SEC Form 1662: Understanding Your Rights and Obligations.

SEC Form 1662: Understanding Your Rights and Obligations Form 1662 is titled “Supplemental Information for Persons Requested to Supply Information

Voluntarily or Directed Pursuant to Subpoena.” As the title suggests, the form applies in two (broadly distinct) circumstances: (i) the Commission has issued a voluntary request for information, or (ii) the Commission has issued a subpoena to a witness.

The most striking provision of Form 1662 is, “If you have agreed to appear voluntarily, you are free to decline to answer any questions asked by the Commission staff and you are free to end the interview at any time. You may also be accompanied by an attorney.” For witnesses subpoenaed to testify, the text is more direct, “You are under a legal obligation to answer the questions asked of you subject to the protections and immunities of the U.S. Constitution.”

As a matter of practical application, Form 1662 makes SEC cooperation an affair of consequences. For witnesses who respond to voluntary requests, the Form clarifies their ability to decline questions and, if they wish, unilaterally to terminate the interview. However, for witnesses who have been subpoenaed, the power of the subpoena does not allow the witness to simply end the inquiry by leaving, the latter is a clear implication of the Form’s reference to the legal obligation to answer.

The latter, however, does not mean that subpoenaed witnesses do not have rights and privileges as well. The Supreme Court’s decision in Hiibel v. Sixth Judicial District Court of Nevada, Humboldt County, 542 U.S. 177 (2004), established that the power of the subpoena does not override the U.S. Constitution’s protections. When compelled to testify, a witness may still, in certain circumstances, refuse to answer questions on the basis of Fifth Amendment privilege.

What Does it Mean to “Supply Information Voluntarily” or be “Directed Pursuant to Subpoena”?

The Securities and Exchange Commission (SEC) is the federal agency responsible for enforcing federal securities laws including the Securities Act of 1933, 15 U.S.C. § 77a et seq., the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and the Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq. One of the most prominent areas of enforcement for the SEC is in the area of securities fraud (e.g., Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5) and, as noted above, the SEC can initiate an investigation into a registered broker-dealer or investment adviser without a formal order or subpoena.

Form 1662 is intended to address SEC subpoenas, either in the context of a voluntary request or a formal order authorizing the Securities and Exchange Commission staff to take testimony in an investigation. With a formal order, the SEC designates specific staff members to take witness testimony. With a subpoena, the Securities and Exchange Commission must prove a nexus between the subpoenaed witness and the matter at issue in the investigation.

Do I Have to Sign the Acknowledgment Section of SEC Form 1662?

The cited June 1996 edition of Form 1662 does not impose a signed receipt-acknowledgment requirement on the recipient. If the SEC presents you with this form, and asks you to sign it, you should not automatically feel a requirement to do so, and you should feel free to consult with your attorney to determine what (if any) reasons you have for refusing.

Does Signing the Acknowledgment Section Waive Attorney-Client Privilege?

Signing the acknowledgment section of Form 1662 alone does not constitute a waiver of the attorney-client privilege, the privilege that protects confidential communications between attorney and client. If the SEC presents you with this form and asks you to sign it, you should not feel a requirement to do so, and you should feel free to consult with your attorney to determine what (if any) reasons you have for refusing.

Does Signing the Acknowledgment Section Waive Fifth Amendment Protections?

Signing the acknowledgment section of Form 1662 alone does not constitute a waiver of the privileges, rights, and protections afforded to witnesses under the Fifth Amendment to the U.S. Constitution. While an acknowledgment section on the Form asks the recipient to “[a]cknowledge receipt of this document and certify that I am the person named in the heading or a representative for that person,” it does not demand waiver of a legal right. If the SEC presents you with this form and asks you to sign it, you should not feel a requirement to do so, and you should feel free to consult with your attorney to determine what (if any) reasons you have for refusing.

Does the SEC Need to Issue Form 1662 Prior to Enforcement Action?

Receipt of Form 1662 alone does not indicate staff members intend to pursue an enforcement action. Again, however, the same general principles apply, if the SEC presents you with Form 1662, you should feel free to consult with your attorney to determine whether (if any) additional steps make sense for you.

Where Does SEC Form 1662 Come From?

Ultimately, the answers to the above questions depend on what rights are on the table. While the Securities and Exchange Commission has issued Form 1662, it is not the only SEC document, nor is it the only document of federal legal force. As noted above, C.F.R. Part 203 generally governs enforcement investigations and contains rules on matters such as:

• Informal and Formal Orders
• Investigating and Testimony Obligations
• Rights of the Recipient
• Recusal and Withdrawal of Staff

  What Can I Do After Receiving an SEC Subpoena?

  With regard to responding to an SEC subpoena, a Commission subpoena will generally be issued following the SEC’s issuance of a formal investigation order. Here is a more detailed look at what this means for a subpoenaed witness: #

  Issuance of a Formal Investigation Order

  The issuance of a formal investigation order does not establish that securities violations occurred, but it makes possible the issuance of a subpoena. After receiving a Commission subpoena, you should feel free to contact your attorney who can review your subpoena and discuss what options you have moving forward. #

  Seeking a Copy of the Formal Investigation Order

  In most cases, after your attorney reviews your subpoena, he or she will request a copy of the formal investigation order that was previously issued. While the formal investigation order’s title may provide some insight into the investigation’s scope, you should not rely on the title too heavily as the order’s title does not necessarily constrain the investigation’s scope. #

  Challenging a Subpoena Before Compliance C.F.R.

  §203.8 allows a recipient to challenge a subpoena before complying. Specifically, Rule 232(e) of the Commission& #x27;s Rules of Practice, 17 C.F.R. § 201.232(e), provides that any person to whom a subpoena is directed, or who is an owner, creator, or the subject of the documents to be produced, may request that the Commission quash or modify the subpoena prior to the time specified in it for compliance, but in no event more than 15 days after the date of service. #

  Subpoenaing Electronically Stored Information

  In addition to requiring production of paper records, SEC subpoenas have broad reach, including: “All, any and every document or other records and information, including but not limited to electronically stored information, that are in your possession, custody or control, or which are available to you by a reasonably accessible means, that have the characteristics described below.” #

  Federal Subpoena Enforcement If the SEC

  believes that you have violated its subpoena, the SEC may seek enforcement in federal court. If a federal judge enforces the SEC subpoena, you will then be subject to the enforcement measures in the federal district court. #

  Federal Contempt Sanctions for Violating a Subpoena-Enforcement Order

  When a witness fails to comply with a federal subpoena-enforcement order issued by a federal judge, the judge can impose contempt sanctions. These can be civil contempt sanctions, which can include fines, or criminal contempt sanctions. Under the federal Rules of Criminal Procedure, the court can impose fines, an order of imprisonment, or both.

In accordance with the U.S. Constitution, a witness also has the right to the assistance of counsel during any SEC interview. Furthermore, witnesses are generally entitled to invoke the attorney-client privilege, work product doctrine, or Fifth Amendment privilege where applicable.

Can I Invoke the Fifth Amendment During SEC Testimony?

The answer to this question involves a number of considerations that depend on the circumstances involved. Some key points for subpoenaed witnesses to consider include: - Civil Courts’ Power to Draw Adverse Inferences, Unlike in criminal trials, in civil cases, civil courts (and juries) can often draw adverse inferences when a party invokes the Fifth Amendment privilege. This means that, upon the party’s refusal to answer a question on Fifth Amendment grounds, the court can draw an adverse inference (i.e., it will assume the answer would have been unfavorable to the party invoking the privilege). This is a potent tool for the government in civil litigation, and it means that witnesses cannot simply refuse to answer all questions during civil testimony.

• Immunity from Criminal Prosecution, A witness can seek immunity from criminal prosecution. However, the SEC staff does not have the authority to grant immunity from criminal prosecution. If you are seeking immunity, you must contact your attorney so that your attorney can contact the U.S. Department of Justice (DOJ).
• Limitations of the Fifth Amendment, The Fifth Amendment provides against “compelled, testimonial self-incrimination,” it does not provide an absolute “right to silence” like the warning required during custodial interrogation under Miranda v. Arizona, 384 U.S. 436 (1966). If a witness’s testimony would not be “incriminating,” if the information is already in the public record, or if the witness is not being “compelled” to testify, then the Fifth Amendment privilege does not apply.
• The Corporate Fifth Amendment Privilege, Corporations do not have the Fifth Amendment privilege against self-incrimination. While an individual corporate officer, director, or employee can invoke the Fifth Amendment for themselves, the corporation cannot.
• Corporate Custodians and the Fifth Amendment, In general, a corporate custodian cannot use their personal Fifth Amendment privilege to withhold production of corporate records. When the SEC serves a subpoena on a corporate entity or a person in custody or control of corporate records, the corporate custodian cannot refuse production on the grounds of their own Fifth Amendment privilege, since the documents belong to the corporation.
• Civil Adverse Inference vs. Criminal Determination of Guilt, An adverse inference in civil litigation is not a determination of criminal guilt. Instead, an adverse inference gives the underlying evidence probative value.
• Preserving the Record for an Adverse Inference (Civil Litigation), When counsel for a witness repeatedly asserts the witness’s Fifth Amendment privilege in response to the government’s questions, this serves to preserve the record for subsequent civil proceedings. The resulting record ensures that the SEC has the ability to move for an adverse inference, if warranted, and that the civil court will have the records that it needs to draw such an adverse inference.

  What Rights Do I Have During Formal SEC Testimony?

  As indicated by the title of Form 1662, formal SEC testimony provides witnesses with broad substantive and procedural rights. At Spodek Law Group, we handle matters in both administrative and court litigation, and we have helped dozens of witnesses protect their rights while navigating the investigative process. Some key rights you should know about include:

• Right to Counsel of Your Choice, Form 1662 expressly recognizes that “you may be accompanied by an attorney.” Once you retain counsel, your attorney will serve as your legal advocate for all interactions with the SEC. #

  Counsel’s Role Before, During, and After Your Testimony

  Your attorney can play an important role throughout the investigative process. Before your testimony, your attorney will review the evidence against you, contact the SEC to clarify the scope of your inquiry, and advise you on your options. During the testimony, your attorney will be by your side to object on the record and seek clarification from the government when appropriate. Following your testimony, your attorney will evaluate how the SEC has obtained your testimony and advise you on what next steps make sense (if any). #

  Attorney-Client Privilege and Work Product Protection

  The attorney-client privilege and the work-product doctrine protect confidential communications between attorney and client from disclosure to third parties in litigation. During your testimony, your attorney can invoke your attorney-client privilege and/or the work-product doctrine when required. If you receive a Commission subpoena, you should promptly contact an attorney about discussing your subpoena and next steps. #

  Court Reporters and Testimony Transcripts When the SEC

  conducts a witness interview under a formal order of investigation, a government-contracted court reporter transcribes the formal SEC testimony. As part of the transcription process, the court reporter may interject to ask you to repeat yourself or slow down for accuracy. #

  Access to and Use of Testimony Transcripts Under Commission Rule 6,

  a witness who is provided with a copy of their testimony transcript may purchase the transcript for personal use. Witnesses are also entitled to inspect their transcripts, and witnesses may request corrections to the record as well. #

  Witness Separation during Testimony Sessions SEC

  testimony sessions ordinarily exclude other (unrelated) witnesses, and their lawyers do not attend as well. This prevents the exchange of information between witnesses and is consistent with the principle of “shielding” the witness from others who may be involved in the same inquiry. #

  Clarifying the Record When Your Testimony Concludes

  When your testimony concludes and your attorney has an opportunity to speak with the government on your behalf, your attorney will take this opportunity to clarify the record or amend previous testimony if necessary. If the interview has concluded, you may speak with your attorney about the testimony session you’ve just had.

  Who Can Receive Information I Provide to the SEC?

  For witnesses who provide information to the SEC, Form 1662 provides the following warning: “The information you supply may be subject to governmental routine uses.” The language is broad, and it is intended to inform witnesses that information they provide during the investigative process may be used or disclosed to others. Some key examples of “governmental routine uses” include:

• Disclosure to Criminal Authorities, Under the Privacy Act (5 U.S.C. § 552a), information furnished to an agency may be disclosed if the disclosure is “compatible with the purpose for which it was collected.” For an SEC investigation, disclosure to other federal law enforcement agencies, state law enforcement agencies, and other entities is generally compatible with the SEC’s efforts to enforce the securities laws.
• Support for Civil, Administrative, and Criminal Proceedings, With this in mind, testimony you provide to the SEC, as well as any other information you provide, can potentially serve as support in subsequent SEC civil litigation, an administrative proceeding, or even a criminal prosecution by the U.S. Attorney’s Office (which may involve parallel civil or criminal investigations).
• Parallel Criminal Investigations, Does Form 1662 reveal whether a parallel criminal investigation exists? While Form 1662 does not expressly state so, the fact that the SEC has a routine use to disclose information to the U.S. Department of Justice (DOJ) strongly suggests that it could be helpful to assume that the DOJ is actively looking into your case. The DOJ and SEC often conduct parallel investigations involving similar issues, but both agencies are separate and they are able to conduct separate inquiries as well.

  When Is Disclosure Not a “Governmental Routine Use”

  As outlined above, the SEC has a routine use to disclose information and testimony to other federal and state agencies. However, there are limits to this routine use as well:

• Disclosure to Private Parties, Importantly, routine uses are disclosures “compatible with the purpose for which [the information] was collected.” This provides a limit to disclosure to other agencies but it does not allow disclosure to private parties. If the government seeks to disclose information and records to a private party, the government will need the person’s consent or a court order.
• Freedom of Information Act (FOIA) Exemptions, In addition to withholding information in investigations from the public, the FOIA includes seven exemptions to the general rule of public disclosure. For example, while FOIA Exemption 7(A) generally requires the government to withhold records compiled for law enforcement purposes when “disclosure could reasonably be expected to interfere with enforcement proceedings,” FOIA Exemption 7(C) provides withholding of records in law enforcement matters when “disclosure would be reasonably likely to interfere with the effective enforcement of the law.”

  What Conduct Can Create Separate Criminal Exposure in an SEC Investigation?

  If an individual is facing a criminal investigation under federal securities laws, or any other statute, they should not make the mistake of thinking that there is no risk of separate criminal exposure unless there are allegations of intentional (willful) perpetration of underlying securities fraud. As we discussed above, several different federal statutes provide for criminal enforcement based on a witness’s statements, interactions with the government, and attempts to destroy evidence.

• Perjury, Perjury may be prosecuted in SEC investigations under 18 U.S.C. § 1621. This section of the criminal code requires proving “willfully and contrary to his oath” made a “false statement which is material, to any question directly, or indirectly, pertinent to any matter pending before the court.”
• Making Materially False Federal Statements, Along with perjury, making materially false statements to government officials can violate 18 U.S.C. § 1001. While perjury is essentially a specific form of which an individual makes a false statement, 18 U.S.C. § 1001 is broader, covering “concealments” as well. Under 18 U.S.C. § 1001, the federal government will seek to prove (i) you acted knowingly and willfully; and, (ii) that you did something materially false, including concealing “a fact material to the matter involved.”
• Obstructing a Pending SEC Matter, “Obstructing” an SEC investigation or any other government enforcement or regulatory proceeding can lead to criminal prosecution under 18 U.S.C. § 1505. Specifically, this section provides for criminal liability for anyone who “corruptly... endeavor[s] to influence, obstruct, or impede the due and proper administration of the law” or, in a separate instance, a “pending proceeding before any department or agency of the United States.”
• Destroying or Concealing Material Evidence during an SEC Matter, A witness who destroys records or attempts to hide information from the SEC with the intent to “impede, obstruct, or influence” a “matter within the jurisdiction of any department or agency of the United States” can be prosecuted under 18 U.S.C. § 1519.

  How Serious Are the Crimes of Perjury, Obstruction, and Materially False Statements?

  Perjury, obstructing a government inquiry, and making materially false statements are all serious crimes. When applicable, 18 U.S.C. § 1001 carries a maximum five-year term of imprisonment for each offense. Witnesses may also face criminal penalties for committing a “true” crime, such as making a false statement on an application for a mortgage or insurance loan. A witness who gives a literally true answer that is still misleading can avoid prosecution under 18 U.S.C. § 1001 if a jury finds that it was not “materially false.”

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.