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Preparing Clients for Testimony After Receipt of SEC Target Letter
Preparing Clients for Testimony After Receipt of SEC Target Letter
Receiving a target letter from the SEC can be an intimidating and stressful experience for any individual or company. A target letter means that the SEC has identified you as a target in an investigation into potential securities law violations. This means you could face civil or criminal charges. Understandably, clients are often anxious and have many questions after getting a target letter. As their attorney, it’s crucial that you properly prepare them for giving testimony to the SEC. This article provides tips and best practices for getting your clients ready for their testimony.
What to Do After Receiving the Letter
The first step is to carefully review the target letter and any subpoenas. Make sure you understand exactly what laws the SEC believes were violated or what activities they are investigating1.
The letter should provide some indication of their areas of interest and concern. Thoroughly examine any requests for documents or records. Identify any deadlines for responding. Your client will be anxious for information, so be prepared to explain the meaning and implications of the letter.
Next, get ahold of the records requested by the SEC, including emails, financial statements, memos, or other documents. Review these records in depth yourself first. Make sure you understand what information they contain related to the investigation. That will allow you to better prepare your client to discuss the relevant issues.
Educating the Client
Once you comprehend the scope of the investigation and records requested, educate your client. Explain the SEC enforcement process and what to expect. Go over the violations they mentioned in the letter. Describe the typical timeline and key milestones. Outline the format for testimony and who will likely be present. Knowing what to expect can reduce anxiety.
Discuss the records you reviewed and where they fit into the investigation. Identify any problem areas you noticed that could require explanation. Your client may need to clarify or contextualize parts of the record. Tell them to be ready to address these portions. For example, a particular email exchange or financial transaction.
If your client asks about potential penalties, be upfront. Explain possible civil fines or criminal charges. But don’t alarm them unnecessarily before their testimony. Focus on being prepared and truthful.
The Do’s and Don’ts of Testimony
Make sure your client understands the dos and don’ts of giving testimony:
DO tell the truth. Lying will only cause bigger problems down the road.
DO NOT volunteer information unrelated to the questions asked. Only answer the specific questions.
DO say you don’t recall if you honestly don’t remember something. Don’t speculate.
DO NOT try to mislead the SEC. They will see through it.
DO correct any misunderstandings about facts. Don’t let assumptions go unchallenged.
DO consult with counsel if you don’t understand a question. Ask for clarification.
DO NOT answer hypothetical questions. Stick to facts.
DO review key documents again before testifying. Refresh your recollection.
DO bring relevant records to the testimony to refer to.
DO NOT get defensive or antagonistic. Stay calm and professional.
Make sure your client feels ready to confidently discuss the key issues the SEC is interested in. They should understand the relevant records inside and out. You don’t want any surprises arising during testimony.
Practicing Answering Questions
Prior to the testimony date, have your client practice answering questions. Pick areas you identified from the target letter and records that will likely come up. Ask sample questions similar to what the SEC may ask. See how your client responds. Make sure their answers are clear, truthful, and focused on just the question asked.
Listen for problematic or confusing responses. Redirect your client to respond in a better way if needed. Practicing together will make them much more comfortable handling the real SEC questioning. It also allows you to provide feedback to fine tune their responses.
Anticipating Trick Questions
In addition to factual questions, the SEC may try some tactics to trip up your client. For example, confront them with an email and take a harsh tone implying misconduct. Get your client ready to stay calm and address these types of accusatory questions professionally.
The SEC may also ask confusing questions using legal jargon or terms your client is unfamiliar with. Prepare an answer reminding them to ask for clarification if they don’t understand. Practicing these scenarios will prevent your client from getting flustered.
Special Concerns for Company Executives
If your client is a company executive, there are additional considerations. Remind them that they represent the company. Their testimony could have significant implications for the business. So remaining professional and truthful is essential.
Executives should also review any prior public statements related to the investigation. For example, comments made on earnings calls. Make sure their testimony doesn’t contradict these public remarks or company positions. Consistency is key.
Lastly, anticipate questions about what other executives knew. Discuss with your client how to respond appropriately without speculating.
Reviewing the Testimony Format
Before the testimony date, explain the format and procedures to your client:
They will likely testify under oath in front of SEC attorneys.
A court reporter will be present to transcribe the full record.
You may attend but cannot speak up during questioning.
Breaks are allowed if needed.
The SEC may present evidence like emails or financial records.
The client can request bathroom breaks or speak with you outside.
Understanding the logistics ahead of time prevents nervous surprises. It also sets expectations that you are there to consult outside of the questioning.
Following Up After Testimony
After your client has given testimony, follow up with them to discuss how it went. Ask if they felt prepared or got flustered at any point. Identify areas for improvement for future interactions with the SEC.