What Is an SEC Subpoena and Why Did I Get One??

Does an SEC Subpoena Mean I Did Something Wrong?

What Does an SEC Subpoena Require Me to Do?

What Should I Do if I Get an SEC Subpoena?

Where Can I Find Out More Information About the SEC’s Investigation?

What are Some Other Important Things to Know About an SEC Subpoena?

What Other Documents Should Be Included with an SEC Subpoena?

What Are Common SEC Subpoena Requests?

Why Did I Get an SEC Subpoena?

Why did the SEC send me a subpoena?

The most likely reason for your receipt of an SEC subpoena is that the SEC is seeking evidence in a formal investigation. While we have helped clients in cases involving every aspect of the securities laws, from insider trading to securities fraud, we do not have the data to say which types of subpoenas are sent most frequently.

Can the SEC subpoena me for someone else’s alleged wrongdoing?

Yes. The SEC often subpoenas individuals who it believes may have information or records relevant to the alleged wrongdoing of someone else. For example, if you serve as the secretary or bookkeeper for a company being investigated for securities fraud, the SEC may send you a subpoena as an information source.

Does my subpoena tell me if the SEC thinks I did something wrong?

Not necessarily. While a subpoena for production of documents can sometimes reveal the SEC’s suspicions, a subpoena itself generally does not reveal whether you are under scrutiny. Instead, your subpoena may suggest that the SEC thinks you are an information source, a witness, a subject, or a proposed defendant.

Am I in trouble?

Not necessarily. If the SEC thinks you are an information source, it may believe that you possess documents that are relevant to the SEC’s investigation, but it may also think you have no personal knowledge of the events involved. If the SEC thinks you are a witness, it may believe that you have personal knowledge of the events involved, but that you are not responsible for any wrongdoing.

Could I go from being a witness to a subject or proposed defendant?

Yes. As discussed above, the SEC’s designation of you as a witness is based on its current assessment. As the investigation continues, if the SEC discovers evidence that shows you may have some responsibility for the events involved, it can change your designation from witness to subject or proposed defendant.

What does it mean if the SEC labels me a “witness,” “subject,” or “proposed defendant”?

These labels have different implications for the SEC’s investigative process. However, as stated above, they are the SEC’s investigative assessments and not determinations of liability. As a witness, you may be asked to testify. As a subject, you will be entitled to a “Wells notice” prior to the SEC bringing charges. As a proposed defendant, the SEC will have already decided to bring charges against you.

What is the SEC looking for?

The SEC’s enforcement priorities change from time to time, but some examples of areas of focus include:

• Violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 (including securities fraud, insider trading, and market manipulation)
• Violations of the Foreign Corrupt Practices Act (FCPA) and other statutes targeting international bribery and corruption
• Violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act
• Investment adviser fraud and other violations of the Investment Advisers Act of 1940
• Insider trading and misappropriation of sensitive information
• Public disclosure failures and other violations of the SEC’s rules and regulations

Where Does a Subpoena Fit Into the SEC’s Enforcement Process?

What is an SEC “investigation”?

The term “investigation” refers to the SEC’s efforts to uncover evidence of alleged violations of the securities laws. An investigation may begin informally when an SEC staff member contacts you or someone else and requests information or documents on a voluntary basis. However, if the SEC determines that there is reason to believe that information or records might not be readily available on a voluntary basis, it may open a formal investigation. If the SEC opens a formal investigation, the SEC’s commissioners will approve a “formal order,” designating the SEC staff members who are authorized to conduct the investigation and issue investigative subpoenas.

Does the SEC’s formal order mean the subpoenaed person is in trouble?

No. A formal order is a tool that the SEC uses to allow its staff members to use compulsory process, such as subpoenas for production of documents and subpoenas for sworn testimony, when necessary. There are many situations in which a formal order is not a sign of wrongdoing; and, as stated above, the issuance of a subpoena is not itself proof of wrongdoing.

What is a Wells notice?

A Wells notice is a formal notification that SEC staff are recommending that the SEC bring an enforcement action against you for alleged violations of the securities laws. While a Wells notice is also part of the SEC’s enforcement process, it is distinct from an investigative subpoena. A Wells notice is generally the last step that precedes the SEC bringing an enforcement action.

How differs an investigative subpoena from a Wells notice?

There are several important distinctions between investigative subpoenas and Wells notices. Among the most significant are: (i), the fact that a Wells notice serves as notice that the SEC’s staff is recommending that the SEC take enforcement action; (ii), the fact that receiving a Wells notice is quite different from receiving an investigative subpoena in terms of the evidence it provides of the SEC’s theory of your liability; and (iii), the fact that a Wells notice reflects the SEC staff’s preliminary view and does not show that the Commission has authorized the staff to bring an enforcement action.

What is a formal enforcement action?

A formal enforcement action is when the SEC files an SEC-complaint with a federal court in civil litigation, or in an administrative proceeding. While the SEC may file enforcement actions against SEC staff members as well, the vast majority of the SEC’s enforcement actions are filed against defendants that are not within the agency’s control. When a formal enforcement action is filed, the matter moves from an investigative process to an adversarial adjudication process.

Are subpoenas required if SEC staff open an investigation on a voluntary basis?

No. If SEC staff members open an investigation on a voluntary basis, they will not need to issue subpoenas. In this case, you will still need to determine how to respond to the SEC’s request, and you will still need to determine whether the SEC is treating you as an information source, a witness, a subject, or a proposed defendant.

What Should I Do After Receiving an SEC Subpoena?

An SEC subpoena will specify either a date for the production of responsive materials or a date and location for producing documents and/or testifying. It may also include information regarding compliance efforts and will name the SEC staff members who are handling the case.

Preserving potentially responsive documents and electronic data is an important first step following the issuance of an SEC subpoena. If you are acting on behalf of an organization, you need to provide clear instructions to all relevant employees immediately. You should not just instruct employees to cease the deletion and modification of potentially responsive information, but also to make sure that employees preserve all potentially responsive information to the extent possible, as this is the best way to avoid any risk of being charged with obstruction of justice.

In some cases, you may need to request an extension of the response deadline of the subpoena. SEC staff will often agree to reasonable extension requests if these requests allow you additional time to thoroughly collect and review the materials in your possession for responsiveness and privilege.

Collection is the process of identifying the custodians and the devices, accounts, cloud storage, and archived data that may contain responsive documents and electronic records. To ensure the collection process is thorough and targeted, your attorney should execute the collection in conjunction with a substantive review of the subpoena and its attached documents.

After the collection process is completed, you will want to carefully review the collected materials for responsiveness. The SEC will only want to receive the materials that are responsive to the subpoena. A substantive responsiveness review involves analyzing the subpoena’s request for responsive information and reviewing the materials in your possession against the subpoena’s identified scope.

The privilege review takes place following the responsiveness review. In addition to ensuring that responsive documents and electronic records are not produced if they are protected under the attorney-client privilege or the work-product doctrine, you will want to make sure that other protected documents and records are not mistakenly produced to the SEC.

Your production response should consist of the identified responsive materials along with a production log and retained copies. Production logs can document how many documents and electronic records were produced, and retained copies of both responsive and non-responsive materials can establish exactly what you produced and when.

If you discover any responsive materials that were not produced after the SEC closes its investigation, you should notify SEC staff promptly of the omission. If you discover responsive materials that were not produced after the SEC brings a formal enforcement action, you must notify the SEC immediately. If you discover that you have omitted materials that are relevant to the investigation after you have produced the materials in your response, you should notify SEC staff as well.

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.

Can I Get Out of or Narrow an SEC Subpoena?

SEC staff may be willing to negotiate with you regarding the scope of the subpoena, the sequence of your compliance, and other logistics related to responding to the subpoena. Some examples of successful negotiations with the SEC include:

• Sequencing: If the SEC wants to review documents and then take your sworn testimony, the SEC may be willing to allow you to respond to the request for production before the request for testimony.
• Custodians: In some cases, the SEC may be willing to agree to narrow the custodians that have to be searched for potentially responsive records.
• Search terms: If the SEC has requests that target electronic records that are potentially responsive, the SEC may be willing to limit the scope of the search to certain keywords.
• Scope of the request: If the SEC’s subpoena requests materials or testimony beyond what is necessary for the SEC’s enforcement investigation, the SEC may be willing to narrow the scope of the request.

How Do I Challenge an SEC Subpoena?

Recipients may challenge SEC subpoenas on a variety of grounds. Some of the more common grounds for challenging SEC subpoenas include:

• Irrelevance: An investigative subpoena is only valid to the extent that it is issued to gather information and records that are relevant to the SEC’s enforcement investigation.
• Unreasonable or Unduly Burdensome: In some cases, the scope of the SEC’s request for production or testimony is unreasonable or is unduly burdensome.
• Improperly Issued: A subpoena may be improperly issued or improperly served.
• Too Broad: A subpoena may be improperly issued as to the scope of the production or testimony requested.

If you have grounds to challenge an SEC subpoena, you may be able to avoid compliance through one of the following means:

• Objecting to the subpoena prior to challenging enforcement: When the SEC issues an investigative subpoena, you have two ways to challenge it prior to the subpoena’s enforcement litigation in federal district court.

What Is a C.F.R. § 203.8(b) Application to Quash?

Under Rule 232(e) of the SEC's Rules of Practice, 17 C.F.R. § 201.232(e), the recipient of an SEC subpoena may apply to the Commission for the quashing or modification of an investigative subpoena based on its being unreasonable or unduly burdensome.

In order to pursue a petition for a C.F.R. § 203.8(b) application to quash, you must do so in advance of compliance with the subpoena. Also, you must file the application before the time specified in the subpoena for compliance, and in no event more than 15 days after the subpoena is served.

How Do I File a C.F.R. § 203.8(b) Application to Quash?

If you intend to file a C.F.R. § 203.8(b) application to quash, you will want to engage an experienced SEC defense lawyer as soon as possible. Your lawyer can assist you with evaluating the grounds for filing, drafting the application, and communicating with the SEC.

How Do I Oppose the Enforcement of an SEC Subpoena?

If the SEC petitions a federal district court to enforce its investigative subpoena, you may oppose the SEC’s petition for enforcement. Some grounds for opposing the SEC’s petition include:

• Improper service or defective service.
• Lack of territorial jurisdiction.
• Lack of appropriate venue.
• Failure to properly apply C.F.R. § 203.8(b) prior to petitioning for enforcement of the subpoena.
• Unreasonable or unduly burdensome nature of the subpoena.

Can privilege or the Fifth Amendment protect me?

Can I Invoke Attorney-Client Privilege to Avoid Producing Responsive Documents and Electronic Records?

Yes, if any of the responsive documents or electronic records in your possession are protected under the attorney-client privilege, you should be able to withhold those particular communications from the SEC. However, unless the SEC’s request is overly broad or is otherwise subject to a challenge, a privilege objection generally does not justify a blanket refusal to comply with the subpoena. Instead, you will need to conduct a document-by-document (and/or electronic-record-by-electronic-record) analysis before producing the responsive materials in your possession.

What Is the Fifth Amendment Right to Avoid Self-Incrimination?

The Fifth Amendment to the U.S. Constitution provides a protection against compelling testimonial evidence that could have a self-incriminating effect. If the SEC is seeking compelled testimony and there is reason to believe that your testimony could have a self-incriminating effect, you should be entitled to invoke your Fifth Amendment rights to avoid providing the testimony. However, the Fifth Amendment does not automatically shield the production of all preexisting documents and electronic records.

Does the Fifth Amendment Protect Documents and Electronic Records?

The Fifth Amendment does not provide a comprehensive safe harbor for refusing to produce all preexisting responsive documents and electronic records. However, there are circumstances in which the Fifth Amendment can protect against compelled production of documents and electronic records as well.

What Is a Privilege Log?

A privilege log is a document that identifies any responsive documents or electronic records that a recipient is withholding from the SEC based on a claim of privilege. The privilege log will identify the materials that were withheld, and it will also identify the legal protection (e.g., the attorney-client privilege) that the recipient is asserting in order to withhold those particular materials.

What Is the Act-of-Production Privilege?

The “act-of-production” privilege is a privilege based on the Fifth Amendment’s protection against self-incrimination, which can be used to avoid compelled production of responsive documents and electronic records in some cases. The act-of-production privilege was recognized in United States v. Hubbell, and it applies when the act of producing documents and electronic records is considered to be a testimonial act.

What Is the Fisher (Foregone Conclusion) Doctrine?

The Fisher (or “foregone conclusion”) doctrine is a doctrine that may defeat an act-of-production privilege claim. Under the Fisher doctrine, the act-of-production privilege is not available to prevent the SEC from compelling the production of records when the act of production reveals no information that the government does not already possess.

What Is Braswell?

Braswell is a U.S. Supreme Court case that established the rule that corporate custodians cannot assert a personal Fifth Amendment right against compelled production of corporate records.

What Happens if I Ignore an SEC Subpoena?

Section 21(c) of the Exchange Act, 15 U.S.C. § 78u(c), authorizes the SEC to seek federal court enforcement of its investigative subpoenas. However, although the SEC can seek federal-court enforcement of an investigative subpoena, if you ignore the subpoena, this does not lead to judicial contempt in and of itself. Instead, if the SEC petitions a federal district court, your non-compliance only results in judicial contempt once the court issues an enforcement order requiring compliance.

What Happens if the SEC Enforces an SEC Subpoena?

If the SEC enforces an investigative subpoena through a federal district court, this does not necessarily mean that you are guilty of some form of wrongdoing. With regard to its ability to punish for contempt, the SEC can only impose monetary sanctions or confinement for disobedience of court enforcement orders. At this stage, however, judicial enforcement of an SEC subpoena will not resolve the underlying securities investigation.

Can the SEC File Criminal Charges Against Me for Disobeying an SEC Subpoena?

The SEC itself cannot file criminal charges or impose imprisonment penalties for an SEC subpoena, though it can refer cases for criminal prosecution to the Department of Justice. When faced with a subpoena, you will need to consider whether you are more likely to be fined or to be imprisoned, and whether you are likely to have the ability to cooperate with the DOJ in the process of resolving any alleged criminal charges.

What Happens After I Produce Responsive Documents and Electronic Records (and Testify)?

Once you have produced the responsive materials or provided the responsive testimony that the SEC sought in the subpoena, the SEC will then use the information to advance the investigative process. Because the SEC cannot bring criminal charges on its own behalf, the SEC must either bring an SEC-complaint against you or refer the matter to the DOJ for criminal prosecution in order to seek a conviction or imprisonment.

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.