SEC Criminal Referrals to the Department of Justice.

Last Updated on: 4th August 2026, 01:33 am

The SEC cannot file criminal charges or impose imprisonment. It has no power to take either of these actions.

The Department of Justice (DOJ) controls federal criminal charging decisions that arise from SEC investigations.

An SEC criminal referral is neither an indictment nor a criminal charge. Rather, it is a formal transmission of information from SEC staff to the DOJ. While the DOJ routinely chooses to act upon SEC referrals, and its criminal prosecutors often work hand-in-hand with SEC staff, it does so based on its own independent evaluation of the relevant evidence and based on DOJ evidence to conduct an independent grand jury proceeding.

It is not uncommon for the DOJ to decline to prosecute a matter referred by the SEC. For example, even if SEC staff has already decided to file civil charges with the SEC, the DOJ may decide not to proceed. Similarly, when the SEC serves an individual with a Wells notice, this will not necessarily establish that DOJ attorneys are involved in the investigation, and when the SEC issues an SEC criminal referral, it will not, on its own, establish that the DOJ is pursuing the matter.

In all cases, a federal criminal conviction requires the DOJ to meet its burden beyond a reasonable doubt. Even if the SEC establishes its burden by a preponderance of the evidence, DOJ prosecutors will have to meet its higher burden in order to obtain a conviction in federal court. As a result, general federal criminal conviction rates do not reflect the likelihood of a conviction arising from an SEC criminal referral.

How Does an SEC Matter Reach Federal Prosecutors?

SEC staff do not need to obtain a vote from the Commission in order to initiate discussions about suspected criminal violations with federal prosecutors. Informal cooperation between the SEC and the DOJ is not only common but frequently precedes any formal and documented criminal referral. This means that in many cases, the DOJ will be involved in the matter long before a formal referral has occurred.

There is no published dollar threshold that automatically requires the SEC to make a criminal referral in any given matter. This is not unexpected, given that there is no statutory requirement for making a criminal referral and SEC staff have broad discretion to make referrals when they feel it is warranted.

When the SEC staff’s investigation is parallel to an FBI investigation or DOJ criminal inquiry, the DOJ may not need to wait for an SEC criminal referral to initiate a grand jury proceeding or seek an indictment. In such cases, the SEC will work with the DOJ as a referring agency and share information with federal prosecutors as necessary.

Similar to cases involving allegations of tax crimes, the SEC does not publish comprehensive data regarding the total number of criminal referrals it makes each year. While it does publish annual data regarding the number of enforcement actions it takes, this data is not a comprehensive look at the agency’s activity.

Similar to the IRS, the SEC’s annual action data indicates the number of criminal enforcement actions resulting from referrals to the DOJ, but it does not reveal the total number of criminal referrals the SEC makes each year. While the number of criminal enforcement actions provides some insight into how often the DOJ pursues criminal charges following a referral, this information does not, on its own, reveal the probability of an individual defendant receiving a criminal referral from the SEC.

Finally, while Section 21(d)(1) of the Exchange Act makes it clear that the Commission has the authority to transmit any matter that it believes is a violation of any federal criminal law to the Attorney General, it makes that transmittal discretionary, providing that the Commission “may transmit such evidence as may be available concerning such acts or practices as may constitute a violation of any provision of this chapter or the rules or regulations thereunder to the Attorney General, who may, in his discretion, institute the necessary criminal proceedings.” This phrasing further supports the view that the SEC does not expect the DOJ to pursue criminal charges in all cases involving a criminal referral.

The SEC publishes no mandatory monetary or evidentiary threshold governing staff contact with criminal prosecutors. The SEC’s published referral framework underscores the staff’s discretion to refer potential violations to federal criminal authorities based on identified factors.

What Information Can the SEC Share with the DOJ?

Civil and criminal investigations may lawfully proceed at the same time. If federal authorities are conducting a criminal investigation, they generally need not disclose this to the person or entity that is the subject of the investigation. This remains true even if the person or entity is already participating in a parallel civil investigation.

In tandem with the SEC’s authority to refer a matter to criminal authorities for prosecution, SEC staff may also share any information they collected during an administrative proceeding or civil investigation with criminal law-enforcement authorities as well. Exchange Act Section 24(c) provides that the Commission is “authorized to make available, in appropriate cases, to the appropriate governmental authorities, any information in its files relating to such civil inquiry.” This includes information the SEC collected during the civil or administrative proceedings.

Upon referral to the DOJ, SEC staff may also continue to provide assistance in the government’s criminal prosecution efforts. While the SEC is unable to pursue criminal enforcement, investigators can work closely with federal prosecutors to obtain the information, evidence, and witnesses that are necessary to sustain the DOJ’s criminal case.

Along with authorizing disclosures, Exchange Act Section 24(c) conditions such disclosures on the recipient’s providing assurances of confidentiality as the Commission deems appropriate. In the event that the recipient discloses the information to unauthorized persons, the SEC has the authority to seek an injunction against the further use of the information as necessary.

What Information Can the DOJ Share with the SEC?

Similarly, when the SEC refers a case to the DOJ, federal prosecutors may also be able to share information they collect during their investigation with the SEC. While this possibility exists in all cases, whether information may be shared depends upon the circumstances at hand. For example, Federal Rule of Criminal Procedure 6(e) prohibits the disclosure of information obtained during grand-jury proceedings to unauthorized individuals, including SEC investigators.

Although either Exchange Act Section 24(c) or Section 21(d)(1) may permit information sharing, it doesn’t necessarily mean that the SEC is obligated or required to transfer its investigative file to the DOJ. While prosecutors will likely request such information in order to assess the merits of pursuing a criminal prosecution, the SEC retains the ability to deny the request if it determines that doing so would interfere with its own investigation or that the file contains information to which the DOJ or its grand jury does not have access.

What Information About Grand Jury Matters Can the DOJ Share?

The same limitations apply to information about grand jury matters as well. Although federal prosecutors may seek grand jury information from the SEC for use in pursuing criminal enforcement, the DOJ must comply with Federal Rule of Criminal Procedure 6(e) as well. Accordingly, the DOJ cannot disclose grand jury information to SEC staff unless it is otherwise authorized or permitted to do so.

Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

How Does the DOJ Decide Whether to Bring Criminal Charges?

When determining whether to pursue criminal charges following an SEC referral, the DOJ will look closely at any evidence of intentional deception. Even though some forms of intentional deception do not trigger civil liability, they can lead to potential criminal exposure. Conversely, many civil securities violations will not establish prosecutable criminal offenses.

Justice Manual Section 9-27.220 states that a federal prosecutor should commence or recommend prosecution only if he or she believes that the person’s conduct constitutes a federal offense and that “the admissible evidence will probably be sufficient to obtain and sustain a conviction.” In order to return an indictment, a grand jury must also find that there is probable cause to believe that the defendant committed the federal offense charged. Although SEC staff may have referred a matter to the DOJ, this is not what makes a criminal case possible. Instead, the grand jury must return a federal indictment to initiate a criminal prosecution.

Even though the SEC establishes its burden by a preponderance of the evidence, this is insufficient for a criminal case. A criminal conviction requires proof beyond a reasonable doubt. However, if the SEC has gathered evidence of intentional deception during its investigative process, it will be possible to reach this higher standard of proof. If an individual intentionally lied to an SEC investigator or omitted information, this could lead to federal criminal charges under 18 U.S.C. § 1001, which prohibits making false statements to federal authorities.

Under Justice Manual Section 9-27.230, federal prosecutors are also required to consider whether pursuing a criminal case serves a substantial federal interest. Among others, DOJ prosecutors must assess the following factors when making this determination:

• the seriousness of the offense (or offenses) involved
• the nature and extent of the defendant’s culpability
• the availability of adequate noncriminal alternatives
• the defendant’s record
• the deterrent effect of prosecution
• the impact on third parties
• the defendant’s apparent ability to comply with the requirements of a conviction
• other pertinent facts or circumstances

Under Justice Manual Section 9-27.220, federal prosecutors should only initiate a criminal prosecution when there are no adequate noncriminal alternatives. This includes civil remedies available to the SEC, other federal agencies, and state authorities. If civil remedies are enough to protect the public from further harm and do not otherwise present issues, then the DOJ may determine that criminal enforcement is not warranted. This is a primary difference between the SEC’s and DOJ’s enforcement authority, and this should make it difficult for the government to obtain a conviction when criminal charges are not warranted.

Can an SEC Settlement End the Criminal Risk?

An SEC settlement does not automatically terminate a parallel DOJ investigation. While settling an administrative proceeding or civil action, the SEC cannot independently promise immunity from federal criminal prosecution. As a result, defendants who settle their civil cases must independently gauge the risks of a subsequent criminal enforcement action. While DOJ prosecutors may consider a defendant’s willingness to settle, this is not a definitive way to end criminal exposure.

Similarly, if you receive cooperation credit from the SEC, the DOJ may also consider this when assessing criminal enforcement. However, cooperation with the SEC does not guarantee leniency from federal prosecutors or that the DOJ will decline to pursue a criminal case. The DOJ still must independently determine if there is sufficient evidence to warrant a criminal prosecution.

Criminal convictions provide for the same monetary penalties and professional restrictions as civil enforcement, but they can also lead to federal imprisonment. Importantly, federal courts, not the DOJ or the SEC, impose criminal sentences. While DOJ prosecutors may suggest a sentencing range, judges ultimately have the authority to impose sentences that fall within a defendant’s range under the applicable federal sentencing guidelines.

The U.S. Sentencing Guidelines also provide for departures based on a defendant’s cooperation with the government. Under U.S.S.G. §5K1.1, judges can grant a downward departure in sentence if the defendant provided substantial assistance in the investigation or prosecution of another person who committed an offense. However, this only applies if the government makes a motion requesting the sentence departure, not merely in response to a defendant’s cooperation with the SEC or other agencies.

Consent judgments that defendants enter with the SEC do not bind the DOJ. However, in cases involving federal criminal enforcement, DOJ prosecutors will play an integral role in negotiations and can intervene to ensure that the resulting consent judgment addresses matters pertaining to criminal exposure.

Finally, while criminal convictions are primarily imposed to protect the public from further harm, civil remedies imposed by the SEC during civil enforcement focus on protecting investors and maintaining the integrity of the U.S. financial system. SEC civil remedies include seeking permanent injunctions, disgorgement of ill-gotten gains, payment of pre-judgment interest, monetary penalties, and bars or suspensions from the securities industry. While some of these remedies apply in federal criminal cases as well, they are most frequently sought by the SEC during civil enforcement.

How Do Parallel Proceedings Affect Testimony and Fifth Amendment Rights?

Parallel civil proceedings generally do not stay even when a federal investigation triggers parallel criminal proceedings. Although the Fifth Amendment can be invoked during civil proceedings, this can have negative consequences. Specifically, the civil factfinder will be entitled to draw an adverse inference from your invocation of the Fifth Amendment. While an adverse inference is not always dispositive, it could be.

The Fifth Amendment’s protection against self-incrimination generally applies to compelled testimony. The production of pre-existing documents does not fall within the Fifth Amendment’s protections. This is especially important to keep in mind, as federal civil proceedings include document production requests. Defendants who respond to such requests while relying on the Fifth Amendment to avoid providing testimony will likely be able to avoid facing an adverse inference.

FINRA is a self-regulatory organization (SRO). Because FINRA is not a government agency or federal law-enforcement agency, the protections of the Fifth Amendment do not apply to FINRA investigative questioning in most cases. Instead, FINRA has the authority to impose discipline, including bars or suspensions, against members and employees who refuse to provide information or testimony. Under FINRA Rule 8210, FINRA can also impose other penalties for a member or employee’s failure to provide requested information or testimony. This presents significant risks for individuals who are involved in FINRA’s investigations. While refusing to cooperate with FINRA can lead to severe penalties, including an industry-wide bar, cooperating in a FINRA investigation can also pose risks. For example, any evidence obtained by FINRA can be turned over to federal authorities.

The U.S. Department of Justice and the SEC do not restrict FINRA’s ability to enforce Rule 8210. Invoking the Fifth Amendment during an investigation with FINRA does not itself trigger an automatic industry bar. However, a bar could be imposed in response to a member or employee’s refusal to fulfill its investigative duties. If you are facing a parallel inquiry from FINRA, you should promptly engage experienced legal representation to help manage the risk of facing discipline under Rule 8210.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.