Should I Cooperate With the SEC?

Should I Cooperate With the SEC?

Welcome to Spodek Law Group. Our goal is to give you real information about SEC cooperation – not the sanitized version you find on other websites. Because the question everyone asks – “should I cooperate?” – is the wrong question. The right question is: do you know whats actually happening while your deciding?

Heres the thing nobody tells you. When the SEC contacts you, your first instinct is to cooperate. Your innocent, right? You have nothing to hide. Cooperation seems like the obvious choice. But that instinct – the one telling you to be helpful and transparent – might be the thing that destroys you. And the worst part? By the time you realize it, its to late.

Todd Spodek has handled hundreds of these cases over the years. And the pattern is always the same. Smart, successful people who thought cooperation was the safe path. Who believed that transparency would protect them. Who signed papers and answered questions and produced documents – all while a criminal investigation they didnt know about was running in the background.

The Question Nobody Answers Honestly

Lets be direct about something. Every lawyer who writes about SEC cooperation gives you the same advice. “Cooperation can reduce penalties.” “The SEC looks favorably on cooperation.” “Early cooperation demonstrates good faith.” All true. All completely useless.

Because heres what they dont tell you. Cooperation with the SEC might mean your simultaneously cooperating with a criminal investigation at the Department of Justice. And nobody has to tell you thats happening.

Think about that for a second. Your sitting in a room answering questions from SEC staff. Your being helpful. Your being transparent. And everything your saying is being shared with federal prosecutors who are building a criminal case against you. The SEC knows this. The DOJ knows this. The only person who dosent know? You.

This isnt speculation. This is how the system actualy works. And once you understand it, the question of wheather to cooperate becomes alot more complicated.

What Form 1662 Says vs What It Means

Before you testify to the SEC, you sign something called Form 1662. Its a routine document. A formality. The SEC staff hands it to you, you sign it, and the testimony begins.

But Form 1662 contains language that should terrify you. It says that information you provide “may be used against you in any federal, state, local, or foreign criminal proceeding.” It says that the SEC “may share this information with other governmental authorities.”

Read that again.

“May be used against you in any criminal proceeding.” “May share this information with other governmental authorities.”

Heres the kicker. Form 1662 tells you information CAN be shared. It dosent tell you information IS being shared. It dosent tell you if the DOJ is already investigating you. It dosent tell you if your civil testimony is becoming criminal evidence in real time.

The word “may” does alot of heavy lifting in that document. It creates the illusion of hypothetical risk. But in many cases, the sharing isnt hypothetical at all. Its already happening. The criminal investigation is already running. Your testimony is already being reviewed by prosecutors.

And the SEC has absolutly no obligation to tell you any of this.

The Parallel Investigation You Dont Know About

OK so lets talk about how this actualy works. The SEC opens an investigation. Standard stuff. Document requests, witness interviews, the usual enforcement process. You hire a lawyer, you respond to subpoenas, you prepare for testimony.

What you dont know is that the SEC has already made an Access Request to the DOJ. This is a formal mechanism that allows the SEC to share investigative materials with criminal prosecutors. Once that request is approved, everything changes.

Your documents? The DOJ has them. Your testimony? The DOJ is reviewing it. Your cooperation? Its building the criminal case against you.

Heres the uncomfortable truth. You cant ask if theres a parallel criminal investigation. Well, you can ask. But the SEC wont tell you. They have no legal obligation to disclose DOJ involvement. And they almost never do.

So your making the most important decision of your life – wheather to testify, what to say, how much to cooperate – without knowing if your words are being used to put you in prison.

At Spodek Law Group, we see this pattern constantly. Clients who cooperated fully, who answered every question honestly, who believed they were resolving a civil matter. Then the indictment comes. And everything they said becomes evidence at there criminal trial.

Why 27% Changes Everything

Heres a number that should keep you up at night. Approximately 27% of SEC enforcement actions involve parallel criminal investigations or referrals to criminal authorities.

Twenty-seven percent.

That means roughly one in four SEC cases has criminal implications. Not potential criminal implications. Actual criminal investigations running alongside the civil matter.

Now think about what that means for the cooperation question. Your not just deciding wheather to cooperate with a civil regulator. Your potentially deciding wheather to provide evidence for your own criminal prosecution.

And it gets worse. The conviction rate for federal securities fraud is over 93%. Once the DOJ brings charges, they almost always win. The federal system is designed that way. They dont bring cases they cant win.

So the math looks like this. One in four chance of criminal exposure. Ninety-three percent conviction rate if charges come. And your testimony – the cooperation you thought was helping you – becomes the governments primary evidence.

Thats the reality nobody talks about.

Consider Martha Stewart. Most people think she went to prison for insider trading. She didnt. The insider trading charges were actually dropped. What she went to prison for was lying to federal investigators during the investigation. Her cooperation – her attempt to explain and defend herself – became the crime itself. She served five months in federal prison not for what she did with the stock, but for what she said during the investigation.

This pattern repeats constantly. Michael Flynn, former National Security Advisor, pleaded guilty to lying to federal agents. The underlying conduct? Never charged. The cover-up became the crime. And it started with cooperation.

When people ask us about SEC cooperation, we always bring up these cases. Not because your situation is identical. But because they demonstrate a fundamental truth about federal investigations. The investigation itself can become more dangerous than the underlying conduct. And cooperation without proper guidance is how that happens.

The Timeline Problem

Theres another aspect of SEC cooperation that nobody discusses. The timeline.

SEC investigations move slowly. Painfully slowly. An average enforcement action takes two to four years from the initial inquiry to resolution. During that entire time, your in limbo. Your career is on hold. Your reputation is in question. Your wondering what happens next.

And during that entire period, you have no idea wheather a criminal investigation is running alongside.

Think about what that means practically. Your cooperating with the SEC for two years. Producing documents. Sitting for testimony. Answering supplemental questions. And the entire time, prosecutors at the DOJ might be reviewing everything you provide. Building there case. Waiting.

By the time charges come – if they come – the statute of limitations on most securities offenses is five years. The DOJ has time. They can wait. They can watch you cooperate with the SEC. They can use everything you give them.

This timeline creates an impossible situation. You cant just “wait and see” because the investigation drags on for years. You cant cooperate blindly because of the parallel investigation risk. You cant refuse entirely because of adverse inference in the civil case.

Every month that passes, your in the same impossible position. Thats the timeline problem nobody warns you about.

The Fifth Amendment Trap Door

You might be thinking: “I’ll just invoke my Fifth Amendment rights.” Refuse to testify. Dont give them anything they can use against you.

Sounds reasonable. But heres were it gets impossibly complicated.

In criminal proceedings, invoking the Fifth Amendment is protected. The jury cant hold it against you. The prosecutor cant comment on your silence. Your constitutional right to remain silent is absolute.

But this isnt a criminal proceeding. This is an SEC civil investigation. And in civil proceedings, the rules are completly different.

The SEC can draw what they call an “adverse inference” from your silence. If you refuse to answer questions, they can assume the answers would have been bad for you. They can use your silence as evidence against you in the civil case.

So heres the trap. Testify, and your words become criminal evidence. Invoke the Fifth, and your silence becomes civil evidence.

There is no good option. Let that sink in.

This is the decision matrix that nobody gives you. Cooperation creates criminal exposure. Silence creates civil liability. And you have to choose without knowing wheather a criminal investigation even exists.

Ive watched Todd negotiate these situations for years. And the one thing he tells every client is this: the decision cant be made in a vacuum. You need to understand exactly what your facing before you say a single word.

Cooperation Credit: The Black Box Problem

The SEC has something called “cooperation credit.” If you cooperate with there investigation, they might – might – reduce your penalties. Sounds straightforward.

Its not.

The SEC’s cooperation framework is based on something called the Seaboard Report. It lays out factors they consider when evaluating cooperation. Did you self-report? Did you produce documents quickly? Did you discipline the wrongdoers? Did you cooperate before or after you were caught?

But heres what the Seaboard Report dosent tell you. Theres no formula. No calculation. No guarantee that your cooperation will actualy result in reduced penalties.

Cooperation credit is completly discretionary. The SEC can acknowledge your cooperation and still impose maximum penalties. They can praise your transparency and still refer you to the DOJ. They can accept your documents and still destroy your career.

And you wont know what credit you’ve earned – if any – until its over.

This is the black box problem. Your expected to cooperate based on the promise of potential credit. But the amount of credit, the timing of credit, even wheather you get any credit at all – its all determined behind closed doors, with no transparency and no accountability.

People ask Spodek Law Group all the time: “If I cooperate fully, what do I get?” And the honest answer is: we dont know. Nobody knows. Thats exactly the problem.

What Actually Happens When You Cooperate

Let me walk you through how SEC cooperation actualy unfolds. Not the sanitized version. The real one.

Day one: You recieve a subpoena or a request for documents. You hire a lawyer. You start gathering materials. Your cooperative, helpful, transparent.

Week two: You produce thousands of documents. Emails, contracts, financial records. Everything they asked for, plus things they didnt ask for. Your demonstrating good faith.

Month one: You sit for testimony. You sign Form 1662. You answer questions for hours. You explain transactions, clarify relationships, walk them through the timeline. Your helpful and forthcoming.

Month three: More document requests. More testimony. Your lawyer keeps telling you this is how cooperation works. The more you give them, the better it looks.

Month six: Silence. No updates. No indication of where things stand. Your lawyer makes calls but gets no real information.

Month nine: You recieve a Wells notice. The SEC is recommending enforcement action. All that cooperation? Didnt matter.

Month twelve: You learn theres a parallel DOJ investigation. Has been running since month two. Everything you said in your SEC testimony is now in the hands of criminal prosecutors.

This isnt a worst-case hypothetical. This is how it actualy happens. And by the time you realize whats going on, the damage is done.

The worst part? Your lawyer might not have known either. Many securities lawyers focus exclusivly on SEC enforcement. They know the civil side inside and out. But they dont think about criminal exposure the way a defense attorney thinks about it. They dont ask the questions that need to be asked before you sit for testimony.

This is why choosing the right counsel matters so much. Not all securities lawyers are equal. And the difference between a lawyer who understands parallel proceedings and one who dosent could be the difference between resolving a civil matter and facing criminal charges.

At Spodek Law Group, we approach every SEC matter with criminal exposure in mind. Because we’ve seen to many clients who didnt. Who cooperated fully, who followed there lawyers advice, who did everything “right” – and still ended up facing federal charges. Not because they did anything wrong. But because they didnt understand the system they were operating in.

The Decision Matrix Nobody Gives You

So what do you do? How do you make this decision?

Heres the framework that actualy works. Not the one lawyers tell you about in blog posts. The one we use at Spodek Law Group when someones career and freedom are on the line.

First question: Is there any chance of criminal exposure? Not “is there a criminal investigation” – you cant know that. Is there any conduct that could potentialy be charged criminally?

If the answer is yes, everything changes. Your not just facing a civil matter anymore. Your potentialy building a criminal case against yourself.

Second question: What is the SEC likely to do without your cooperation? Do they have enough evidence already? Are other witnesses cooperating? What documents do they already have?

If they can build there case without you, cooperation might not buy you much. The leverage you think you have might not exist.

Third question: What are the actual benefits of cooperation in your specific situation? Not the theoretical benefits. The real ones. Based on similar cases, similar facts, similar circumstances.

This requires experience. It requires knowing how the SEC actualy operates, not how they say they operate. It requires understanding the difference between promised cooperation credit and delivered cooperation credit.

Nobody should make this decision without counsel who understands the full picture. The stakes are to high. The traps are to hidden. And the consequences of getting it wrong last a lifetime.

What We Tell Clients at Spodek Law Group

Every client who walks through our door asks the same question. Should I cooperate?

And every time, we give the same answer. It depends.

It depends on wheather criminal exposure exists. It depends on what evidence the SEC already has. It depends on wheather parallel proceedings are likely. It depends on your personal risk tolerance. It depends on factors that are unique to your situation and impossible to evaluate without full information.

The one thing we never tell clients is that cooperation is automaticaly the right choice. Because its not. Sometimes cooperation protects you. Sometimes it destroys you. And you cant tell which is which from the outside.

What you need is someone who has been through this before. Someone who understands how the SEC actualy works. Someone who can assess your specific situation and give you honest, realistic guidance.

Thats what Spodek Law Group does. We dont promise cooperation credit we cant deliver. We dont tell you what you want to hear. We tell you what you need to know.

Call us at 212-300-5196. The consultation is free. The mistake of cooperating without understanding the risks isnt.

The Bottom Line

Should you cooperate with the SEC?

Maybe. It depends on facts you might not have access to. It depends on investigations you might not know about. It depends on calculating risks that cant be calculated from the outside.

What you should defintely not do is cooperate blindly. Dont assume transparency protects you. Dont believe that cooperation credit is guarenteed. Dont sign Form 1662 without understanding what your actualy agreeing to.

The SEC cooperation decision is the most important decision you’ll make in this process. Its also the one most people get wrong. They cooperate to early, to fully, without understanding the parallel investigation trap, without considering the Fifth Amendment dilemma, without recognizing that there civil case might already be a criminal case.

We’ve been doing this for years. We’ve seen what works and what dosent. We’ve watched clients cooperate there way into prison and we’ve watched clients navigate the system successfuly. The difference is almost always the same thing: understanding the full picture before making decisions.

Thats what we offer. Not promises we cant keep. Not false reassurance. Just honest assessment of your situation and realistic guidance on how to handle it.

Get help before you say a word. The consequences of waiting are bad. The consequences of talking without counsel are worse.