SEC Formal Investigation vs. Informal Inquiry: What's the Difference??

The primary distinction between a formal and informal SEC inquiry is the staff’s subpoena power. In an informal inquiry, the SEC staff does not have the authority to issue subpoenas to compel testimony or produce documents. In a formal investigation, the Commission has issued a formal order of investigation, which authorizes designated staff to issue subpoenas.

Does a formal order mean that a violation of securities law has been established?

No. In the SEC’s own words, “A formal order does not mean that any federal securities laws have been violated, nor does it necessarily mean that charges will be filed.” In short, formal status means only that the Commission has concluded a fuller investigation is warranted to determine whether a violation may have occurred; it does not establish that any violation in fact occurred or that charges will follow.

Are SEC investigations public?

Both informal and formal SEC investigations are generally confidential. However, there are exceptions, and the SEC will publicly disclose enforcement actions. In the SEC’s press releases describing its enforcement actions, it states that “the Commission brings civil proceedings to enforce federal securities laws.”

The SEC may be forced to publicly disclose an investigation if it is challenging a company’s refusal to comply with a subpoena.

While the SEC may refer potential criminal enforcement actions to the U.S. Department of Justice, the SEC does not have authority to file criminal charges itself.

How long can an SEC investigation take?

There is no universal statutory deadline governing SEC investigations. Some informal inquiries may be concluded within several months, while other formal investigations may last several years. Because of the broad scope of the SEC’s enforcement authority, any federal investigation can have significant implications; therefore, the timing of an SEC investigation’s conclusion cannot be predicted with certainty.

How Does the SEC Start a Formal Investigation?

A formal investigation begins with a formal order of investigation. If you have received an SEC subpoena, it means that the SEC has issued a formal order authorizing the investigation that resulted in the subpoena.

Although the staff will not typically include the governing formal order with the subpoena, subpoena recipients have the right to request access to the order.

If you have received an SEC subpoena, you should not assume that this means you are an investigation target. A formal order of investigation may authorize broad fact-finding efforts that extend well beyond the specific individual or entity whose response is required at a particular time. A formal order may also specifically establish that you are not the primary subject of the investigation, as formal orders of investigation often (but not always) include language to that effect.

A formal order may also identify you as the target of the investigation. Again, as discussed above, the formal order’s issuance does not establish that any violations of federal securities law were committed.

Although the SEC has authorized a wide range of investigative measures in the past, the SEC recently withdrew its delegated approval authority for formal orders of investigation. This change means that formal-order requests must now be approved at the Commission level. The SEC’s announcement reads, in part, as follows:

With the effective date of this change, all requests for formal orders of investigation must be approved at the Commission level. Requests for formal order authority will continue to be submitted to the Division of Enforcement. As previously announced, Division of Enforcement staff will conduct these investigations in accordance with the Commission’s enforcement priorities.

We expect that the time required for the Commission to review formal-order requests will be very short. In all circumstances, the Commission will make every effort to ensure that staff are not unduly hampered in their ability to execute enforcement investigations.

What Does it Take for the SEC to Issue a Formal Order of Investigation?

The SEC’s issuance of a formal order of investigation requires Commission approval. Commission approval of a formal-order request requires the affirmative vote of a majority of the commissioners constituting a quorum, though such requests are ordinarily approved without a public meeting rather than at an open session.

The SEC’s 2025 formal-order approval process does not include a provision for requiring, as a condition of approval, that a request for formal-order authority specifically identify the individual or company it targets. Rather, it explicitly states:

“The new approval process allows for both targeted and broad-scope requests. For broad-scope requests, the staff may limit subpoena authority as deemed necessary to execute effective investigations, although enforcement staff will remain subject to the requirements of the Commission’s subpoena policies.”

Can I Refuse an Informal SEC Information Request?

The term “MUI” is an acronym for a matter under inquiry. An MUI is a type of informal, preliminary enforcement inquiry initiated by the SEC. During a matter under inquiry, the SEC staff is tasked with assessing the availability of any actionable enforcement allegations and determining whether a fuller investigation is warranted.

As with all informal inquiries, an MUI is voluntary in nature. The staff may request that you voluntarily produce information, and the staff may ask whether you are willing to sit down for an interview. But, generally speaking, you cannot be forced to respond to an informal inquiry by the SEC.

If you have received an informal request from the SEC, you should determine if you have separate obligations to the agency that may require compliance. While non-registered parties do not generally owe additional obligations to the SEC in addition to responding to the SEC’s information request, the SEC’s Enforcement Manual expressly notes that “informal inquiries are not subject to restrictions on the scope of information production for issuers and other registered entities that are subject to the recordkeeping requirements of the federal securities laws or other pertinent rules and regulations.”

Along with records related to financial results, disclosures, registered securities offerings, and other related matters, issuers and other registered entities that are subject to federal recordkeeping requirements will be required to produce books and records upon request in order to comply with the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and other statutes and regulations applicable to the SEC’s fact-finding authority.

Can an Informal SEC Inquiry Become a Formal Investigation?

As with all inquiries, if the SEC staff does not receive the information it needs to assess whether it wants to open a more comprehensive investigation, the staff may seek the Commission’s formal authorization to issue a subpoena. The SEC’s Enforcement Manual notes that, “noncooperation should inform the staff’s decision regarding whether to seek formal-order authority.”

Can I Decide Not to Cooperate?

Depending on the circumstances, you may decide not to cooperate with an informal inquiry. Noncooperation does not violate the SEC’s rules; however, it may create an incentive for the SEC to open a formal investigation. If you choose to cooperate, you must also consider whether you have a duty to protect information protected by the attorney-client privilege, the attorney work-product doctrine, or another federal or state law. For example, if you have received an informal request from the SEC and you decide to produce a document protected by the attorney-client privilege, your production of the document could potentially waive this privilege in SEC enforcement proceedings or any other administrative or judicial proceeding initiated by the SEC or the DOJ.

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

What Can I Challenge in an SEC Subpoena?

Unlike the SEC’s informal requests, a formal subpoena is a mandatory demand. It can compel the production of documents, it can compel you to appear and give sworn, on-record testimony, and it can do both. To some extent, you may be able to negotiate with the SEC staff. The staff may agree to accept a narrower scope of production, and the staff may agree to accept a later compliance date. However, if you ignore the subpoena, the SEC will likely seek judicial enforcement. The SEC will file a motion for enforcement in the district court with jurisdiction over your location. If you fail to comply with the district court’s subsequent order, the SEC will likely move for contempt.

You may have other grounds for challenging an SEC subpoena. The SEC’s subpoena authority in a formal investigation is limited to those documents and other information that the Commission deems necessary for the execution of the designated inquiry. If an SEC subpoena demands the production of documents or testimony that is outside the scope of the investigation authorized in the Commission’s formal order, the formal order’s issuance and the resulting subpoena do not establish the subpoena’s validity.

With that said, if you make a request to meet the subpoena’s requirements and the SEC staff declines to accommodate you, you are then required to comply with the subpoena. If you refuse to comply with the subpoena, you will need to prepare to litigate. If you prevail, you could potentially end the investigation. However, just because you prevail, it does not mean that the SEC is now precluded from pursuing a different enforcement action against you.

If you are faced with an SEC subpoena, the first step is to determine if you are compelled to respond. If so, then determine whether you can negotiate a reduction in scope or time, and, if you cannot, determine what grounds you have for challenging the subpoena’s demands. Once you make these determinations, prepare a strategy for either negotiating with the SEC, preparing for litigation, or otherwise responding to the SEC’s demands.

In the context of a judicial enforcement proceeding, the SEC has the burden to prove that the targeted individual or entity possesses documents or information that are within the subpoena’s scope. The subpoena recipient can then raise an objection to the SEC’s demanded document or testimony. This includes, among others, objections based on:

• The information’s relevance to the designated investigation
• Overbreadth
• Undue burden
• Assertion of the attorney-client privilege or the work-product doctrine

If you prevail on these grounds (or, as a consequence of negotiating with the SEC’s enforcement litigators, the SEC has agreed to withdraw its demands), your objection should end that portion of the SEC’s fact-finding efforts. However, if the district court denies your objection, you will be required to comply with the subpoena to avoid a contempt of court charge.

Remember, raising an objection does not otherwise invalidate an SEC subpoena, and raising an objection does not preclude the SEC from seeking judicial enforcement of the subpoena.

What is the Work-Product Doctrine?

The work-product doctrine protects materials and other information that were created in anticipation of litigation or legal proceedings. If the SEC is seeking a document or other information and it is protected by the work-product doctrine, then the work-product doctrine may protect that information from compelled production, subject to applicable exceptions.

Will an SEC Investigation Become Public or Require Disclosure?

The SEC does not ordinarily release a formal order of investigation when it is issued. The SEC does not routinely announce formal investigations, and the SEC generally does not disclose the initiation of a formal investigation at all. With that said, a company should not assume that the receipt of a formal order of investigation from the SEC ensures confidentiality. While companies may not be required to disclose the receipt of an SEC formal order of investigation pursuant to federal securities laws, public companies may still choose to disclose the receipt of an SEC formal order. For example, a company that determines that disclosure is necessary will disclose receipt of a formal order to the public or other investors in its next Form 10-Q or other report.

Does the SEC Require Public Companies to File a Form 8-K?

In general, the SEC does not require companies to file a Form 8-K if it has issued a formal order of investigation. This, again, is because receipt of a formal order of investigation is not necessarily material. To determine whether to publicly disclose an investigation, companies must consider whether they have applicable SEC reporting requirements, whether receipt of the SEC’s formal order is material to the company, and whether the company needs to issue a Form 8-K to avoid misleading statements that were published in the public domain prior to the company’s disclosure of the SEC’s formal order.

A public company must also consider its disclosure obligations under all applicable federal securities laws, and it must determine if an SEC investigation falls within these obligations.

What is a Wells Notice?

A Wells notice is a formal communication issued by the SEC staff to the target of an SEC investigation or an individual or entity whose liability may potentially result from an enforcement action. A Wells notice communicates that the SEC staff has made a preliminary determination to recommend that the Commission file an action or institute a proceeding against the recipient. Although it is an important communication, a Wells notice is not a complaint, and a Wells notice is not an adjudication of liability. The notice merely describes the staff’s preliminary assessment of the facts and the staff’s prospective enforcement action.

A Wells notice will typically include the following information:

• The specific violation(s) that the SEC staff believes he or she can prove are within the SEC’s jurisdiction
• The proposed sanctions and remedies that the SEC staff intends to recommend to the Commission

What Rights Do I Have in SEC Interviews and Testimony?

As a matter of fact, most witnesses who are called to participate in SEC interviews and testify in SEC enforcement proceedings have a right to have counsel present. And as explained above, witnesses who have not received a subpoena to participate in an SEC interview or to testify in an SEC enforcement proceeding have an obligation to decline cooperation.

In practice, the government invokes a compelling interest in making sure that it is not which of the three scenarios are present in an interview and that the SEC’s interviews are noncustodial in nature. So, as a result, Miranda warnings generally do not apply. As a result, an SEC staffer can conduct an interview without having to read the Miranda warning. While the SEC staff member cannot impose criminal imprisonment, while the SEC and DOJ are different agencies, the SEC and the DOJ share information. If you disclose incriminating information to the SEC in an interview, the SEC and DOJ can work with one another to prove that you have violated federal criminal laws. If you speak or testify at the SEC, your statements and testimony can support charges in civil enforcement proceedings and in criminal proceedings.

But if you are faced with an SEC subpoena, and you have no other means to avoid testifying, then you will have a constitutional right to invoke the Fifth Amendment if the information being sought is incriminating in nature. Even if you provided voluntary information at a prior stage in an SEC investigation or in an interview, this does not mean that you have waived your right to protect your statements from being used against you.

If your company’s counsel or the law firm that represents your company contacted you to attend the interview, remember that this law firm’s primary responsibility is to your company, and that this law firm does not represent you unless it also represents you individually. If this law firm does not represent you, then you should contact independent counsel.

A subpoena is a formal demand. It will not allow the SEC staff to compel your cooperation without judicial intervention. If the SEC seeks to judicially enforce a subpoena, the SEC will need to demonstrate to the district court with jurisdiction that it has a legitimate reason to seek your testimony.

What Are My Rights and Protections as a Subpoena Recipient?

As the target of a subpoena, it will be in your best interest to determine if the SEC has the authority to pursue a formal investigation. If so, you will want to determine the scope of the formal investigation that the SEC was authorized to pursue. As a result, you should immediately engage an experienced federal securities defense attorney who will advise you, protect your rights, and work on your behalf, and who can contact the SEC on your behalf. Once you engage an experienced federal securities defense attorney, your lawyer will communicate with the SEC and determine the specific facts and circumstances of the investigation that is being conducted. Along with this information, your lawyer will ensure that you do not respond to the SEC demands before you make an informed decision to decide how to pursue your defense.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 212-300-5196.