Do I Need a Lawyer for an SEC Subpoena??

You’ve gotten an SEC subpoena (demanding documents, testimony or both, often also delivered to the company). You find yourself under a federal regulatory microscope, and the more you know about how SEC investigations work, the more effectively you can respond and prepare a defense. These tips might help reduce civil or criminal exposure. It’s astonishing how seemingly small mistakes can come back to haunt you later.

Yes, you need a lawyer. Because when your subpoena arrives, there may already be a DOJ investigation going on, and you need to take the criminal risks into account for every answer. Get a lawyer who understands both SEC enforcement and criminal defense, not a deal lawyer. The SEC can’t file criminal charges, but it can and does refer potential fraud cases to the Department of Justice. Parallel SEC and DOJ investigations are fairly common, especially when the case involves potential fraud. Depending on the case and your position, you could be a potential target, and representations you make under oath to the SEC staff could come back to haunt you in a criminal case later. Still, if the DOJ comes knocking, you’ll need a lawyer who’s used to dealing with prosecutors in white-collar crime matters. Choosing a lawyer who doesn’t know white collar crime is foolish, but not getting one is a major mistake.

Ask for a copy of the SEC’s Order of Investigation. They’ll usually provide it if you keep it confidential within your defense team. It doesn’t include a great deal of detail, however. The Order authorizes the SEC to issue subpoenas and to take testimony under oath. By reading the Order in light of what you already know about the underlying matter, you’ll get a pretty good idea of where the investigation is headed.

Request Additional Time to Gather the Records

It’s important to understand that an SEC subpoena is not self-enforcing. The SEC has to go to federal court to enforce their subpoena. The SEC routinely gives people extensions of time to comply, and submitting documents on a rolling basis in batches is viewed as showing good faith. Typically, the SEC will agree to a ”rolling production.” You won’t have to drop a large box of documents on their doorstep all at once. Instead, you’ll turn over the documents in installments as you locate them. Both sides are happy to avoid the time and expense of an SEC subpoena enforcement proceeding in federal court over the issue of how quickly the documents must be delivered. Your responsibility is, of course, to comply with the SEC’s subpoena in a timely manner. At the same time, no one is required to do the impossible. Practically speaking, this means your lawyer should get on the phone with the SEC staff early on and request additional time to gather the records. Your lawyer should offer to make them available in batches.

Be prepared to negotiate the format in which to deliver documents. The SEC frequently issues subpoenas that come with a very detailed set of technical specifications. The problem with those specs is that complying can be enormously expensive for small firms. This is a topic for discussion with your counsel. Work out a simpler and less expensive format with the SEC staff. The SEC frequently numbers their document requests and wants documents broken out and organized by request number.

You may be presented with a tolling agreement which essentially freezes the statute of limitations. The SEC has differing numbers of years in which to file suit, depending on the particular statute. That may seem arcane, but it can have enormous implications for your case. The circumstances of your case may make it wise to sign a tolling agreement, especially if it’s critical that you avoid a publicly-filed SEC lawsuit. In some cases your counsel may be able to convince the SEC not to file at all. In any event, be aware of the pluses and minuses before you sign.

The SEC often asks your counsel to agree to accept future subpoenas by email. This can be efficient and will save you embarrassment - usually it’s a good idea to accept the SEC’s subpoena in this way - but be aware that it could mean you’re waiving various jurisdictional defenses if you happen to be a foreigner outside the United States. For example, if you’re a non-citizen living outside the U.S. and you allow a U.S. lawyer to accept service, you could be waiving various jurisdictional arguments against the SEC’s power to subpoena you. This is something to discuss with your counsel beforehand.

Your Privilege Against Self-incrimination

If you’re getting a subpoena for the first time, it will likely include a demand for both documents and your testimony. The SEC will want you to appear and answer questions under oath. It’s important to prepare as though you may have to take the Fifth unless you’re absolutely sure there is no criminal risk involved. Don’t forget your privilege against self-incrimination in civil SEC matters. This is a right that applies whenever a truthful answer could lead to incrimination, and as the Supreme Court has held, it applies regardless of whether the person is innocent or not. This applies both to civil and administrative proceedings before the SEC. Your truthful answer to one question could provide a link in the chain toward a criminal case.

Part of your privilege includes the so-called Act of Production Doctrine. In essence, you have the right to refuse to turn over documents if the actual act of production could incriminate you. If the subpoena is directed at your company, however, the Act of Production Doctrine doesn’t protect you. You’ll have to produce company documents even if it’s damaging.

Let’s say you decide to invoke the Fifth during your deposition or trial testimony in a civil lawsuit brought by the SEC. The jury may infer that you took the Fifth because the answer would be damaging. That negative inference can be devastating in a civil or administrative proceeding, so don’t make the decision lightly. Instead, make sure you discuss the pros and cons in detail with your counsel.

Prepare carefully for your testimony. You might be surprised at how poorly even the most seasoned executive can do in an SEC investigative deposition. SEC lawyers aren’t lazy bureaucrats. They’re well trained, and they spend months studying the case before they ask you questions. Don’t underestimate them. Make sure you prepare with qualified counsel.

Testimony preparation isn’t just about the facts of the underlying matter. It’s also about listening carefully to the questions and answering carefully. You also need to practice with your counsel. Don’t answer more than the question calls for. Don’t guess and if you are unsure, admit it. The SEC will usually first ask questions at length to pin you down before introducing any documents, and then they’ll show documents. Suppose the SEC asks whether you spoke to Mr. Y and told him something in particular during the blackout period. You’re taking a big risk if you simply say, “No.” Then later if the SEC shows you a document that contradicts what you’ve said, it will look like you testified falsely. Just remember, human memory is fallible. Keep in mind there are two dangers in SEC testimony: (1) testifying falsely, and (2) admitting facts that could be damaging. Careful preparation about both the substance of the testimony and the manner of giving it is critical.

The questions are a gold mine of insight into the direction of the investigation. Even if you “took the Fifth,” you do have to invoke the privilege on a question-by-question basis. The SEC will ask you extremely pointed questions that they will later try to use to create adverse inferences against you.

Above all, understand that the subpoena is real and needs to be taken seriously. Trying to blow it off or responding in a cavalier fashion is an invitation to disaster. If you don’t have a valid legal privilege against complying with the subpoena, you must comply. Not complying in bad faith can result in a host of sanctions or in some cases, even charges of obstruction of justice. The tips above can help reduce your risk of harm and gain you more time to figure out your strategy, but they are not a substitute for good-faith compliance.

When producing documents to the SEC, make sure to Bates stamp (number) every single page. Always make sure that lawyers have pulled out any privileged documents before sending anything out to the government. Always provide the government with a brief privilege log of your privileged documents. Numbering all the pages will allow you to control and track what, exactly, you produced and when you produced it.

If you’re a CEO or other executive, SEC subpoenas can be an invitation to disaster unless you’re properly prepared. This is just a sample of the problems you could face. Your counsel should prepare with you in detail and help you develop a detailed plan. Make sure your counsel is experienced with white collar criminal defense matters. As with any white collar matter, no article can substitute for a detailed strategy developed with an experienced white collar lawyer who’s familiar with how the SEC operates.