SEC Subpoena Duces Tecum: What Records Must I Produce??

Generally, recipients of an SEC administrative subpoena are required to produce nonprivileged materials that fall within the scope of the subpoena’s request (i.e., are “responsive”) and that are in their “possession, custody, or control.” Recipients will generally need to contact the SEC to negotiate extensions to the time for production and seek to narrow the scope of the materials the subpoena demands. All such extensions and modifications to the scope of the subpoena should be confirmed in writing.

Receipt of an SEC administrative subpoena ordinarily makes a recipient’s preservation of potentially responsive records “plainly necessary,” even before a formal document-retention letter is issued.

The SEC routinely demands production of native files, metadata, and Bates-numbered records under its Data Delivery Standards, which are incorporated into the subpoena’s production specifications. Responsive spreadsheets must be produced in native format, because the SEC’s Data Delivery Standards require that an MS Excel file be produced in MS Excel format rather than as an image of a spreadsheet.

If an SEC staff member identifies records during initial production that could be relevant to the SEC’s investigation, the staff member can issue a follow-up subpoena (or an “additional subpoena,” as the SEC calls it) demanding those records.

The deduplication of responsive records removes duplicate copies of the same file from the data set; metadata associated with the non-duplicate file will show each of the custodians associated with the file. “Global deduplication” does not show whether multiple custodians had possession of the same record, but this is often more efficient to perform than custodian-specific deduplication.

Is an SEC subpoena different from a Rule 45 subpoena?

A “subpoena duces tecum” is a type of subpoena that commands a recipient to produce specific records. A “subpoena ad testificandum,” on the other hand, requires a recipient to appear at a specific date and time at a specific location in order to give sworn testimony. While these are two different types of subpoenas, a single subpoena can serve both of these purposes.

Recipients of federal subpoenas are often familiar with Rule 45 of the Federal Rules of Civil Procedure. Rule 45 allows parties to issue subpoenas to individuals and entities that are not yet parties to a litigation. Rule 45 subpoenas issue from the court where an action is pending, so they can be used only after a case has been filed. Rule 45 requires recipients to raise objections to a subpoena within 14 days of receipt, but this does not necessarily apply to administrative subpoenas issued by the SEC. Unless specifically stated otherwise in the subpoena itself, an SEC administrative subpoena is issued by the agency pursuant to its investigatory authority.

The SEC derives its authority to issue subpoenas from federal securities statutes. These include the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other pertinent statutes and regulations. In many cases, an SEC administrative subpoena is the result of the Commission issuing a “formal order.” A formal order authorizes the use of a compulsory process to obtain information from targets and witnesses in securities fraud investigations. However, issuance of a formal order does not necessarily mean that the target of an investigation has committed any misconduct or law violations.

Generally, the mere receipt of an SEC subpoena does not mean that you are the target of an SEC investigation. A subpoena is an information-gathering tool that the SEC staff use to pursue their investigation, and the SEC may issue subpoenas to a broad range of individuals and entities. Rule 45 subpoenas apply in federal civil litigation and can be used to obtain documents, electronically stored information, other tangible things, a premises inspection, or testimony. Rule 45 subpoenas can also be issued to individuals and entities who have not yet been sued in federal court.

Can I object before producing records to the SEC?

Similar to judicial subpoenas, administrative subpoenas issued by the SEC must meet certain requirements in order to be valid and enforceable. For example, an SEC administrative subpoena is generally valid only if: (i) it is issued under appropriate lawful authority; (ii) it is properly served upon the recipient; (iii) the demand for compliance is clear and sufficiently definite; and (iv) the information requested is relevant to a legitimate investigation.

If an SEC administrative subpoena does not meet these requirements, then the SEC staff will not be able to use a federal court order to compel a recipient to comply. Unlike subpoenas issued by federal courts, administrative subpoenas are not self-enforcing. If a recipient declines to comply, the SEC cannot use the United States Marshals Service to enforce the subpoena; rather, the SEC must go to federal court to seek an enforcement order. When presenting an enforcement case to the federal court, the SEC staff must demonstrate that the subpoena is valid and enforceable. As a result, federal courts can (and sometimes do) deny requests for enforcement where SEC administrative subpoenas demand too much. As a result, when facing an SEC subpoena, it may make sense to send objections to the SEC staff. These objections can include:

• Overbreadth objections: SEC administrative subpoenas cannot demand too much. If an SEC subpoena demands too much information, then the SEC staff will not be able to use an enforcement order to compel compliance.
• Burden objections: Demands for records that are unreasonably burdensome for the recipient to collect and produce may not be enforceable. To successfully object on this ground, recipients must demonstrate that the records are in fact too difficult and costly to produce. These demands can include: (i) very large volumes of records; (ii) records that are very expensive to collect and produce; (iii) records that are not kept in an electronic format; (iv) records that must be recovered from obsolete systems; and (v) records that are in an archival format that requires special restoration efforts.
• Unreasonable timeframes for production: Administrative subpoenas must give recipients a reasonable amount of time to gather and produce the records demanded.
• Privilege objections: If the records called for in a subpoena are privileged, then the SEC cannot use an enforcement order to compel their production.

While recipients may have grounds to object to SEC administrative subpoenas, it is usually not possible to litigate these objections effectively without the government’s cooperation. Ordinarily, recipients will seek to litigate their subpoena defenses (if any exist) in connection with an SEC enforcement proceeding under Section 21(c) of the Securities Exchange Act.

Sending objections to the SEC does not mean that you are not required to comply with an SEC administrative subpoena. Unless the SEC staff expressly waives the subpoena’s stated deadline, sending objections does not suspend the SEC administrative subpoena’s compliance deadline.

Which paper and electronic records are within my control?

What records are within a recipient’s possession, custody, or control depends on the specific facts at issue. However, generally speaking, records that are within a recipient’s possession, custody, or control include not only the records actually in the recipient’s possession, but also records the recipient can obtain from third parties such as its agents, accountants, bookkeepers, software vendors, cloud computing providers, and other sources.

The notion of “control” also extends to records stored on personal devices and accounts (i.e., smartphones, personal email accounts, cloud-based applications, and social media accounts) where these records are responsive to the subpoena.

A “subpoena duces tecum” demands a recipient produce existing records. It does not demand that a recipient draft explanations, summaries, or narrative responses. When preparing to comply with an SEC subpoena, you must carefully read the subpoena and determine whether you need to respond by providing documents, data, or both. This information is extremely important, as producing an electronic format in response to a “native” data request (and vice versa) could potentially be viewed as noncompliant and it can be difficult to know for sure what format the SEC expects to receive.

When preparing to comply with an SEC subpoena, you will need to conduct a reasonable search for all responsive records. This involves identifying all custodians, sources, records-retention systems, and other systems and archives that may contain potentially responsive records. You must also determine the applicable date range. If you need help narrowing the scope of your subpoena response or if you are unsure how to go about documenting your search, we can handle this for you.

In many cases, the best way to avoid enforcement proceeding in federal court will be to document your search. To establish that a recipient has conducted a reasonable search for all responsive records, recipients must be able to demonstrate how they narrowed down the universe of records to a manageable data set. This is a key issue when recipients engage in a “voluntary response” to an SEC administrative subpoena. If you do not want the SEC to have any doubts about your search’s completeness, we can help you document your search.

If records are deleted, this does not necessarily protect the record from production. Deleted records that are still available from backups, other archived sources, or other controlled sources remain responsive to the subpoena. Similarly, a records-retention policy is not a “get out of jail free” card when records are produced. Even if a document is no longer in your possession or control because it is subject to your company’s records retention policy, this will not protect it from the subpoena.

Finally, encryption is not a “get out of jail free” card for records that are subject to an SEC administrative subpoena. If the recipient possesses the necessary decryption credentials, then the recipient must produce the records in decrypted, readable form in accordance with the SEC’s Data Delivery Standards.

Can privilege or the Fifth Amendment protect records that are subject to an SEC subpoena?

Recipients of SEC administrative subpoenas can assert several privileges to avoid production. These include the attorney-client privilege and the work-product privilege. While these privileges are broadly similar to those available in civil litigation, certain procedural rules apply in SEC proceedings.

As with judicial subpoenas, SEC administrative subpoenas also can be subject to privilege protections. If the records demanded in an SEC administrative subpoena are protected by the attorney-client privilege or the work-product privilege, the SEC staff will not be able to use an enforcement order to compel their production.

An attorney-client privilege protects a confidential communication with a client’s attorney made for the purpose of seeking or providing legal advice. In contrast, an attorney work-product privilege protects materials prepared in anticipation of litigation (i.e., during “reasonably anticipated” litigation). While these protections can also be asserted before a grand jury subpoena, the attorney-client privilege can also apply before the Grand Jury.

How do SEC privilege rules differ from those that apply in other contexts?

The SEC imposes unique (and difficult) procedural requirements on recipients of administrative subpoenas. While recipients of judicial subpoenas need to produce a privilege log in order to avoid prosecution for contempt, recipients of SEC administrative subpoenas must comply with the privilege instructions attached to the subpoena itself.

Specifically, under the instructions attached to the SEC’s subpoena, a recipient that is unable to produce one or more records claimed to be subject to the attorney-client privilege or the work-product privilege must provide a “privilege schedule.” The privilege schedule must list each record with respect to which the recipient is withholding production and must state the privilege asserted and any additional information that “might enable the SEC staff to reasonably determine whether the privilege is applicable.”

Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

Do protections under the Fifth Amendment protect records that are subject to an SEC subpoena?

Generally speaking, the Fifth Amendment does not protect records created voluntarily. However, this protection is generally not available to corporate custodians who are subpoenaed in their capacity as the custodian of a company’s business records. A custodian who refuses to produce a company’s business records can personally be held in contempt, although the government may not use the individual’s act of production as evidence against them.

Finally, the “foregone-conclusion” doctrine can potentially beat the “act of production” privilege. The doctrine states that if the government can prove (or at least “establish” through circumstantial evidence) the facts that the records, custodian, and source of the records were already known, then production is no longer testimonial. As a result, the “act of production” privilege will no longer apply.

Will the SEC keep my subpoena response confidential?

Under SEC Rule 203.2, in the absence of a specific statutory exemption or provision, formal investigations “shall be nonpublic,” and any information the SEC staff obtains during a formal investigation “shall be subject to confidentiality protections.” As a result, in most cases, an SEC administrative subpoena, any responsive records, and any testimony compelled pursuant to the subpoena will remain nonpublic. However, the fact that the SEC’s investigation is currently nonpublic does not necessarily mean that the records you produce in response to the SEC’s investigation will remain nonpublic for the duration of the investigation or beyond.

The SEC is authorized to share investigative information with criminal and regulatory authorities. Under Rule 203.2, the SEC may share information with (i) agencies, offices, and staff of the United States; (ii) the heads of other administrative agencies of the United States; (iii) the United States Senate, House of Representatives, and other congressmen (when the congressional body requests information about a specific individual or company); (iv) a state securities authority; (v) an officer of a self-regulatory organization; (vi) a judge, magistrate, or other official presiding over a court; (vii) a person designated in a formal order of the Commission (e.g., as an expert); and (viii) any other person or authority when the SEC staff is seeking to obtain an order or other remedy.

In addition to disclosing investigative information with the authorities listed above, information obtained through an SEC administrative subpoena may later appear publicly in an SEC administrative proceeding or SEC enforcement complaint.

Generally speaking, the investigative confidentiality protections conferred by Rule 203.2 are not presumed to establish an attorney-client privilege or work-product privilege in response to an SEC administrative subpoena. Conversely, the investigation confidentiality provisions of Rule 203.2 do not obligate subpoena recipients to maintain the confidentiality of their subpoena responses or investigations. The confidentiality obligations imposed by Rule 203.2 apply only to the government, i.e., to “ la disclosing agency or the staff.”

Can I avoid disclosing business information in response to an SEC subpoena?

Along with Rule 203.2, SEC Rule 83 allows any person who submits records to the SEC (including subpoena recipients) to request “confidential treatment” for those records. Specifically, Rule 83 allows the SEC to maintain information submitted by a “voluntary response” as nonpublic.

Notably, however, the SEC’s FOIA guidebook clarifies that while “Rule 83 requests to maintain information submitted in a voluntary response to the SEC as nonpublic are treated by the SEC with substantial deference,” the filing of a Rule 83 request “will not, of itself, establish that the information is exempt from public disclosure.”

What must I preserve after receiving an SEC subpoena?

When necessary, preservation of responsive records requires recipients to suspend their ordinary practices of document deletion or disposal that might affect records pertaining to the subject matter of the SEC’s investigation. Preservation will often include: (i) records within a recipient’s possession, custody, or control; (ii) records in any cloud-based software or storage application; (iii) records on any personal devices; (iv) records from messaging applications (e.g., WhatsApp, Signal, Telegram); and, (v) records held within system backups and other media.

Does deletion of records before receipt of an SEC subpoena constitute obstruction of justice?

The criminal statute prohibiting obstruction of justice, 18 U.S.C. § 1519, imposes criminal liability for “knowingly and willfully destroying, altering, or otherwise concealing” a record with the intent to “impair the object, integrity, or availability” of that record in relation to a “federal matter, including any investigation or proceeding.” Section 1519’s language has recently been upheld by the United States Supreme Court, and it includes “the present, or a pending matter of any other kind which has not yet commenced but is or could be the object of investigation or a proceeding in relation to which it could possibly end up as an evidentiary issue.”

Generally, routine deletion of records before receipt of an SEC subpoena is not automatically a criminal violation of Section 1519. Such a violation will require specific intent to obstruct a federal investigation, proceeding, or government matter. An unprivileged witness may not be criminalized under 18 U.S.C. § 1001 for refusing to present a materially false statement to an SEC staff member.

Can false completeness certifications for an SEC subpoena lead to criminal prosecution?

The criminal statute prohibiting materially false statements to federal investigators, 18 U.S.C. § 1001, criminalizes the act of “falsely and fraudulently stating, or representing as true” any material fact to the SEC. If a SEC subpoena recipient is required to present a certification that his or her response to the subpoena is complete and correct, any materially false statement on such a certification could lead to criminal prosecution under 18 U.S.C. § 1001.

Individuals who are convicted under 18 U.S.C. § 1519 face up to 20 years of federal imprisonment. Individuals who are convicted under 18 U.S.C. § 1001 generally face a maximum of five years of federal imprisonment.

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.