21 Jan 24

SEC Subpoenas in Federal Securities Fraud Cases: Tips for Responding

| by

Last Updated on: 21st January 2024, 10:46 pm

SEC Subpoenas in Federal Securities Fraud Cases: Tips for Responding

Dealing with an SEC subpoena can be intimidating. The SEC typically issues subpoenas when it suspects violations of federal securities laws, like insider trading or accounting fraud. If you receive an SEC subpoena, it’s important to take it seriously and respond appropriately. Here are some tips:

Understand the Context

The SEC issues two main types of subpoenas in securities fraud investigations:

  • Formal order subpoenas – these subpoenas allow the SEC to compel testimony and production of documents. They indicate the SEC has evidence of possible securities law violations.
  • Informal request letters – these request voluntary cooperation with an investigation. Though “voluntary,” it’s usually wise to comply.

So if you receive a formal subpoena, the SEC likely has reason to believe violations have occurred. This means you should engage experienced securities counsel immediately.

Notify Relevant Parties

Carefully review the subpoena to understand what information is sought. Then notify other relevant parties about the investigation – for example, your board of directors, outside auditors, or legal department.You may need to retain additional counsel to represent other parties named in the subpoena besides yourself. Move quickly, as some deadlines for document production can be as short as 10 days or less.

Gather Responsive Documents

The subpoena will tell you what documents are sought with requests like “all communications between yourself and Bob Smith regarding 2Q earnings.”You must conduct a thorough search for responsive documents. This includes emails, paper files, text messages, voicemails, and other documentation. Expect to search personal accounts also – not just corporate.Be sure to preserve all relevant documents and prevent them from being destroyed. Doing otherwise can result in serious obstruction charges.

Carefully Review Documents for Privilege

Engage your legal counsel to determine if any documents or testimony are protected by attorney-client privilege or work product protections. This analysis protects sensitive documents from disclosure.Provide logs detailing all documents withheld on the basis of privilege to avoid charges of noncompliance. Your lawyers can negotiate with SEC counsel over any privilege disagreements.

Prepare Witnesses for Testimony

If the subpoena requires you or other parties to testify, carefully prepare with counsel in advance. Informal interviews typically precede formal investigative testimony.Review any prior statements by witnesses to ensure consistency. Avoid over-preparation – it can seem like obstruction. The key is being cooperative while protecting sensitive information.

Verify Compliance

Keep detailed records demonstrating your efforts to comply with the subpoena – including places searched, search terms used, parties contacted, and steps taken.Confirm with SEC staff that you have fully complied with all aspects of the subpoena. Follow up in writing with details about your compliance efforts.

Consider a Wells Submission

If the investigation ends with the SEC recommending charges, you will have a chance to submit a Wells submission. This allows you to make your case directly to the SEC on why charges aren’t merited before they decide to file a case.Retaining counsel with specific Wells submission experience is highly recommended, as most cases don’t advance if the Wells submission makes a convincing case.

Cooperate…to a Point

The SEC expects full cooperation with subpoenas. But cooperation does not mean providing unnecessary information or allowing unlimited access.Be responsive but retain experienced counsel to ensure you don’t waive privileges or overdisclose. Consider negotiating the scope of inquiry if it becomes too broad or burdensome.

Consequences of Noncompliance

Failing to comply with an SEC subpoena can lead to civil or criminal charges for contempt, obstruction, or perjury. Fines and jail time are possible.The SEC can also refer noncompliance to the DOJ for criminal prosecution. Or they may ask a court to compel compliance.In summary, SEC subpoenas should never be ignored. Engage securities counsel with SEC experience immediately to guide your response. Handled correctly, many SEC investigations conclude without charges being filed.