How to Negotiate a Settlement With the SEC.

An attorney can negotiate an SEC settlement on behalf of a client. In negotiations involving clients’ potential civil liability, counsel must first review the government’s evidence to identify weaknesses in the government’s case and available defenses. This will determine whether negotiating an SEC settlement is warranted in the particular case at hand.

If an SEC settlement is warranted, settlement planning may happen while counsel simultaneously prepares for litigation. As the SEC’s investigation continues, counsel can work toward an SEC settlement focused on appropriate remedies. Along the way, the client will need to make informed decisions about whether to accept or reject an SEC settlement offer.

ABA Model Rule 1.2(a) provides that “[a] lawyer shall abide by a client’s decision whether to settle a matter.” Importantly, this means that the client ultimately maintains authority over whether to accept or reject an SEC settlement.

Notably, not all SEC investigations result in the filing of formal charges. In many cases, the SEC will conclude its investigation and determine that enforcement action is not warranted. However, if it is determined that enforcement action is warranted, the SEC will file the formal charges against the individual or entity it has investigated.

With the SEC, delays can be costly. Once an investigation is initiated, the clock begins ticking. In addition to risking missed deadlines, delayed responses can make it more difficult to preserve evidence and execute defense strategies effectively.

While public companies are the most prominent target of SEC scrutiny, they are not the only entities that can be subject to investigations. SEC investigations can involve private companies, individuals, broker-dealers, investment advisers, accounting firms and other parties as well.

What Should You Avoid Saying to the SEC?

Self-Incrimination

One of the most critical aspects of an SEC investigation is responding to the SEC’s questions and requests. This is where the risk of self-incrimination is greatest. However, the risk does not only stem from an SEC respondent’s admissions. Inaccurate and incomplete responses can increase a respondent’s risk of self-incrimination, as well.

Moreover, proffers can also expose a respondent to the risk of self-incrimination. While a proffer allows a respondent to attempt to persuade SEC staff that no enforcement action is warranted, it also increases the risk of making admissions and statements that can later be used against the respondent. As a result, all proffer opportunities deserve advance legal preparation by a knowledgeable attorney.

Legal Risks

There are numerous legal risks of responding to the SEC. Along with the risk of self-incrimination, there are the risks of committing offenses such as providing false or fraudulent statements to the SEC staff. Specifically, 18 U.S.C. § 1001 prohibits making “any materially false, fictitious, or fraudulent statement or representation” to federal government officials. This statute includes statements made to the SEC staff, and knowingly making false statements can lead to criminal prosecution.

Additionally, Federal Rule of Evidence 408 does not make settlement communications privileged or confidential. As a result, statements made during the course of settlement discussions can potentially be used by the SEC, provided that they meet the requirements of Federal Rule of Evidence 408.

Rule 408 may also permit the government to make use of its own settlement statements in any subsequent criminal case. Statements made by the government during settlement discussions are not considered an admission of any weakness in the government’s civil or criminal case.

Fifth Amendment Privilege and Proffer Agreements

While SEC respondents have the right to invoke the Fifth Amendment privilege against self-incrimination, this can be an issue in the context of a civil investigation. Invoking the privilege can support an adverse inference against the respondent, meaning the government will ask the trier of fact to infer that the respondent had something incriminating to say.

Proffers can be conducted under a written proffer agreement. Proffer agreements are important for securing various protections. However, the specific protections offered will depend on the agreement’s provisions regarding permitted uses of the proffer.

Challenging SEC Interpretations

Finally, when responding to SEC staff’s interpretation of disputed statements or conduct, skilled lawyers may be able to challenge the interpretation of the statements or conduct at hand.

How Does the SEC Settlement Approval Process Work?

The SEC settlement approval process begins with a Wells notice. A Wells notice is an official document in which the SEC staff identifies the particular charges it intends to recommend that the Commission pursue. Importantly, the Wells notice can also be a basis for commencing settlement negotiations, which can lead to a negotiated resolution in many cases.

Upon receiving a Wells notice, the prospective respondent can choose to submit a Wells submission (as permitted under 17 C.F.R. § 202.5(c)). A Wells submission is a written statement in which the prospective respondent can argue against the initiation of an enforcement action. According to the SEC Enforcement Manual, there are typically no more than two weeks to make a Wells submission.

All information included in a Wells submission may also be used against the respondent in later SEC proceedings. As a result, a Wells submission needs to be drafted with great care. Any relevant evidence will be analyzed before filing in order to ensure a clear and accurate portrayal of the facts.

After receipt of the Wells submission, the SEC staff will consider the submission and make a recommendation to the Commission on whether to pursue an enforcement action. It is important to note that the SEC Commission (not the Enforcement Division staff) approves an SEC enforcement settlement.

An SEC settlement can be negotiated with the SEC prior to the filing of charges. In this case, an SEC settlement may precede formal litigation or even the initiation of an enforcement action. Alternatively, an SEC settlement may occur after an enforcement action has been initiated.

As we have discussed, a Wells submission can lead to either a negotiated resolution or a contested enforcement proceeding. As a result, the time available to prepare a Wells submission is relatively short.

While there are no guarantees in negotiations, there are many factors that can lead to a favorable settlement. By working with an experienced defense attorney, individuals and companies can work toward an SEC settlement that is focused on appropriate remedies.

Again, timing is everything. If you have been served with a Wells notice or any other request to share information with the SEC, you should contact a defense attorney promptly. By doing so, you can protect yourself against unnecessary exposure and work with your attorney to devise an effective defense strategy.

The lawyers at Spodek Law Group have years of experience handling SEC investigations and litigations. When you hire us, we will work diligently to secure an SEC settlement that reflects the reality of your case, rather than one that exposes you to excessive risks.

Which SEC settlement terms can you negotiate?

Admissions or Denials

The “neither admits nor denies” formulation historically came from 17 C.F.R. § 202.5(e), which barred a party from consenting to a sanction while denying the allegations; the SEC repealed that rule in May 2026, so admissions language is now a matter of negotiation rather than a fixed policy requirement. The SEC repealed its no-deny policy on May 18, 2026, so settling parties are no longer required to refrain from publicly denying the Commission’s allegations as a condition of settlement. However, even if you agree to not contest allegations, the SEC may still insist that you admit to certain facts as a condition of the settlement.

Civil Monetary Penalty

An SEC investigation may culminate in civil monetary penalties. There are three statutory tiers for monetary penalties under the Securities Act, with each tier being subject to inflation adjustments. The calculation of the penalty depends on the particular tiers at issue as well as the severity of the allegations. This is why it is important to negotiate your civil monetary penalty with an experienced attorney who can effectively advocate for the lowest possible amount.

Disgorgement

The SEC often seeks disgorgement in its enforcement actions. Disgorgement is another form of monetary relief, and it serves to strip wrongdoers of the benefits they derived from their misconduct. In the case of Liu v. SEC, the U.S. Supreme Court held that disgorgement is a form of equitable relief. As a result, the disgorgement amount cannot exceed the net profits derived from the wrongdoer’s conduct, after accounting for legitimate expenses.

The Court also held that the SEC can only seek disgorgement of benefits conferred to a “wrongdoer.” In other words, the SEC cannot seek disgorgement of funds or other benefits conferred to third parties if these parties are not guilty of wrongful conduct.

Officer-and-Director Bar

Another form of relief that the SEC often seeks in its enforcement proceedings is an officer-and-director bar. The SEC imposes bars in order to prevent parties that have wrongfully misused their positions as officers or directors of public companies from committing similar offenses in the future. Under Exchange Act § 21(d)(2), federal courts have the authority to impose officer-and-director bars, and the SEC can pursue these bars in administrative proceedings as well.

Bars can either be permanent or temporary. However, the SEC typically seeks bars against those who have committed serious offenses and are unlikely to reform.

Settlement Undertaking

A settlement undertaking is another form of non-monetary relief the SEC may seek. Settlement undertakings may require you or your company to perform remediation actions, undergo compliance reviews, report your finances on an ongoing basis, or engage an independent consultant to monitor your company’s activities. All of these requirements can be subject to negotiation, and working with experienced defense counsel to narrow the scope of your settlement undertaking is critical.

Inability to Pay

When determining monetary relief, the SEC takes into account the individual or company’s ability to pay. If you can provide documentation showing that paying disgorgement or civil penalties would cause excessive financial hardship, the SEC may lower the disgorgement amount, lower the civil penalty, or allow the penalty to be paid over a period of time.

If any of this describes your situation, it is worth talking it through with counsel. Spodek Law Group can be reached at 212-300-5196.

What Lawyer Tactics Are Legitimate in SEC Negotiations?

Evidence Assessment

Working with an experienced defense lawyer to thoroughly evaluate the evidence is an effective negotiation tactic. The better your lawyer understands the strengths and weaknesses of your case, the better he or she can advocate for you. Thorough evidence assessment will provide your lawyer with the leverage that is needed to negotiate a favorable resolution in many cases.

“80/20 Rule”

Based on the provided information, there is no mention of an “80/20 rule” that is specific to the SEC.

ABA Model Rule 4.1 and ABA Model Rule 8.4(c)

ABA Model Rules 4.1 and 8.4(c) place limitations on what attorneys can do during negotiations and professional conduct, respectively. Rule 4.1 specifically prohibits attorneys from knowingly making “a false statement of material fact or law to a third person” during the course of negotiations. Rule 8.4(c) prohibits “conduct involving dishonesty, fraud, deceit, or misrepresentation.”

The Seaboard Report

The SEC’s Seaboard Report also identifies a set of factors that the SEC staff can take into account when evaluating organizations in SEC investigations. These factors include:

• Self-policing
• Self-reporting
• Cooperation with the SEC staff
• Remediation and other relevant efforts

Documenting these factors can be a powerful negotiation tactic during an SEC investigation.

Communications and Correspondence

As the defense lawyers for the represented individual or company, we communicate directly with the SEC investigators on your behalf. This includes responding to subpoenas and other document demands, as well as conducting interviews. Early representation is especially important, as it allows us to properly coordinate your document production, conduct interviews, and prepare you for investigative testimony.

Negotiating with the SEC

When choosing an attorney to handle an SEC investigation, any factors the individual or company considers should be addressed by the attorney. Your defense lawyer will communicate with the SEC on your behalf, and your lawyer will also handle the investigative process by coordinating the production of records, participating in interviews, and preparing you to provide investigative testimony. With a dedicated defense lawyer, you can effectively negotiate with the SEC staff and work toward a favorable SEC settlement.

Are Federal Court and Administrative SEC Settlements Different?

As discussed above, an SEC investigation can lead to enforcement proceedings in either the SEC’s administrative court or in federal district court. With this in mind, when negotiating an SEC settlement, the approval process for the proposed terms of the settlement will vary.

Federal Court Settlements

In cases that are litigated in federal court, the SEC must file a civil complaint against the respondent in federal district court. If the respondent agrees to a settlement, both sides will then generally file a proposed consent judgment for the judge’s approval.

Administrative Settlements

In cases that are litigated in the SEC’s administrative court, the SEC’s Enforcement Division will file an administrative or order instituting proceedings (OIP) against the respondent. If the respondent agrees to a settlement, the proceeding will generally conclude through Commission approval and issuance of the settlement order.

Settlement offers in the SEC’s administrative court are governed by 17 C.F.R. § 201.240. According to this rule, “a rejected settlement offer may not be used as evidence of the offeror’s or offeror’s agent’s liability.” This provision protects both the SEC and potential SEC respondents from making unwise admissions during the course of settlement negotiations.

The Duration of SEC Investigations

All SEC investigations are confidential in nature, and the Commission will strictly enforce this policy. According to 17 C.F.R. § 203.5, information about an SEC investigation can only be released in limited circumstances. Once the Commission approves an administrative settlement order, however, the settlement order is generally made public.

Temporary Restraining Orders and Other Emergency Measures

In addition to civil monetary penalties, fines, and Officer-and-Director bars, the SEC may also seek temporary restraining orders (TROs) and other emergency measures in its civil enforcement litigation. The SEC can seek a TRO if it believes there is a risk of ongoing harm and if its Enforcement Division staff can meet the legal requirements of the procedural statute that applies. Along with TROs, the SEC may also seek assets freezing orders or other emergency measures, as well.

Can the SEC Punish a Party Who Refuses to Negotiate or Settlement?

While you have the right to refuse to negotiate or accept an SEC settlement, refusing to work with the SEC in a civil enforcement proceeding can lead to negative consequences. In such a scenario, an SEC respondent can easily appear to be uncooperative, stubborn, or unwilling to resolve the matter. This can hurt a respondent’s chances of securing a favorable settlement if they choose to pursue a settlement later on.

While this is true, refusing to make unconditional admissions of wrongdoing is a completely different story. You have every right to refuse to make unconditional admissions of wrongdoing, and you can use any available defenses or other valid legal or factual reasons to justify your refusal to agree to make a statement.

Could an SEC Settlement Affect Criminal and Other Cases?

Parallel Investigations

If the DOJ or another federal or state agency has an interest in the matter, an SEC investigation may occur alongside a criminal investigation or other enforcement action. If you are also facing exposure with the CFTC or a state regulatory body, this will need to be accounted for as well. As a result, parallel DOJ exposure is a critical concern that requires careful consideration. A key part of a robust defense strategy is evaluating whether any statements made during the SEC’s civil investigation could also be used against the individual or company in a subsequent criminal enforcement action.

Insurance Coverage

If you have insurance coverage that may reimburse your SEC defense costs, civil penalties, disgorgement, or other monetary relief, your insurance policy’s language, the governing law, and all other applicable factors need to be accounted for during settlement negotiations as well.

DOJ vs. SEC

The DOJ, not the SEC, prosecutes federal securities crimes and seek imprisonment as punishment in criminal proceedings. As a result, the SEC does not have the authority to sentence a defendant to imprisonment. However, in many cases involving the SEC, there is overlap with the DOJ, meaning that criminal charges can lead to imprisonment.

Insider Trading

An example of the potential for both civil and criminal exposure is an insider-trading allegation. Insider trading is a violation of the federal securities laws. While it can lead to civil enforcement action by the SEC, it can also lead to criminal prosecution by the DOJ. If found guilty, individuals convicted of insider trading can be sentenced to prison, among other forms of relief.

Get Advice on Your Situation

If you want someone to look at the specifics of your case, Spodek Law Group handles federal criminal defense nationwide from New York and Los Angeles. The firm has been practicing since 1976 and its motto is simple: we owe loyalty to only you. Call 212-300-5196.