SEC Parallel Proceedings: Civil and Criminal Investigations.

The term “parallel proceedings” (or “parallel investigations”) refers to the fact that civil investigations of a particular business transaction, an incident, or a specific conduct may also lead to a criminal investigation of the same or related facts, and the two investigations may proceed simultaneously. While it is most common for the SEC to conduct an investigation in parallel with the DOJ, it may also conduct investigations in parallel with FINRA, the CFTC, FinCEN, state securities regulators, or other law enforcement agencies. In such cases, SEC’s Form 1661 and Form 1662 often expressly include the warning: “Information may reach prosecutors and other law enforcement personnel.” However, receiving such a warning does not, by itself, establish that the DOJ opened a criminal investigation, and, even if a criminal investigation has been opened, it may or may not be parallel.

United States Code Section 77t and Section 78u expressly permit simultaneous civil and criminal proceedings in securities cases, and this authority was affirmed in the landmark 1970 case United States v. Kordel. In Kordel, the Supreme Court stated that “It would stultify enforcement of federal law to require a governmental agency such as the FDA invariably to choose either to forgo recommendation of a criminal prosecution once it seeks civil relief, or to defer civil proceedings pending the ultimate outcome of a criminal trial.”

Does the SEC Work With Other Agencies?

The SEC has traditionally worked with other agencies, and its first comprehensive Enforcement Manual revision since 2017, released in February 2026, continues to encourage, and even direct, its division of enforcement personnel to coordinate and share information with prosecutors, administrative agencies, and other law enforcement entities. To the extent that the SEC’s enforcement personnel work with the DOJ, the 2026 Enforcement Manual also outlines the procedures and protocols the SEC employees must follow when collaborating with criminal authorities.

Can What I Tell the SEC Reach Criminal Prosecutors?

Approved access by the DOJ can include testimony transcripts, subpoenaed documents, and other information gathered during an SEC investigation. In the case of United States v. Stringer, the Ninth Circuit approved the SEC’s refusal to disclose the existence of a parallel criminal investigation, despite the presence of DOJ personnel within the SEC’s offices.

Under Federal Rule of Criminal Procedure 6(e), matters occurring before grand juries are not subject to disclosure. However, courts have held that the rule does not automatically shield preexisting business records simply because they were obtained by a grand jury subpoena. In other words, merely because documents were obtained via grand jury subpoena does not automatically afford the documents protection against disclosure. The DOJ can also obtain evidence, documents, and other materials originally submitted to the SEC in order to seek cooperation credit.

While Stringer binds the federal district and appellate courts within the Ninth Circuit, the other federal circuits are not bound by the decision, and the U.S. Supreme Court has not yet addressed the specific issue.

In each case, the SEC provides cooperation credit entirely at its own discretion, and its determination is not binding on the DOJ. In its updated 2026 Manual, the SEC notes a number of factors for determining when criminal referral is appropriate. While most of these factors are broad in scope, one factor is notably specific to those at risk of facing criminal charges: “actual or threatened financial harm.”

The issue of attorney-client privilege is slightly more complex. When the SEC pursues enforcement against a company or individual and obtains cooperation, does this cooperation automatically waive the entity’s or individual’s privilege, and is this waiver binding on the DOJ (or even the SEC’s own enforcement personnel) in parallel criminal and civil matters? The answer is not straightforward. A waiver of privilege given to the SEC does not bind the DOJ, because one agency cannot commit another; the practical risk runs the other way, in that materials disclosed to the SEC may become available to the DOJ and to private litigants.

Finally, even when a company or individual offers to waive attorney-client privilege, the DOJ may still choose to assert the privilege on the company’s or individual’s behalf. According to the 2026 Manual, the DOJ may choose to do this even when it is against the target’s wishes: “Even if the target would otherwise waive attorney-client privilege, if the Department thinks it is best not to seek disclosure of the communication in the interests of justice, then the Department should be free to make this decision.”

How Does an SEC Subpoena Differ from Civil and Criminal Discovery?

Under 15 U.S.C. § 78u(b), the SEC has the authority to issue subpoenas for documents and testimony during formal investigations. This power is quite different from both civil and criminal discovery. In typical federal civil litigation, discovery generally begins after the case is filed and is subject to the Federal Rules of Civil Procedure. By contrast, subpoenas for documents in federal criminal cases are governed by Federal Rule of Criminal Procedure 17(c).

If you have received an SEC subpoena, there are several critical aspects you need to understand, and a number of risks you need to consider. For example, under Federal Rule of Civil Procedure 37(e), courts may impose sanctions for lost ESI that “should have been preserved in the anticipation or conduct of litigation.” At the same time, under 18 U.S.C. § 1519, it is a federal crime to intentionally destroy documents, conceal evidence, or otherwise obstruct an investigation with the intent to impede a “contemplated” federal investigation.

When you receive an SEC subpoena, the production date listed on the subpoena will, generally, control. If the subpoena demands production within 14 days, then you must meet this deadline unless the SEC enforcement staff agrees to modify the production date.

Because the SEC issues subpoenas during its formal investigations, long before any enforcement complaint is filed (and the DOJ likewise obtains documents and testimony by grand jury subpoena during its criminal investigations), it is not uncommon for recipients of SEC subpoenas to contest the agency’s demands if the agency brings a subpoena enforcement action in federal district court. After the agency’s enforcement personnel obtain a subpoena, you may be able to successfully argue that the agency issued the subpoena outside the scope of its authority, exceeded its authority when it issued the subpoena, or violated your constitutional rights. If you successfully raise any of these grounds, you may be able to move to quash the subpoena or otherwise prevent the agency from using the materials obtained under a defective subpoena.

As an addition, an SEC subpoena may also require you to negotiate a tolling agreement. A tolling agreement is a contract between two parties in which they agree to suspend the running of certain limitation periods for a specified length of time. In an SEC investigation, a tolling agreement contractually suspends the limitations period by which the agency may pursue enforcement, in exchange for a tolling period before the agency seeks further cooperation from you. While tolling agreements are most common in private contractual matters, they are also a common feature of the SEC’s investigations as well.

Should I Testify or Invoke the Fifth Amendment?

The Fifth Amendment’s privilege against self-incrimination extends to testimony sought in the SEC’s civil proceedings. A witness may invoke the privilege and refuse to answer questions that could help establish grounds for criminal liability. But, if you invoke the Fifth Amendment during an SEC civil investigation, there are consequences. In the case of Baxter v. Palmigiano, the U.S. Supreme Court held that “If a party in a civil case takes the Fifth Amendment, a jury may draw an adverse inference as to the truth of the matter at hand.”

The Fifth Amendment privilege also does not apply to requests for corporate documents. A corporation does not have Fifth Amendment privilege, and thus, it does not have the right to refuse to produce documents that could, in the corporation’s or its employees’ own words, establish grounds for civil or criminal liability. And, according to the U.S. Supreme Court in Braswell v. United States, corporate custodians cannot refuse to produce corporate documents on the basis of their personal privilege against self-incrimination. As Braswell noted, “When a custodian is required to produce the corporation’s records, it is the corporation’s records he is producing, and it is the corporation’s Fifth Amendment privilege, if any, which is at issue.”

Can I Be Charged with a Crime for Testifying?

For a person who testifies at a deposition or in response to a subpoena, potential risks include charges of making false statements or perjury. To sustain a charge under 18 U.S.C. § 1001, the prosecution must establish that, knowingly and willfully, the defendant made a material statement that was “false, fictitious, or fraudulent.” Making a statement that is later proven to be incorrect, though, does not per se trigger 18 U.S.C. § 1001 liability. In addition, while a witness’s privilege against self-incrimination protects against the duty to answer incriminating questions, the privilege does not cover false testimony.

Likewise, perjury under 18 U.S.C. § 1621 requires that a person, while under oath, willfully makes a material statement that the speaker knows to be false. Under 18 U.S.C. § 1621, a speaker cannot assert that an allegedly inconsistent statement is not “false” simply because the statement is false by one standard, but not by another. To put it simply, a speaker cannot assert that an allegedly inconsistent statement is not “false” simply because the speaker “believes” the statement is true. In other words, under 18 U.S.C. § 1621, a witness must testify truthfully, and any inconsistencies between this testimony and testimony given on a separate occasion can potentially be used against the witness. However, unless the speaker willfully makes a material false statement, inconsistencies between testimony given on different occasions are not perjury.

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.

How Can I Protect Privilege During SEC Cooperation?

If your company is under an SEC investigation and has retained internal or external counsel to conduct an internal investigation, remember that your company (i.e., the corporation) controls the attorney-client privilege, not individual employees. The company’s right to waive this privilege is broad, and, generally, your company can waive privilege over communications with company lawyers, including those with you, over your objections.

Your company’s internal-investigation documents and communications will be privileged only to the extent they are covered by the attorney-client privilege. This means they will be privileged only if their purpose was, at least in part, to seek or provide legal advice. However, simply because internal counsel investigated certain facts that later became relevant to the SEC’s or DOJ’s investigation, the facts underlying those communications do not necessarily become privileged.

Voluntary disclosure of documents, communications, or interviews to the SEC may also waive attorney-client privilege. This is particularly important in order to obtain cooperation credit from the SEC. However, any voluntary disclosure to the SEC can lead to a waiver of privilege over the disclosed materials, and potentially even over materials not disclosed.

As an additional protection, a company’s interview memoranda and other documents may also qualify as work-product if they were prepared when it was anticipated that the company might face litigation in the SEC’s or DOJ’s investigation. Yet, voluntary disclosure to the SEC can lead to a waiver of work-product protection as well, although whether this is the case depends on whether the disclosure was made on a confidential basis and whether the jurisdiction allows for the waiver of work-product protection.

With respect to SEC investigations, you need to address your need for separate counsel as early as possible. If your company has retained outside counsel to represent both the company and its employees during an investigation, then that outside counsel must first analyze its potential conflict under Model Rule of Professional Conduct 1.7. This rule prohibits the representation of more than one client when their interests are “directly adverse” or when there is a “significant risk” that the representation of one will be “materially limited” by the lawyer’s responsibilities to another.

As a result, the corporation and its employees will often need separate counsel during an SEC investigation. This allows individuals to obtain advice and representation from lawyers whose only interest is helping them avoid civil and criminal liability.

Can the SEC Case Be Stayed During a Criminal Case?

While the authority to stay an SEC enforcement proceeding during a parallel criminal case is entirely within the civil court’s discretion, the relevant authority for this discretion is very broad. In SEC v. Dresser Industries, Inc., 628 F.2d 1368 (D.C. Cir. 1980) (en banc), cert. denied, 449 U.S. 993 (1980), the U.S. Supreme Court rejected the notion that there should be an automatic presumption favoring a stay; and it explained that parallel proceedings, by themselves, provide no protection.

Accordingly, if you or your company is under investigation for possible civil liability while facing charges for possible criminal liability, a judge will weigh various factors when considering your request to stay the SEC enforcement action. These factors include whether the parallel proceedings present “substantial overlap” and are “extremely prejudiced,” whether there are disparate burdens between the SEC and the defendant, the court’s and the agency’s docket management, and other relevant public interests.

If you are facing possible criminal liability in a parallel investigation, then you may want to request a stay at the federal district court level. However, if you are not facing possible criminal liability, it may be better to continue with the SEC enforcement action. At the same time, the strength of your request to stay the SEC’s enforcement proceedings will grow over time. As a result, while you may request a stay before you are indicted, your chances of success may improve after the DOJ issues an indictment, which clarifies the criminal liability on the table and the likely timing of the criminal proceedings.

With that said, a judge will not necessarily grant a stay in all cases. Instead, a judge may choose to limit civil discovery to specific issues, specific documents, or particular subjects that are either completely unrelated or unlikely to impair the criminal case’s outcome. Consequently, while the DOJ and the SEC may pursue similar criminal or civil charges, while judges may stay a civil case, they will often allow civil cases to move forward to varying degrees.

Should I Retain a Team of Lawyers to Defend Me and My Company?

If you have a possibility of facing criminal charges in connection with the SEC enforcement action, then you will want to hire a team of lawyers to represent you and your company in both proceedings. While some firms employ teams in order to maximize their clients’ chances of success, for many firms this is just their way of doing business. In these matters, it is important to hire a law firm that offers defense counsel for the DOJ, the SEC, and others. This will help ensure that your company’s defense strategy remains cohesive.

What Happens to the SEC Case After the DOJ Finishes?

For most parties who are under parallel civil and criminal investigations, a key question is: “What happens to the SEC case after the DOJ finishes?” Here, too, the answer depends on several factors.

• If the DOJ secures a criminal conviction, then this conviction may establish certain issues that will later be contested in the SEC’s civil enforcement action.
• Conversely, if the DOJ issues a DOJ declination, the DOJ’s decision not to pursue charges does not adjudicate any factual issues, and therefore it cannot have issue-preclusive effect, and it cannot bind the SEC’s decision to pursue civil enforcement action.
• Finally, if the DOJ’s criminal trial results in a criminal acquittal, this generally does not preclude the SEC from asserting civil claims against a party later. Generally, it is because civil proceedings carry a lower burden of proof than criminal proceedings. While it may appear unfair to face civil liability following an acquittal, the civil case can have a different basis for liability.

It’s important to understand that issue preclusion only applies when (i) there is a final judgment in a prior case; (ii) an issue that is the same is in both cases; (iii) the issue has been actually litigated in the prior case; and, (iv) the issue was necessarily decided in that prior case.

A criminal conviction ordinarily constitutes a final judgment. However, the result of a guilty plea may fall short of satisfying (iii) or (iv) of this list. Therefore, as a result of the fact that a guilty plea ordinarily does not establish any of the facts underlying the charges, this plea may not be issue-preclusive as well.

Also, it is important to consider the non-monetary collateral consequences of charges. For many parties, the collateral consequences will outweigh the consequences of facing monetary penalties. These collateral consequences can include loss of licensure, exclusion from federal Medicare programs, debarment from contracts, loss of insurance, loss of commercial relationship, and other reputational harm.

Unlike a criminal conviction, which carries a proof burden of “beyond a reasonable doubt,” the SEC’s civil action must only be proved by a preponderance of the evidence (or clear and convincing evidence in certain cases).

U.S.C. § 2462 also applies to the SEC’s enforcement action. While this section of the law imposes a general five-year statute of limitations for civil-penalty claims, an SEC investigation can often involve a tolling agreement, which extends the period of the agency’s enforcement authority to any extent permitted under a consensual agreement between the SEC and the party that is subject to the investigation.

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.