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Preparing Clients for Testimony After Receipt of SEC Target Letter
|Last Updated on: 2nd October 2023, 05:51 pm
What to Do After Getting an SEC Target Letter
Getting a target letter from the Securities and Exchange Commission (SEC) is scary news. It means the SEC thinks you may have broken securities laws. They might take legal action against you, including fines or even criminal charges. Even though a letter doesn’t guarantee charges, it means you’re a focus of their investigation. This puts you at high risk of becoming a defendant. So what should you do after getting that dreaded target letter?
Figure Out the Specific Allegations
First, read through the letter and subpoena carefully. Make sure you understand exactly what violations or activities the SEC is looking into. The letter will name specific laws and rules you allegedly broke. It may point to certain transactions, statements, or filings that raised red flags. Getting clear on what conduct is under investigation will help you start planning your response.
Hire an Experienced Securities Lawyer
Fighting securities fraud charges is complicated. You need a lawyer who knows SEC cases inside and out. Look for someone with a track record of defending SEC targets. They’ll understand the process and potential defenses. It helps if they have relationships with SEC attorneys too. That can assist in settlement talks if it comes to that. Check out the California Bar ethics rules on hiring competent counsel.
Protect Your Rights
Have your lawyer send a letter to the SEC asserting your Fifth Amendment right not to testify. This prevents accidental self-incrimination before your lawyer investigates. See the DOJ Grand Jury Manual on advising targets of their rights.
Review the Evidence
Your lawyer will want to examine any documents, emails, recordings or other evidence the SEC has. This could include financial statements, corporate records, memos, transaction docs, etc. Understanding the evidence allows them to gauge the SEC’s case strength and plan defenses. It also avoids factual mistakes in your response.
Do an Internal Investigation
It’s smart for companies to launch an internal probe after getting a target letter. Your lawyer can interview employees, dig up more documents, and find exculpatory evidence. The investigation report gives an independent view of what happened. It may reveal misconduct your company can fix. And it can help secure cooperation credit from the SEC.
Don’t Obstruct the Investigation
Once you get a target letter, be careful not to obstruct the SEC’s work. That could lead to criminal charges. For example, don’t destroy or change any relevant documents. Don’t make false statements or try to influence witnesses. Your lawyer can advise you on properly preserving evidence.
Prepare for Testimony with Your Lawyer
If you decide to testify, your lawyer will prep you thoroughly. You’ll review documents together to identify likely questioning areas. Then develop truthful narrative responses putting facts in the best light. Testifying without an experienced lawyer by your side is very risky. You want someone objecting to inappropriate questions.
Consider Cooperating
In some cases, it pays to cooperate with the SEC and provide evidence against others for leniency. Your lawyer can advise if that fits your situation. The SEC’s Enforcement Manual discusses cooperation credit in settlements.
Explore Settlement Options
Settling before litigation may be better than fighting. An experienced lawyer can negotiate with SEC attorneys for a favorable deal. That could mean sanctions or disgorgement rather than huge fines or industry bars.
Watch Out for Collateral Impacts
Beyond direct SEC penalties, target letters can trigger other consequences too. Like civil lawsuits, shareholder actions, reputation damage, or disqualification from government programs. Your lawyer can help minimize those ancillary effects.
Stay in Close Contact with Your Lawyer
Your lawyer should keep you updated on strategy and progress. And you need to be responsive and transparent with them. Keeping your lawyer informed will help get the best result.
Dealing with an SEC investigation is scary. But taking the right steps after a target letter can help control risks. Having an experienced lawyer is crucial. With good counsel, even serious cases can often end favorably. So stay confident and let your lawyer handle the SEC interactions.