Can I Negotiate the Scope of an SEC Subpoena??

Yes, it is possible to negotiate with the SEC staff members that have issued a subpoena. They may be willing to work with subpoena recipients in order to limit the scope of the subpoena or to develop a staged schedule for production.

2. Does receiving an SEC subpoena mean that I am a suspect in a civil or criminal SEC investigation?

Not necessarily. At this stage, an SEC subpoena only establishes that you are within the scope of an SEC investigation. It does not establish that you are suspected of wrongdoing, and it does not establish that an SEC investigation has the potential to lead to a civil or criminal enforcement action. SEC subpoenas are issued to both suspected violators, potential witnesses, and third parties that are not suspected of any wrongdoing, and in recent years, the SEC frequently issues subpoenas to individuals who are not suspected of any wrongdoing but who the staff believes may hold documents or information relevant or material to the investigation at hand.

3. If I negotiate with the SEC to reduce the scope of the subpoena, how does the deadline for production get affected?

Negotiating with the SEC will not automatically suspend or extend your subpoena’s deadline. Until SEC staff members confirm that the original deadline does not apply, the original terms of the subpoena will continue to remain operative.

4. If the SEC issues a subpoena, does it mean that I have to produce documents, give oral testimony under oath, or both?

It depends on what the subpoena requires. The SEC has the authority to issue subpoenas for either documents or oral testimony, or for both. In the vast majority of SEC investigations, this means that subpoena recipients will need to produce all documents that are responsive to the requests in the subpoena before they can give sworn testimony.

5. I did not violate any laws and I do not know anything about the SEC’s investigation. Is it possible that I could still receive an SEC subpoena?

Yes, it is possible. The SEC issues subpoenas to potential witnesses and third parties in addition to issuing subpoenas to suspected violators. And, while the majority of third-party witnesses receive subpoenas requesting only documents and sworn testimony, third-party witnesses that are suspected of wrongdoing can face the same consequences as suspected civil and criminal violators.

6. If I provide oral testimony under oath, is it possible for my statements to be used against me in a federal criminal trial?

Yes, it is possible. SEC investigators are entitled to share any information that they obtain during their civil investigations with federal prosecutors at the Department of Justice. And, while SEC investigators are permitted to share the contents of their civil investigations with federal prosecutors, they are not required to do so. Sharing is discretionary and typically occurs in response to a written access request from the Department of Justice, subject to internal SEC approval.

7. Can an SEC investigation lead to an enforcement action in federal district court?

Yes, SEC investigations can lead to both civil and criminal enforcement actions in federal district court. In addition to filing civil complaints, the SEC may also refer individuals and entities for criminal prosecution. While criminal prosecutions have to be brought by federal prosecutors at the Department of Justice, the SEC is a frequent source of DOJ referrals.

How do I negotiate narrower SEC subpoena compliance?

1. What information does an SEC subpoena contain?

An SEC subpoena will specify any relevant documents that it requires you to produce, and it will specify any oral testimony that it requires you to provide under oath. An SEC subpoena will also contain deadlines for compliance, as well as the location(s) that you must produce materials to, or attend the deposition(s) at.

2. What can a recipient of an SEC subpoena do to protect their (or their organization’s) legal interests while maintaining compliance?

The first steps to protecting your (or your organization’s) legal interests involve engaging experienced counsel to communicate with the SEC on your behalf. As a general matter, these are some of the key steps that your counsel will take on your behalf if you are served with an SEC subpoena: - Seeking Narrower Dates: Counsel will identify any overbroad requests within the subpoena and seek to narrow the date ranges to protect your (or your organization’s) legal interests.

• Seeking Narrower Scope: Counsel will identify any other overbroad requests within the subpoena that require narrowing, and then seek to negotiate with the SEC staff members in order to limit these requests to specific transactions, parties, subjects, and other matters.
• Seeking a Phased Production Schedule: Counsel will work with the SEC staff to negotiate a phased production schedule. This can involve narrowing the scope of the materials you are required to produce in the first phase of your production to only include those materials that are most likely to be relevant to the SEC staff members’ investigations.
• Seeking a Rolling Production Schedule: Along with negotiating a phased production schedule, counsel can work to negotiate a rolling production schedule. This can work to spread the production burden across a schedule of deadlines, provided the SEC does not object to delaying the production of some materials.
• Seeking Deadline Extensions: If an SEC deadline extension is appropriate, counsel can work with the SEC staff to negotiate one. And, as a general matter, any extension must be negotiated and finalized before the production response deadline, and before the subpoena recipient’s response becomes overdue.

3. Is a successful negotiation with the SEC guaranteed?

No, a successful negotiation with the SEC is not guaranteed. While SEC staff members are often open to negotiating reduced production demands, it will often be necessary to prove that the subpoena is overbroad or that compliance would impose an undue burden on the recipient. And, even if SEC staff members agree to narrow the scope of their demands, they may still insist that the recipient fulfill certain production requirements before they agree to modify any of the subpoena’s terms.

4. If I successfully negotiate a reduction in the scope of my subpoena, what documentation should I receive?

If you successfully negotiate a reduction in the scope of your subpoena, SEC staff members should provide you with written confirmation of any changes to your subpoena. This written confirmation should specify modified requests, new deadlines, modified formats for compliance, the stages of any phased production, the dates of any rolling production, or other modifications.

What evidence proves an SEC subpoena is too burdensome?

1. What types of evidence are available to substantiate a successful negotiation for undue burden?

In order to prove that a request within an SEC subpoena is undue, subpoena recipients can use various types of evidence to substantiate their arguments for undue burden. This can include the following: - Agreed Search Terms: Subpoena recipients and SEC staff members can agree to search terms to target their electronic communication searches. The agreed search terms will only match certain keywords; and, therefore, they can potentially narrow the volume of responsive materials that you (or your organization) must produce.

• Documented Collection Costs: While proving that an SEC request is burdensome can involve showing that it requires undue effort in some respects, proving that an SEC request is too burdensome can also involve showing that compliance will lead to undue costs. As a result, subpoena recipients can use their documented collection costs to substantiate their arguments.
• Custodian Counts: The number of custodians (i.e., potential sources of responsive materials) identified in a subpoena can also support an undue-burden argument.
• Data Volume: Subpoena recipients can use the volume of their data (i.e., potential electronic communication data) to substantiate their arguments for undue burden.
• Retrieval Hours: Subpoena recipients can use the number of retrieval hours to substantiate their arguments for undue burden.
• Vendor Estimates: Vendor estimates can demonstrate the potential costs of complying with a subpoena.
• System Limitations: System limitations and shortcomings can demonstrate the potential costs of complying with a subpoena.
• IT Declarations: It may also be necessary to have your (or your organization’s) IT staff complete a declaration when it is necessary to show that certain media is inaccessible or that certain issues present obstacles to compliance.
• Restoration Requirements: It may also be necessary to provide evidence of any restoration requirements.

2. What role do “hit reports” play during the negotiation of an SEC subpoena?

Hit reports and sample reviews are valuable tools that subpoena recipients can use to negotiate narrower search terms with SEC staff. A hit report shows how many documents were returned from a search term. If a particular search term returns a high number of documents (i.e., “hits”), the recipient can potentially argue that the term is overbroad. Similarly, with sample reviews, if reviewing a sample of a search term’s “hits” reveals that many of them are irrelevant to the investigation, this is strong evidence of overbreadth that can be used to justify narrowing the term.

3. How do I know what terms to use when searching my data in the context of an SEC subpoena?

In order to know what terms to use when searching their data in the context of an SEC subpoena, subpoena recipients should request (or perform) search-term testing. The process of search-term testing is essential to both protecting your (or your organization’s) legal interests and ensuring compliance. During the testing process, the recipient (or its counsel) will use hit counts and sampling to determine how many documents are matched by various potential search terms. Once they have narrowed the list of search terms, they will negotiate the final terms with SEC staff.

4. Can I negotiate to have the SEC compensate my organization for the costs of responding to an SEC subpoena?

The Exchange Act does not require the SEC to compensate subpoena recipients for the expenses of document production. Sections 21(b) and 21(c) of the Exchange Act, 15 U.S.C. §§ 78u(b) and 78u(c), grant the Commission its subpoena and subpoena-enforcement authority but say nothing about reimbursing production costs. Recipients therefore cannot negotiate for such compensation unless the SEC chooses to offer it voluntarily. The only reimbursement generally available is the statutory attendance fee and mileage allowance paid to witnesses in the courts of the United States under 28 U.S.C. § 1821.

What records must I preserve during subpoena negotiations?

1. What records must I preserve while I am negotiating with the SEC?

After receiving an SEC subpoena, you (or your organization) should preserve any potentially responsive records that you (or your organization) have in your custody. When negotiating with the SEC, this requirement continues to exist, and it means that any pertinent documents and electronic communications must not be deleted, destroyed, or altered. Your counsel should issue a “legal hold” to suspend any routine deletion policy or automatic record deletion system that may affect potentially responsive information.

2. Does preservation encompass electronic communications and data stored on cloud-based repositories and personal devices?

Yes, it does. This includes emails, texts, collaboration platform communications, data stored on cloud-based repositories, data stored on smartphones, data stored on personal computers, and any other data stored on other personal devices that you (or your organization) have used to conduct business.

3. What records should a subpoena recipient collect?

Subpoena recipients should collect any records that are potentially responsive to the requests in their SEC subpoenas. During this process, the recipient (or its counsel) should also maintain complete records of all documents and electronic communications that have been collected, including (but not limited to):

• Identified custodians
• Identified sources
• Date ranges searched and retrieved
• All processing steps and procedures

4. What are the implications of duplicating electronic documents and electronic communications?

Once the necessary documents and electronic communications have been collected, the duplicate files that are identical to one another can then be removed. This is often referred to as hash-based deduplication. While deduplication effectively removes redundant electronic copies, it does not establish the substantive irrelevance of these documents and electronic communications.

For duplicate electronic documents and electronic communications, recipients of SEC subpoenas must be careful to preserve any unique attachments. Duplicating procedures that only preserve one instance of a parent document and discard the others are either insufficient or inappropriate in certain contexts (i.e., when it is necessary to preserve any differences among the various attachments). As a result, your counsel must identify the specific deduplication procedures to use.

5. Can I contact other witnesses about the SEC’s investigation?

No, you cannot. Contacting other witnesses about the SEC’s investigation can be interpreted as attempt(s) to improperly influence another witness’s testimony. However, your counsel can coordinate appropriately with lawyers representing other witnesses. Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

1. What subpoena materials can attorney-client privilege protect?

Yes, attorney-client privilege can justify withholding documents and other materials that are responsive to the requests in your (or your organization’s) SEC subpoena. When applicable, this includes both oral and written attorney-client communications.

2. What information should I disclose to the SEC about documents and electronic communications that I am withholding based on attorney-client privilege?

Recipients are generally required to provide this information to the SEC in a “privilege log.” Typically, this involves providing the following information about all documents and electronic communications withheld based on attorney-client privilege (and/or other applicable privileges):

• Document date(s);
• Participants in the communication

1. How does the Fifth Amendment protect you (or your organization) in the context of an SEC subpoena?

As a general matter, the Fifth Amendment to the U.S. Constitution provides against self-incrimination. As a result, when the government compels your production of documents, the Fifth Amendment prohibits producing documents that are incriminating. However, this protection does not categorically protect every document the government requires you (or your organization) to produce. As explained below, proving you are entitled to Fifth Amendment protection involves (among others, many) steps.

• Testimonial Aspects of Document Production: First, the Fifth Amendment does not protect the content of preexisting documents. Instead, the Fifth Amendment’s protection extends to any “testimonial aspects” of document production. For example, an act of production can prove your knowledge, existence, possession, control, authenticity, or ownership of an individual document or category of documents, thereby potentially exposing you to criminal liability.
• The Foregone-Conclusion Doctrine: While the “act of production” may be testimonial, the government may argue you have a right to avoid production under the foregone-conclusion doctrine. According to this doctrine, if the government has enough information already in its possession to prove you possess an incriminating document (or category of documents), then producing that document (or category of documents) will not reveal any information the government does not already have. In this case, the Fifth Amendment will not shield you from production.
• The Collective Entity Doctrine: In addition, if you are the custodian of an SEC subpoena’s requested records at your organization, you will likely not be able to avoid production based on the Fifth Amendment. According to the collective entity doctrine (or Braswell doctrine), the custodian’s act of producing records is not considered a “testimonial act” protected by the Fifth Amendment, as you cannot personally (or on your organization’s behalf) assert Fifth Amendment protection over the records of a corporate entity.

2. Will my invocation of the Fifth Amendment provide any benefit in the context of an SEC civil enforcement action?

Not necessarily. The First, Fifth, and Sixth Amendments prohibit adverse inferences in civil proceedings. And, if your invocation of the Fifth Amendment is justified, there will be no benefit from invoking the Fifth Amendment. However, in civil litigation, factfinders can draw adverse inferences from a witness’s invocation of the Fifth Amendment. This is not limited to criminal proceedings; and, however, the factfinder cannot draw an adverse inference merely because you received an SEC subpoena.

How can I challenge an SEC subpoena if talks fail?

1. What can the SEC do if it wants to enforce an SEC subpoena that you are refusing to answer?

Pursuant to Exchange Act Section 21(c), the SEC can seek enforcement of a subpoena’s requirements through the district court. When the SEC files a motion for enforcement, the district court’s role is to determine whether the SEC’s request is reasonable, and whether the recipient failed to respond. If the court finds the request is reasonable and the recipient failed to respond, the court will order the recipient to answer the SEC subpoena. If the recipient is in contempt of the court’s order, the court may impose any available contempt sanctions. If the recipient is convicted of a criminal SEC violation, the recipient will not avoid conviction by citing the Fifth Amendment.

2. How can I challenge an SEC subpoena?

As a general matter, the manner in which you can challenge an SEC subpoena depends upon (i) whether your SEC subpoena is investigative in nature or it was issued as part of an administrative proceeding, and (ii) what you hope to achieve (i.e., whether you are challenging its validity, relevance, or scope).

• Challenging Investigative Subpoenas: Although the Federal Rules of Civil Procedure apply to most SEC enforcement actions, SEC investigative subpoenas are not ordinarily challenged under the rules’ procedures. For example, while Federal Rule of Civil Procedure 45 permits anyone who receives a subpoena to seek a protection order through Rule 45, SEC investigative subpoenas are generally not subject to a similar challenge. Although recipients can still negotiate with the SEC, this is often the first- and only way they can challenge the scope or validity of their subpoenas.
• Challenging Administrative-Proceeding Subpoenas: While SEC investigative subpoenas are not subject to Rule 45, those subpoenas issued as part of an administrative proceeding are subject to a different set of procedural protections. Pursuant to 17 C.F.R. § 201.232(e), “a person to whom a subpoena is issued may, prior to compliance, request to the issuing staff that the subpoena be quashed or modified.” Subpoena recipients can file Rule 232 requests either formally (by mailing the request to the issuing staff) or by email. If a recipient’s Rule 232 request is ignored, the recipient may proceed to file a similar request with the administrative law judge.

3. Are there any limitations to the types of challenges you can mount in federal court after the SEC files a motion for enforcement of an SEC subpoena?

Yes, as described above, once the SEC files a motion for enforcement of an SEC subpoena in federal district court, the court’s role is limited to determining (i) whether the request is reasonable, and (ii) whether the recipient failed to comply. However, as discussed below, the court’s limited review of the SEC’s requests will only limit the types of successful challenges you can mount in this scenario.

4. What types of challenges can the SEC successfully overcome during SEC subpoena enforcement?

In federal district court, the SEC can often successfully overcome challenges alleging:

• Relevance: For example, if a recipient challenges the relevance of the subpoena’s requests, SEC staff members may be able to meet the burden of proving that the requests are relevant to their investigation.
• Duplication: If a recipient challenges the relevance of any requested materials, the SEC can potentially use evidence that it already has in its possession to prove that this particular item (or class of items) was not already duplicate to any information that the government is entitled to.
• Privilege: While the Fifth Amendment, attorney-client privilege, and all other applicable privileges provide protection in the contexts described above, they do not necessarily shield you from all categories of incriminating documents and electronic communications.
• Undue Burden: While proving a request is overbroad or proves too burdensome can lead to a reduction in the scope of the requests, it will not lead to dismissal of the SEC’s motion for enforcement.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.