What to Look for in an SEC Defense Lawyer.

SEC defense can extend from the time you first hear from the SEC through a possible trial or appeal. As such, when you choose an SEC defense lawyer, you should choose a team that can guide you through any stage of the process. Along with the possibility of financial liability, an SEC investigation can raise risks for insurance coverage, licensure issues, debarment, reputation loss, and lost customer relationships.

Although negotiated resolutions and declinations are always the primary goals in an SEC investigation, trial experience is important for cases that cannot be resolved without trial. Our federal criminal defense attorneys have extensive experience handling SEC enforcement cases that need to be taken to trial.

Relevant experience for an SEC defense case includes:

• The regulator involved (the U.S. Securities and Exchange Commission or SEC)
• The specific allegation at issue
• The specific industry involved
• The specific procedural stage of the matter (i.e., civil vs. criminal)

You will see some call the rule about relevance the “80/20 rule.” Just to be clear, the “80/20 rule” is not a requirement imposed by the SEC; rather, it refers to the Pareto principle in decision-making.

SEC defense lawyers provide representation for the targets of investigations as well as those called to serve as witnesses. This includes digital asset investigations involving unregistered securities, insider trading and market manipulation investigations, and financial reporting fraud cases. At Spodek Law Group, we understand the legal and financial issues involved in cases involving financial fraud, digital currencies, and unregistered securities.

We only represent clients in SEC investigations when we know we can help.

How Can I Verify an SEC Lawyer’s Claimed Experience?

When you speak with a prospective SEC defense lawyer, that attorney may claim to be one of the most-feared securities litigators in Washington or the most credible SEC defense lawyer on the East Coast. When that lawyer refers to Spodek Law Group, in no case should you assume that an unbiased regulator or the DC Bar Association designated the firm as a most-feared litigation firm in DC.

The vast majority of federal securities litigation law firms employ lawyers with prior federal experience, including experience with the SEC. But, before you retain your SEC enforcement defense team, you should be sure to compare the specific experience offered by each prospective lawyer. As a result, when assessing a candidate, you should not consider experience as a firm; you should consider each prospective lawyer’s personal role in past matters involving SEC enforcement.

You can independently verify SEC lawyers’ past trial and litigation roles through their prior-case dockets on the federal court dockets website. Those cases will show when the lawyer served as counsel, whether they served as lead counsel on the case, what trial role they had if the case went to trial, and what the case outcome was. However, some matters described in lawyers’ experience may be undated. In those cases, you will not be able to independently verify those lawyers’ past litigation experience or current enforcement or trial experience.

While some SEC defense lawyers also highlight their prior experience serving with the government, remember that prior service alone does not establish duty, responsibility, or current experience in SEC enforcement defense. While some attorneys have worked for the SEC, others have worked for the SEC’s litigation staff, the SEC’s Office of Inspector General, or in other capacities. You should always be sure to ask what their prior experience means as it relates to your situation.

It will not be surprising to find a long list of superlatives of themselves and of their previous firms in securities-enforcement-defense lawyers’ marketing material. But, as you evaluate a candidate, remember that descriptions such as “aggressive,” “credible,” “tenacious,” “highly regarded,” “most-feared,” and “best” are not based on standard measurements.

Finally, make sure that your lawyer does not confuse SEC defense experience with FINRA experience. While a lawyer’s past experience with FINRA can be relevant, FINRA (the Financial Industry Regulatory Authority) is a private industry organization that investigates member broker-dealers, while the SEC is the federal securities-enforcement agency.

Does the Lawyer Understand Each Stage of an SEC Investigation?

SEC enforcement matters may proceed administratively or in federal court. As SEC defense counsel, we guide our clients through SEC enforcement matters and help them avoid unnecessary civil enforcement actions by the U.S. Securities and Exchange Commission (SEC) as well.

At the investigation stage, SEC defense lawyers will need to advise you based on what type of investigation is under way. While many SEC investigations will be classified as “informal” by the time that the SEC contacts you, a formal investigation is one in which SEC staff has received a formal SEC investigation order allowing them to issue subpoenas. When the SEC conducts an “informal” investigation, any request for information will generally be voluntary. However, if the SEC has issued a subpoena, then you are obligated to comply unless your SEC defense counsel has good grounds for objecting to the subpoena. When an SEC investigation is formal, SEC subpoenas can compel both the production of documents and the giving of sworn investigative testimony.

If the SEC’s investigation does not lead to a declination, your SEC defense lawyer may want to use the Wells process. A “Wells notice” is not an enforcement charge that has been filed with the SEC’s Office of the Administrative Law Judge or in federal court. Instead, a Wells notice is sent before those charges are filed to afford the recipient the opportunity to make oral or written arguments to the SEC staff before they recommend enforcement action.

Ultimately, one of the goals in an SEC defense case is to obtain an SEC closing letter. An SEC closing letter indicates that the SEC will not pursue further action in your case. When your SEC defense lawyer obtains an SEC closing letter, this can potentially be shared with customers, investors, insurers, lenders, and other parties. While it may serve as important documentation, keep in mind that an SEC closing letter is not a judicial ruling on innocence; and, if the SEC has not yet issued a formal indictment or enforcement complaint, it is not a judicial ruling of “not guilty,” either.

It should also be noted that the SEC’s Division of Enforcement conducts investigations of suspected violations of federal securities laws. While the SEC’s other offices and departments also contribute to SEC investigations, the Division of Enforcement’s attorneys are the ones who handle enforcement matters for the government.

Can the Lawyer Protect Me from Parallel Criminal Exposure?

While the U.S. Department of Justice (DOJ) is responsible for investigating and prosecuting criminal securities violations, the SEC investigates and prosecutes civil violations. The SEC cannot impose imprisonment for violating federal securities laws, and as such, the government will work with the DOJ to seek federal criminal penalties in cases that involve criminal liability.

However, the SEC and DOJ can, and often do, conduct simultaneous parallel investigations over the same conduct. If you are at risk for civil enforcement action and criminal prosecution, then your SEC defense attorney must be able to assess and coordinate your risks in parallel proceedings. When you choose an SEC defense lawyer, make sure that your lawyer has experience in parallel proceedings so that you can avoid unnecessary penalties. You should also make sure that your lawyer will not only focus on your civil defense at the expense of your criminal defense (or vice versa).

If you have concerns about criminal exposure, prior experience as a federal prosecutor can be an advantage. An attorney who has worked as a federal prosecutor will likely have insights that can inform your defense, and he or she will also likely have a deeper understanding of the prosecutor’s approach to your case. Along with federal prosecutorial experience, SEC defense lawyers should also have experience with federal courts and the DOJ’s criminal division. They should also be familiar with both civil and criminal rules and procedures.

For example, witness testimony is governed by different rules in civil and criminal matters. During an SEC deposition, witnesses may not always be able to invoke the Fifth Amendment privilege against self-incrimination. The SEC’s Form 1662 warns: “The information obtained in your testimony may also be shared with criminal prosecutors. You may not be entitled to the constitutional privilege against self-incrimination during your testimony to the Commission.” Even when witnesses can invoke their Fifth Amendment rights, while criminal factfinders cannot draw adverse inferences from their silence, civil factfinders may.

If you have concerns about criminal exposure, your SEC defense lawyer should take appropriate steps to protect you. At Spodek Law Group, our attorneys have experience with the SEC, the DOJ, and the federal court system. We can work with the SEC on your behalf, and we can coordinate our efforts with the DOJ if an SEC inquiry is likely to escalate to a criminal prosecution. If you are facing charges, we can fight to have them dropped, and we can negotiate favorable pretrial resolutions. We also provide strong trial representation if necessary. We will never let our SEC defense clients feel like they are alone in their cases, and we will fight on your behalf until your case is resolved.

If you are facing this situation, Spodek Law Group handles federal criminal defense matters nationwide, from offices in New York and Los Angeles.

Could Conflicts Compromise the Lawyer’s Independent Judgment?

In many SEC enforcement matters, companies, boards of directors, officers, employees, and witnesses may all need separate counsel to ensure that their respective legal teams can advise them without conflict. While it is possible for a company and its officers to share counsel in some cases, this can become problematic when company and executive interests diverge. If a company’s SEC defense lawyer cannot remain neutral, then that lawyer must step aside.

If you are facing SEC enforcement action due to allegedly inadequate or fraudulent disclosures, then you will want to make sure that you have the benefit of independent judgment. If the lawyers who drafted the disclosures in question are also on the legal team handling your SEC enforcement defense, then those lawyers’ work product will need to undergo an independence review.

ABA Model Rule 1.7 governs concurrent conflicts of interest. According to Rule 1.7:

“A lawyer shall not represent a client if the representation involves a concurrent conflict of interest. Concurrent conflicts of interest include, but are not limited to, situations in which:

(i) the representation of one client will be directly adverse to another client or previously represented client;

or

(ii) there is a significant risk that the representation of one client will be materially limited by the lawyer’s responsibilities to another client, a former client or a third party.

The requirements of the Informed Consent exception to the rule above are as follows:”

“If the lawyer reasonably believes that he or she can provide competent and diligent representation to each affected client, he or she can represent each client if:

(i) the representation of each affected client is not prohibited by Rule 1.7(b)(3);

(ii) the lawyer is not prohibited by law from representing the client in the matter; and,

(iii) the lawyer has obtained the informed consent of each affected client. Informed consent must be confirmed in writing.”

Companies have additional concerns as well. As the ABA identifies in Model Rule 1.13: “A lawyer employed or retained by an organization represents the organization as or its client. The organization’s constituents may not be clients of the organization’s lawyer.” As a result, any corporate employee who provides information to their company’s SEC defense lawyer will not have the protections of the attorney-client privilege. To satisfy the attorney-client privilege, the employee must make it clear that he or she is speaking as a witness on behalf of the company.

To that end, companies’ SEC defense lawyers have an ethical obligation to provide their clients’ employees with Upjohn warnings during witness interviews. The practice takes its name from Upjohn Co. v. United States, 449 U.S. 383 (1981), in which the Supreme Court held that communications between corporate counsel and a company’s employees are privileged and that the privilege belongs to the corporation. The warning exists so that the employee understands the company, and not the employee, controls whether those communications are disclosed.

In parallel civil-criminal proceedings, companies and their officers often want to maintain the attorney-client privilege for communications between their respective legal teams. While the common-interest doctrine can allow for shared privilege, as noted above, it “cannot independently preserve privilege for communications which are not privileged independently.”

What Should My Lawyer Do Immediately After SEC Contact?

If you are considering hiring an SEC defense lawyer, then you should avoid sending sensitive facts to prospective counsel before those prospective attorneys conduct a conflicts screening. Once you have formally retained an SEC defense team, however, these attorneys will need to know about the unfavorable facts in your case so that they can accurately assess your risk exposure and advise you on an informed basis.

If you are at risk for SEC enforcement action or federal criminal charges, you must take steps to protect yourself from potential sanctions related to the destruction of evidence. While the general rule is that a preservation duty arises when litigation is reasonably anticipated, “this duty can trigger even if an SEC investigation is currently informal.” As 18 U.S.C. § 1519 states: “Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.”

Additionally, you may need to take action to protect your company’s insurance coverage. Under typical D&O policies, “coverage is conditioned upon (i) prompt notice to the insurer, and (ii) the insurer’s consent to any settlement proposal or, in many cases, the company’s choice of legal counsel.”

When an SEC investigation is under way, you or your company may also need to conduct an internal investigation. These investigations will typically assess:

• The company’s accounting practices, internal accounting controls, and financial disclosures
• Company transactions and relationships
• employee conduct with regard to compliance, training, and disclosure obligations

If the internal investigation reveals potential issues, then counsel will use the information gathered to assess your risks. Counsel may also advise on remediation or whether the company needs to self-report any violations uncovered in its internal investigation.

What Should the Engagement Letter Say About Costs and Communication?

As the SEC’s website explains, “The U.S. Securities and Exchange Commission (SEC) is an agency created by Congress that helps protect investors, maintains fair, orderly and efficient markets, and facilitates capital formation.” The SEC is tasked with enforcing the federal securities laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The SEC also includes other divisions such as the Office of the Inspector General (OIG), the SEC’s whistleblower program, and the Securities and Exchange Commission Office of the Administrative Law Judge (OALJ).

At Spodek Law Group, our legal team includes former SEC enforcement attorneys, senior government attorneys, and judges. When you need to discuss your concerns regarding SEC enforcement with an attorney, these prior experiences and insights can prove valuable. Our attorneys can rely on their background to help guide you through an investigation, while helping you avoid unnecessary civil enforcement or federal criminal exposure.

Can I Talk to an Attorney without First Forming an Attorney-Client Relationship?

If you seek information from an attorney before engaging the lawyer, then making a request through an attorney’s website or other online tools will generally not create an attorney-client relationship. As a result, you will generally have access to attorneys’ professional insights without any obligation to hire them. Once you formally engage an attorney for legal representation, you will need to discuss your case with a lawyer on an informed basis. This means the lawyer will need to know about any unfavorable facts in order to effectively represent you.

ABA Model Rule 1.18 allows lawyers to maintain a prospective client’s confidentiality, provided that it does not conflict with the lawyer’s representation of the prospective client’s business or individual interests. Rule 1.18 also prevents lawyers from revealing “information obtained from a prospective client or using the information to the prospective client’s disadvantage.” This means if you choose not to hire an SEC defense lawyer, then the lawyer will not be able to use information you provided to them during consultations in their own investigations or on behalf of other clients.

What Should I Expect to Pay for an SEC Defense Team?

ABA Model Rule 1.5(b) generally requires lawyers to “communicate a fee or the basis for calculating a fee, and any other expenses, to a client, or shall explain that information will be provided in writing.” As a result, you should review your engagement letter carefully. You should have a clear understanding of the costs of your representation as a result of a detailed budget and clear communication regarding fees and expenses.

To help potential clients evaluate SEC defense costs, compare legal budgets often provide assumptions about the case’s discovery, trial, and expert witness expenses and staffing. When comparing legal budgets, remember that budgeting is not exact. Your engagement letter should clearly identify what assumptions the lawyer is making, and it should identify:

• The legal team members and their roles
• The billing rates for each person
• The billing hours that are expected to be consumed
• The responsibilities of each team member
• The involvement of your legal team’s lead partners

You should also read your engagement terms carefully to see how the lawyers will assign time and tasks to junior associates. Finally, the engagement terms should designate your primary point of contact and specify how often you can expect to receive updates.

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 212-300-5196.