Common Questions Asked in SEC Testimony.

Yes, SEC investigative testimony is ordinarily taken under oath and transcribed.

What Are the Questions the SEC Will Ask Me?

The substantive questions the SEC asks during testimony depend on the scope of the investigation and the specific reasons you were subpoenaed. Some examples of questions that the SEC may ask include:

• What is your role at your company?
• What transactions, communications, and events are most relevant to the issues at hand?
• Which documents or records can you provide to help explain the matters at issue?
• Which individuals participated in, or may have witnessed, the events under investigation?

What Are the Risks of My Witness Testimony?

There are risks to both truthfully answering the questions asked by the SEC and to refusing to answer the questions based on assertions of privilege and Fifth Amendment protections. These risks include:

1. Criminal Consequences

For many SEC-investigated matters, the underlying issues could involve criminal charges. This exposes you to the risk of criminal liability (e.g., for violating 18 U.S.C. § 1001 (False Statements, etc.)) for your untruthful answers to the SEC.

2. Civil Enforcement Consequences

While an investor’s complaint, or a whistleblower’s tips, could lead to an SEC investigation. However, these are not guaranteed grounds for a civil enforcement action. The SEC’s investigations can be either in-lieu-of, or in-preparation-of, civil enforcement actions.

Once the SEC conducts an investigation, the consequences of an investor’s complaint or whistleblower’s tips are uncertain. While you may be able to avoid a civil enforcement action by not having any incriminating documents or testimony, your testimony in an SEC investigation could expose you to liability.

Will I Be Asked to Give Testimony Again?

At the conclusion of your initial testimony, an SEC investigator may ask for additional documents or schedule another appearance. If so, this can signal that you may be the focus of the investigation.

Which topics and documents will SEC investigators focus on?

What are Common Subjects of SEC Investigations?

Common subjects of SEC investigations include: - Fraud

• Insider Trading
• Stock Price Manipulation
• Unregistered Public Offerings
• Inappropriate Disclosures
• Improper Investment Advice and Brokering Practices
• Securities-related Litigation

Does a SEC Subpoena Mean I Am a Target of an SEC Investigation?

Being served with an SEC subpoena does not necessarily mean that you are a target of an SEC investigation. In many cases, it may mean that the SEC believes that you have information and can help them better understand the facts at hand. However, that may not be the case in all situations. An SEC subpoena may leave you wondering whether you are a witness or a target of the investigation.

Our team of SEC defense attorneys at Spodek Law Group can help you understand your risks and rights based on your situation. We will review your subpoena and explain what this means for you.

How Will SEC Investigators Structure Their Questions?

When preparing you for SEC testimony, we will discuss the potential questions that investigators may ask you. SEC testimony is not strictly scripted and investigators will not use a set list of questions. However, in most cases, investigators will start with your identity, education, employment history, and professional background before delving into questions more relevant to the investigation.

They will typically also ask about any previous lawsuits, SEC investigations, and other regulatory proceedings involving you. If the SEC already has knowledge of these events, then they will likely ask about these early in the proceedings. If the SEC does not know of any prior dealings you have had with federal authorities, they will likely ask about these at the conclusion of your testimony.

Will Exhibits Be Used in My SEC Testimony?

Yes, witnesses will typically be presented with a set of documents and other exhibits that relate to the matters under investigation. These documents will be used to check your recollection and understanding, as well as to ask follow-up questions based on the content of the exhibits.

How Should I Prepare for My SEC Testimony?

Our team at Spodek Law Group handles all aspects of preparing clients for SEC testimony. We will work with you to familiarize yourself with the relevant documents, and we will answer any questions you may have about the investigation.

How should I answer difficult SEC testimony questions?

What Should I Do if I Need to Ask a Clarifying Question during my SEC Testimony?

If you need to ask a clarifying question, you will be able to do so. Before answering the question, it will be important for you to make sure that you understand the question that is being asked.

Should I Answer based on Assumptions or Other Information I May Know?

No, you should only answer based on your own knowledge of the facts. If you make assumptions, you may unknowingly misinterpret or guess. If you answer based on other information you may have, it will not provide investigators with firsthand knowledge. It is imperative to answer and to be truthful based on your firsthand knowledge.

What Should I Do if I Honestly Do Not Remember?

If you honestly do not remember the answer, then you should say that you honestly do not remember. This is a truthful response.

Should I Guess?

No, guessing can lead to problems. The issue is that guessing can be mistaken for lying. If you guess, and a later document or testimony exposes your mistake, investigators may argue that you intentionally lied about a specific issue.

Will I Be Able to Have Legal Counsel with Me?

Yes, SEC rules generally permit witnesses in formal investigative proceedings to be accompanied by legal counsel.

The extent to which your counsel will be able to participate in the proceeding will depend on the procedural rules at the SEC and the specific procedures of that particular investigation. It is important to retain an SEC defense attorney who is familiar with the specifics of testifying in an SEC investigation.

What Should I Do if I Want to Add Something to the Testimony?

If you realize that you may have made a mistake or omitted important information that should be part of the record, you can inform the investigators. At the conclusion of the examination, your counsel may question you briefly on the record to clarify any of the answers you gave.

What Should I Do if I Cannot Answer the Question That the SEC Investigator Asks?

If you cannot answer a question, it will be important to inform the investigator why. For example, if the investigator asks a compound question, then the investigator should separate the questions.

Can I Refuse to Participate in an SEC Interview or Respond to an SEC Subpoena?

If the SEC has not served you with a subpoena and instead contacted you via an informal inquiry, you generally cannot be compelled to participate. Informal inquiries are voluntary in nature. If you wish to decline an invitation to participate in an SEC interview, you should speak with a defense attorney about your potential exposure to liability and next steps.

What Is an SEC Subpoena?

An SEC subpoena is a legal request for documents or information. Unlike an informal inquiry, an SEC subpoena is an order for you to produce a specific set of records or documents. It can be issued to a target or a witness of an SEC investigation. It is common for the SEC to serve witnesses with subpoenas if they want to obtain testimony under oath.

Is an SEC Subpoena the Same as a Court Order?

An SEC administrative subpoena is not itself a court order. However, it can become one. If you refuse to comply with a valid SEC administrative subpoena, the SEC can ask a court to enforce its subpoena. If the SEC can prove the subpoena is valid and that you have refused to comply, the court will order you to comply.

Should I Refuse to Attend an SEC Interview?

If the SEC has served you with a subpoena compelling your appearance at an interview, you generally must attend or face subpoena-enforcement proceedings. However, if the SEC only contacted you through an informal request, then you can decline. If you have decided not to participate, our team of SEC defense lawyers at Spodek Law Group can speak with the SEC investigators on your behalf, assess your risk, and make the next steps in the process.

What Is an Enforcement Proceeding?

An SEC enforcement proceeding is a quasi-judicial proceeding to adjudicate alleged violations of federal securities laws, determine remedies, and assess penalties.

What Is SEC Investigative Testimony?

SEC investigative testimony is a formal procedure where witnesses provide testimony under oath. Unlike enforcement proceedings, investigative testimony does not take place before a judge. The investigators also do not have authority unless the SEC has issued a formal order of investigation. A formal order authorizes the SEC staff to use compulsory process in an investigation, but it does not itself provide evidence of wrongdoing. Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

Could Truthful Answers to the SEC Lead to Criminal Charges?

Yes, they can. While the SEC can bring civil and administrative enforcement actions against targets, it may refer cases to prosecutors if it uncovers evidence of potential crimes. Furthermore, SEC investigators frequently coordinate and share evidence with both the Department of Justice and other state or federal regulators.

How Do I Know if a Truthful Response Poses a Criminal Risk?

During the investigative process, SEC witnesses can rely on the Fifth Amendment to refuse to answer any question that presents a genuine risk of self-incrimination.

In investigative testimony, Fifth Amendment protection is determined question by question rather than issue by issue. To assess whether an answer presents criminal exposure, a witness must provide truthful and candid information that allows for an accurate assessment of the risk at hand.

What if the Factfinder Draws an Adverse Inference from a Valid Assertion of the Fifth Amendment?

If the factfinder draws an adverse inference from a valid assertion of the Fifth Amendment, you will be able to challenge the inference on appeal if necessary.

Why Don’t You Just Tell Me Which Questions Poses a Criminal Risk?

If you have concerns about the risk of criminal exposure, it is important to ask our attorneys directly which questions pose a criminal risk. Our attorneys will evaluate the risk of a criminal charge and will advise you accordingly.

Why Aren’t You Asking About the Risk of Criminal Prosecution Instead?

We cannot provide you with answers without all relevant facts about the potential risks of criminal prosecution. Additionally, it is critical to determine if you have the privilege to refuse to answer the question.

Clients who may have the potential for criminal exposure should consult with a white-collar criminal defense attorney.

What Will Happens if the SEC Does Not Pursue Charges?

If the SEC decides not to pursue charges, it may send you a termination notice, but it is not required to tell you that the investigation has closed. However, if you make a valid Fifth Amendment assertion, this will not necessarily inform you of any potential for charges. Once a valid Fifth Amendment assertion is made, you need to determine your potential exposure to civil enforcement charges regardless of the evidence known by the SEC.

What Happens if I Do Not Assert the Fifth Amendment When Doing So May Be Warranted?

If you waive your right to assert the Fifth Amendment then you may be at risk for a criminal prosecution for making false statements. The SEC has authority to refer potential criminal matters to prosecutors, and it is in the SEC’s best interest to avoid any conflict with prosecutors by referring criminal matters over to federal agents before they make the referral.

When faced with SEC investigative testimony, it is critical to have an SEC defense attorney who understands the risks of criminal exposure.

What should I ask a lawyer before SEC testimony?

Does the Company’s Counsel Represent Me?

Typically, no. A company’s counsel represents the organization unless the engagement also covers an employee. If company counsel makes sure you are covered under the engagement, then a company counsel will likely represent you.

What is an Upjohn Warning?

An Upjohn warning explains that corporate counsel only represents the company. This means corporate counsel only provides the company with legal advice, and any information you disclose to corporate counsel will belong to the company. The company, as holder of the privilege, can waive it and share privileged communications with the SEC.

What is an Attorney-Client Privilege?

Attorney-client privilege is a legal rule that protects the confidentiality of legal communications between a lawyer and client. The privilege applies only to communications made in confidence, so the presence of a third party outside the privilege can destroy it, and it covers only the communications made to and from the lawyer. The underlying facts that are discussed are not covered under the privilege.

What Are the Questions I Should Ask a Prospective Law Firm?

If you are considering engaging our team of SEC defense lawyers at Spodek Law Group for your needs, we want to encourage you to ask us these questions as well:

1. Do you have any potentially conflicting representations?

We invite our prospective clients to ask about their potential conflict. We will identify any other potentially conflicting representations you should be aware of.

2. Who will control the investigation strategy, the privilege, and settlement decision?

This is critical to ask. You should fully understand what role counsel has, and what control you will have over decisions such as whether to settle, disclose information, and continue to defend against the SEC investigation.

3. What is your experience with SEC testimony?

Not all SEC defense lawyers have experience with SEC testimony. While many SEC defense lawyers have experience, some have the relevant experience conducting SEC testimony.

4. What is your experience with SEC investigations?

In many cases, the SEC will rely on third-party whistleblowers to report potential securities fraud and other violations. Thus, any time the SEC serves you with a subpoena and asks for testimony, you may also be facing a parallel investigation. Experience with SEC investigations, including SEC enforcement proceedings, is a key benefit of choosing the right law firm.

5. Who is going to prepare me for my SEC testimony and who is going to attend my SEC testimony?

Depending on the law firm, this information can be important for your preparation and testimony.

6. What are your estimated fees, including additional staffing costs?

Depending on the complexity of the matter, the volume of documents may lead to the use of paralegals, a contract attorney, and a document review team. Each of these is expected to bill at a different rate than a law firm attorney.

What lawyer tactics are legitimate rather than obstruction?

What Lawyer Tactics Are Legitimate and Not Obstructive to SEC Proceedings?

SEC investigators will often rely on the cooperation of both targets and witnesses to gain insights and present a comprehensive report that will be used to recommend civil enforcement charges. Therefore, for those whom the SEC is asking to testify, the line between defending and obstructing an investigation can become blurred.

Generally, the SEC expects to conduct its investigations without unnecessary delays and will take a hard line when it perceives obstruction.

Can I Negotiate the Scope and Deadlines of My Subpoena or Interview?

Yes, you are entitled to negotiate with the SEC staff. Common negotiation tactics include negotiating the subpoena’s scope, the response deadline, and potentially rolling production.

When Should I Start Preserving Documents?

When you have a reasonably anticipated SEC inquiry, you should begin preserving all relevant documents and data. You have an affirmative duty to preserve and to avoid destroying documents or other evidence of potential securities law violations.

The U.S. Department of Justice has emphasized the importance of preserving documents and a recent decision upholding the use of the government’s tool to search for deleted data. Destroying relevant evidence can create exposure to criminal charges under a federal obstruction statute even when not directly related to the underlying securities issues.

What Should I Expect from My Defense Attorney During Testimony?

During testimony, you should not expect your attorney to tell you how to answer. Your attorney should be prepared to seek clarification or address ambiguous questions if you need. However, while your attorney can intervene to seek clarification or to explain when you are unable to answer for a legal reason, it will cross the line from legitimate defense to obstruction if they tell you to answer.

Which Defense Techniques are Legitimate?

Common legitimate defense techniques include: - Working closely with investigators to get a sense of their investigative scope and timeline, so that you can provide the requested information in a way that makes the process efficient.

• Working closely with investigators to get a sense of the information and insights that they need, so you can negotiate production limits that avoid disclosing irrelevant, and highly-privileged information.
• Preparing for testimony by reviewing pertinent documents and any previous communications.
• Identifying and asserting privileges, while remaining truthful and clear about which aspects of a transaction or other event are covered by privilege.
• Seeking clarification of ambiguous questions during investigative testimony.

What Does SEC Leadership Say About Obstructive Defense Practices?

SEC commissioners’ and SEC staff have critiqued the use of intentional delays, “witness coaching”, and baseless privilege assertions in the past. To this end, some enforcement leaders have called on the SEC to investigate the activities of defense lawyers on behalf of other defense lawyers.

Similar to with testimony, you should neither produce too little nor too much. When the production limit is too low, the SEC can interpret this as an attempt to obstruct. When you overwhelm investigators with too much irrelevant information, the SEC can interpret this as a tactic to bury the needle in the haystack.

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.