How to Negotiate With the SEC

How to Negotiate With the SEC

You’re sitting across the table from SEC enforcement staff, and you think you’re negotiating your penalty. You think if you say the right things, cooperate the right way, get the right lawyer – maybe you can reduce that fine, avoid that bar, keep your license. That’s what negotiation means, right?

Welcome to Spodek Law Group. Our goal is to explain what SEC negotiation actually looks like in practice. The uncomfortable truth is that you’re not negotiating your penalty at all. The SEC already knows what they want from you. What you’re actually negotiating is something far more permanent: the press release. The exact words they’ll use to describe what you did. The public record that will exist forever and define how the world sees you.

Here’s what nobody tells you about negotiating with the SEC. They know you’re going to settle. They know because 98% of defendants settle. They’ve designed a system where settlement is the only rational choice for almost everyone. So when you sit down to “negotiate,” you’re not haggling over whether to settle. You’re haggling over the language – and the language matters more than the money. That press release follows you everywhere. And under the SEC’s gag rule, once you sign, you can never publicly deny what they said about you. Ever. This is the reality of SEC negotiation that nobody explains until after you’ve already made decisions you can’t undo.

The 80% Reality You’re Not Being Told

Most people who receive a Wells Notice believe they can negotiate their way out of trouble. They think the notice is a warning, a chance to explain, an opportunity to convince the SEC they’ve made a mistake. The statistics tell a differant story that nobody wants to hear.

Aproximately 80% of Wells Notice recipients face formal charges. Thats 4 out of 5 people who recieve that letter. The SEC didnt send you a Wells Notice because they’re unsure about your case. They sent it because they’ve already decided to recommend enforcement action and they’re required by internal policy to give you a chance to respond before they formalize what they’ve already determined.

Think about what this means for your “negotiation.” Your walking into a room where the other side has already made up there mind. They’re not weighing your arguments against their evidence. They’re checking boxes. They’re building a record. They’re making sure the process looks fair even though the outcome was determined before you sat down.

The 23% of cases that result in no-action decisions – those are real. They exist. But most of them involve situations where the facts genuinly didnt support enforcement, not situations where brilliant lawyering convinced skeptical regulators to change their minds. The SEC closes cases when the evidence isnt there. They dont close cases because you negotiated well.

The SEC has not entered a single deferred prosecution agreement or non-prosecution agreement in over six years. Think about what that means. The cooperation program they promote so heavily – the one where you self-report, cooperate fully, implement remediation, demonstrate good faith – that program basicly never results in cases going away entirely. It just changes how they describe you when they charge you. The cooperation credit you expected? Its often invisible. You might self-report serious misconduct, cooperate exhaustively for 18 months, spend $500,000 on internal investigations and remediation – and still recieve a $50 million penalty. The “credit” you recieved was that it wasnt $80 million. You’ll never know exactly how much the cooperation helped becuase they dont tell you.

It’s hard to know exactly when the SEC made up their mind about you. Was it after the initial document request? Was it after your first interview? Was it before they even sent the Wells Notice? The uncomfortable answer is probly earlier then you think. By the time formal proceedings begin, the investigation has usualy been running for months or years. The staff has reviewed thousands of documents. They’ve interviewed witnesses. They’ve consulted with supervisors about wheather to proceed. The Wells Notice isnt the beginning of their decision-making. Its the end.

What You’re Actually Negotiating (Hint: It’s Not the Penalty)

Heres the thing that experienced securities defense attorneys understand that most people dont: the penalty is almost secondary. Fines can be paid. Disgorgement gets calculated by formula. Industry bars expire or can be applied for reinstatement. These consequences are temporary in ways that matter.

But the press release is forever. The SEC issues a press release with every enforcement action. That press release describes what you did using specific language that they choose. And that language – those exact words – will be the first thing anyone finds when they Google your name for the rest of your life.

This is why sophisticated defense counsel spend enormous energy negotiating press release language. The words matter becuase they shape perception. Did you “defraud investors” or did you “fail to adequatly disclose”? Did you “engage in a scheme” or did you “violate record-keeping requirements”? These distinctions might seem like splitting hairs, but they’re the differance between being described as a criminal and being described as someone who made compliance mistakes.

OK so heres were it gets truly problematic. The SEC’s own policies – specifically 17 CFR 202.5(e), the “gag rule” – require that you agree not to deny the allegations as part of any settlement. You can’t make public statements that contradict what the SEC said about you. You can’t clarify. You can’t explain. You can’t even say “I settled because litigation was too expensive, not because I did what they claimed.”

The press release becomes the only public narrative. Your silence becomes permanent.

Todd Spodek has handled hundreds of securities cases over his career, and he tells clients the same thing every time: before you sign anything, understand that your signing away your ability to tell your own story. The penalty ends eventually. The narrative lasts forever. Most people focus on the wrong thing entirely when they walk into these negotiations.

Consider what happens five years after your settlement. The fine is paid. The bar has expired. You’re trying to get back into the industry or start a new business or take a board position. Someone googles your name. The SEC press release appears. It describes you using language you couldnt negotiate to change and cant contradict without violating your settlement agreement. That language shapes how everyone perceives you for the rest of your professional life.

The Gag Rule: Why You’ll Never Be Able to Deny It

The gag rule dates back to the 1970s. Its been challenged multiple times. Justice Neil Gorsuch himself expressed skepticism about it, noting that agencies sometimes “use leverage to extract settlement terms they could not lawfully obtain any other way.” But it remains in effect, and its consequenses are profound.

When you settle with the SEC, you dont just pay a fine. You agree to never contradict thier version of events publicly. You cant go on television and explain your side. You cant write a LinkedIn post describing what really happened. You cant tell a journalist your perspective. You’ve signed away your voice on this matter forever.

Theres something fundamentally broken about a system were helping yourself means silencing yourself. But thats the deal your offered. Take the settlement, accept the language, and never speak against it – or fight in court, spend millions, face the SEC’s 98% settlement rate because most people cant afford to litigate, and probably lose anyway.

The truth is more complicated then simply saying the gag rule is unfair. The SEC would argue that settlements need to be final, that allowing defendants to deny allegations after settling undermines the deterrent effect of enforcement, that the integrity of the process requires both sides to accept outcomes. These arguments have some merit from a system design perspective.

But heres the problem from your perspective. You might be innocent. You might have settled because fighting costs $2 million and you dont have $2 million. You might have made a judgment call that paying $100,000 and walking away was better then spending $500,000 to maybe win at trial. None of those reasons have anything to do with whether you actualy did what the SEC alleged. But the public will never know that. They’ll only see the settlement and the language describing your violations.

Let that sink in for a moment. The negotiation isnt about wheather you did something wrong. The negotiation is about exactly how badly your permanent public record will describe what you supposedly did. And then you agree to never contest that description.

The Cooperation Paradox

Everyone tells you to cooperate. Cooperation gets you credit. Cooperation shows good faith. Cooperation might result in reduced penalties or even no enforcement action at all. This is all technicaly true. But heres the part nobody mentions.

Every piece of information you provide in the spirit of cooperation becomes evidence. Every document you produce voluntarily strengthens there case. Every admission you make reduces your leverage in settlement negotiations. The very cooperation thats supposed to help you is building a stronger case against you.

Think about the incentives here. The SEC investigator wants to build the strongest possible case. If your case has criminal potential, they want DOJ to prosecute becuase it makes their enforcement numbers look better. Your cooperating with an agency whose success is measured partly by how many of their cases result in significant sanctions.

Ive seen cases were clients cooperated extensively, produced every document, answered every question, demonstrated complete good faith – and got hammered anyway. The cooperation made the SEC’s job easier. It didnt make the outcome better. The clients helped the government build a case against themselves and recieved nothing meaningful in return.

This dosent mean you should obstruct or refuse to cooperate. That makes everything worse. Obstruction can turn a civil matter into a criminal one. But it means you need to understand that cooperation is a tactic, not a strategy. It has costs and benefits that need to be weighed carefully, not embraced blindly.

The question isnt wheather to cooperate. The question is how to cooperate strategicaly. What information to provide and when. What issues to raise proactively and which ones to let the SEC discover on there own. How to demonstrate good faith without handing them everything they need to prosecute you. This requires experienced counsel who understands both the rules of the game and the people playing it.

If settlement negotiations fail, every piece of information you provided during “cooperation” becomes evidence at trial. Your proffer statements. Your document productions. Your admissions. The SEC has everything they need to prosecute you – and you gave it to them voluntarily. This is the hidden cost of cooperation that nobody explains upfront. You cooperate expecting credit. If you dont get the settlement you expected, your cooperation becomes there trial preparation. The informaton flows one direction: toward the government. And it never flows back.

At Spodek Law Group, we see this pattern constantly. Someone comes to us after cooperating fully with the SEC, genuinly beleiving they were helping their case. Then they discover that all their cooperation did was make the government’s job easier. The cooperation credit they expected to recieve either didnt materialize or was far less then they anticipated.

The 60% Window and the Cost of Missing It

Heres a number that matters more then most people realize: aproximately 60% of SEC settlements happen before formal charges are filed. The window between receiving a Wells Notice and the SEC actually filing an enforcement action is where most deals get done.

Why does this window matter so much? Becuase once charges are filed, everything changes. The press release goes out. The public record begins. Your name is attached to allegations in SEC filings that become permanent. Settlement negotiations after that point are about damage control for damage that has already occured.

But settling before charges are filed means the public narrative never happens – or happens in a much more controlled way. The announcement might be jointly crafted. The language might be less inflammatory. The whole matter might resolve quietly in ways that dont dominate Google search results for years.

The cost of missing this window is substantial. Defense attorneys who understand SEC practice know that early engagement, proactive negotiation, and strategic timing can mean the differance between a matter that resolves quietly and one that defines your public identity forever. The differance in outcomes can be life-altering.

Think about the two scenarios. In scenario one, you engage experienced counsel early, negotiate agressively during the pre-charge window, and settle before the formal announcement. The matter resolves with minimal public attention. Your name might not appear prominantly in the announcements. The whole thing fades from public memory within months. In scenario two, you wait to long. The press release names you directly. Major financial outlets pick up the story. Everyone who googles your name for the next decade finds it immediately. Same underlying conduct. Vastly differant outcomes.

The problem is that most people dont seek experienced counsel until they’ve already received formal charges. By then, the best opportunities for favorable resolution have often passed. They spent the pre-charge period trying to handle things themselves, thinking they could explain their way out of trouble, beleiving cooperation alone would be enough.

The costs are significant – settlement-focused defense might run $100,000 to $300,000 depending on complexity. But the cost of not getting it right is far higher. A permanent public record describing you as a securities law violator affects every job application, every business relationship, every professional opportunity for the rest of your career.

What “Winning” Actually Looks Like at the SEC

I’ve seen clients walk out of SEC settlements feeling like they won. A year later, they realize what they actualy signed away. The money didnt matter. The industry bar was shorter then expected. But every time they apply for a new position, every time a potential client does due diligence, every time anyone googles their name – there’s the SEC press release, describing them in terms they can never contradict.

So what does “winning” actually look like when your negotiating with the SEC?

It means walking away with language you can live with. Language that describes violations in the narrowest accurate terms. Language that avoids words like “fraud” or “scheme” when technical violations are what actually occured. Language that preserves whatever professional reputation can be preserved.

It means paying for experienced counsel who understands that press release negotiation is where the real battle happens. Attorneys who will spend hours fighting over word choices that seem trivial but determine how you’re percieved forever.

It means understanding that the goal isnt exoneration. The goal isnt walking away unscathed. The goal is controlling the narrative as much as possible within a system designed to give the SEC every advantage. Whether this counts as “winning” depends entirely on your expectations going in.

Volkswagen learned this lesson expensively. There DOJ settlement language was so broad that it killed their ability to fight SEC claims later. The words in one settlement cascaded into the next. Beam Suntory cooperated fully with the SEC, got cooperation credit in the civil case – and then faced DOJ charges anyway were none of that credit transferred. Two differant agencies with two differant standards and no coordination on what “cooperation” actualy means.

Heres something else the SEC dosent explain clearly. Staff told internal auditors they actualy need more guidance on acceptable settlements becuase they’re often guessing themselves. The people sitting across from you dont have a clear database of what similar cases settled for. They’re making judgment calls based on there own experience and whatever precedents they can remember. Your negotiating with an institution that projects certainty while internally operating on incomplete information. This isnt necessarily bad for you – it means theres genuinly room to influence outcomes if you know what arguments resonante with differant staff members. But most defendants dont realize this becuase the SEC presents itself as an all-knowing enforcement machine.

Call Spodek Law Group at 212-300-5196 before you walk into any SEC negotiation. The consultation is free. Understanding what you’re actually negotiating – and what you’re giving up – might be the most important investment you make.

We put this information on our website because most people dont understand how SEC settlements actualy work. They think it’s about money. They think cooperation automatically helps. They think fighting means winning. The reality is more complicated and more consequential then almost anyone realizes until its to late.

The penalty is temporary. The press release is permanent. Know what your negotiating before you sit down at the table.

Thats the uncomfortable reality nobody wants to admit. But now you know.