege based on the Fifth Amendment.

What Happens if I Assert Fifth Amendment Privileges During SEC Testimony?

According to Baxter v. Palmigiano, it is permissible for a civil factfinder to draw an adverse inference from a witness’s decision to invoke the Fifth Amendment privilege. However, the factfinder need not do so, and the factfinder must base the adverse inference on other evidence. When you invoke your Fifth Amendment privilege, your counsel will work to prevent an adverse inference in federal district court.

Which Documents Can I Withhold from the SEC?

Can I Use the Fifth Amendment to Refuse to Produce Records or Other Documents?

The Supreme Court recognized in cases such as Fisher v. United States and Hubbell v. United States that producing records or documents can sometimes communicate testimonial facts. If so, individuals may assert the Fifth Amendment privilege to protect themselves from compelled self-incrimination. However, in corporate investigations, the Supreme Court has generally denied corporate custodians the opportunity to rely on the Fifth Amendment as a production privilege. Instead, corporate custodians are typically required to produce all non-privileged records and documents they are able to produce.

Can I Withhold Attorney-Client Privileged Documents?

Yes, attorney-client privilege generally protects confidential communications between clients and their attorneys. However, as a general rule, the attorney-client privilege only protects the information provided to the attorney and the legal advice the attorney provides in response. It does not protect information which is either historical in nature or relevant only to the communication itself.

Will Documents that a Lawyer Has Received but for which He Has Provided No Legal Advice Qualify for Attorney-Client Privilege?

No, just because a lawyer received certain records, documents, or other information in his capacity as a lawyer does not make those items privileged. The recipient must have provided legal advice concerning the information as well.

Does the Attorney-Client Privilege Extend to Third Parties?

The attorney-client privilege is generally waived by voluntary disclosure to third parties. Once the privilege is waived, the SEC may be able to compel the disclosure of records, documents, or other information that would otherwise be privileged.

Do I Have a Work-Product Protection?

Work-product protection covers legal documents, strategies, and memoranda that qualify for protection because they were prepared in contemplation of potential or actual litigation. In the context of SEC subpoena enforcement, you can rely on work-product protection if the records, documents, or other materials in question were prepared by your attorney at the direction of a witness.

Does the Fifth Amendment Protect the Contents of a Document Created Voluntarily Prior to an Investigation?

In general, the Fifth Amendment does not protect the contents of a document that was created voluntarily by a witness prior to the initiation of an investigation. However, there are exceptions to this general rule, and your counsel can advise you as to whether these exceptions apply based on your specific case.

How Do I Assert a Privilege?

Asserting a privilege in response to a subpoena requires a document-specific review of each record, document, or other item and clear identification of the material being withheld. Providing too many objections may raise concerns of bad faith or a desire to hide information, so it is important to determine when the SEC has a good reason to investigate a potential violation of securities laws.

Who Should Represent Me in an SEC Investigation?

Can My Lawyer Contact the SEC on My Behalf to Deflect the Investigation?

While your lawyer can contact the SEC to assist your defense, they can never contact the SEC to intentionally mislead investigative staff regarding your activities. Model Rule 4.1 of the Model Rules of Professional Conduct expressly prohibits lawyers from knowingly making material factual misstatements and from fraudulently failing to disclose material facts. Additionally, Model Rule 1.2(d) expressly prohibits lawyers from assisting clients in committing crimes or frauds.

Can My Lawyer Represent Me and Other Relevant Parties or Individuals?

Generally, yes. Model Rule 1.7 allows conflicted representations if lawyers reasonably believe they can provide effective representation to each client, and provide informed written consent is given by each client. However, if representation by a single lawyer or firm is otherwise improper, Model Rule 1.7 requires lawyers to either withdraw or terminate the representation.

If Your Company is Under Investigation, Who Should Represent You?

Under Model Rule 1.13, in corporate investigations, the corporate counsel primarily represents the organization rather than the employees of the organization. A witness can also use joint representation to reduce the costs. However, joint representation becomes untenable when the organization’s and witness’s interests diverge materially, and the corporation will likely refuse to support the witness’s defense. In such cases, the organization’s counsel is unlikely to be able to continue representing the witness, and it is in the witness’s best interests to hire a new lawyer independently.

Who Are the Best SEC Defense Lawyers in the Nation?

There is no ranking of the top law firms for SEC defense from the government. While some people rank law firms based on their reputation, the most respected companies will continue to choose firms based on their experience, trial records, and other specific criteria.

What Should I Look for in a Law Firm that Represents Companies or Individuals in SEC Investigations?

When choosing a law firm to represent you in an SEC investigation, you should look for law firms that (i) have experience defending corporations in SEC investigations, (ii) have no conflict-of-interest concerns, (iii) have an adequate staffing for your needs, and (iv) have a demonstrated record of success.

Can I Hire a New Lawyer After I Have Retained One?

Yes, when you hire a law firm to represent you in an SEC investigation, the law firm must be prepared to stop your investigation’s obstructionist conduct in any respect and give the SEC investigative staff a reason to consider your substitution. If your lawyer allows your investigation’s obstructionist conduct, the lawyer’s lack of professionalism may lead to the SEC’s decision to pursue prosecution of you.

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.