How Federal Agencies Enforce Subpoenas Against Companies

How Federal Agencies Enforce Subpoenas Against Companies

When a federal agency like the SEC or DOJ needs information from a company as part of an investigation, they often issue a subpoena. But what happens if the company doesn’t want to comply? This article looks at how federal agencies enforce subpoenas against companies that don’t cooperate.

What is a subpoena?

A subpoena is a legal demand for documents, testimony, or other information relevant to an investigation. Federal agencies have the power to issue subpoenas as part of their regulatory authority. For example, the SEC can subpoena a company like Goldman Sachs if it suspects financial wrongdoing.

Subpoenas are serious business. If you get one, you are legally required to provide the requested info or face penalties. You can’t just ignore it and hope it goes away.

How do companies respond to subpoenas?

When a company gets a subpoena, it has a few options:

• Fully comply – Hand over all the requested documents and info
• Partially comply – Give some but not all of what is requested
• Negotiate – Try to narrow the scope of the subpoena
• Contest – File a petition to have the subpoena quashed
• Ignore – Refuse to respond at all

Most of the time, companies choose to fully or partially comply. They gather up the requested info and hand it over within the deadline given. This is usually the easiest approach.

But sometimes companies don’t want to cooperate. Maybe they think the subpoena is too broad or unduly burdensome. Or they worry that handing over sensitive documents could get them in trouble. When this happens, they might try negotiating or contesting the subpoena.

What happens if a company ignores a subpoena?

Ignoring a federal subpoena is a risky move. The agency can ask a federal court to enforce the subpoena and compel compliance. If the court agrees, it can impose various penalties for noncompliance:

• Civil contempt sanctions – Fines that accumulate daily until the company complies
• Jail time for executives – Top officers may be imprisoned for contempt of court
• Adverse inference – The court assumes the withheld info was harmful
• Exclusion of evidence – The company can’t present certain evidence in its defense

In other words, the courts have broad powers to force compliance with subpoenas. Fines can quickly become massive – up to $50,000 per day. And executives really can be thrown in jail for stonewalling investigators. So it’s incredibly risky not to respond.

What defenses can companies use?

If a company wants to fight a subpoena, it has a few legal defenses it can use:

• Attorney-client privilege – Shields confidential attorney communications
• Work product doctrine – Protects materials prepared for litigation
• Undue burden – Argue the subpoena is unreasonably broad/costly to comply with
• Lack of relevance – Claim the requested info isn’t relevant to the investigation

To successfully assert these defenses, the company has to petition the court to quash or modify the subpoena. This starts a lengthy legal battle with the agency issuing the subpoena. The company has to convince the judge that its arguments have merit. This can be tough since agencies tend to craft subpoenas carefully.

What are the steps in enforcing a subpoena?

If a company refuses to comply with a subpoena, the agency has to go through several steps to enforce it:

1. Issue subpoena and wait for response
2. Follow up with company on any delays or noncompliance
3. Negotiate any disputes over scope of subpoena
4. File petition in federal court asking to enforce subpoena
5. Litigate any defenses raised by the company
6. Court rules on petition and may order compliance
7. If still no compliance, court imposes sanctions

This process can take months or even years to play out. The agency has to patiently keep pursuing enforcement through the legal system. Companies often try to delay and run out the clock during investigations.

Real-world examples

Here are some real-world examples of federal agencies enforcing subpoenas on uncooperative companies:

FTC vs. LabMD

The FTC subpoenaed the medical testing firm LabMD for documents in 2013. When LabMD refused, the FTC asked a federal court to enforce the subpoena. After years of litigation, the court ordered full compliance in 2016 and imposed a $1 million contempt sanction.

SEC vs. Mark Cuban

The SEC investigated Mark Cuban for insider trading in 2008. Cuban ignored subpoenas requesting his deposition and documents. The SEC asked a court to compel compliance. Cuban settled the case before the court could rule.

DOJ vs. Megaupload

A 2012 indictment accused Megaupload of running a criminal enterprise. The DOJ subpoenaed Megaupload’s assets from banks and credit card companies. When they refused, the DOJ asked a court to compel compliance to seize the assets.

Takeaways

The key takeaways about federal agencies enforcing subpoenas on companies:

• Ignoring a subpoena carries severe penalties like contempt sanctions
• Courts have broad powers to compel compliance with subpoenas
• Companies can raise defenses like undue burden but often lose
• Enforcement involves lengthy legal battles between agencies and firms
• At the end of the day, companies face huge risks not complying

So while companies can sometimes negotiate or contest federal subpoenas, outright ignoring them is extremely perilous. The safer bet is usually to comply upfront or quickly work out compromises with the investigating agency.