When Does the SEC Refer Cases to the FBI??

Last Updated on: 4th August 2026, 01:33 am

If the Securities and Exchange Commission (SEC) has evidence that securities fraud was the result of intentional acts, rather than mere negligence, this can increase the likelihood of criminal enforcement. However, the SEC has not published a mandatory evidentiary test it uses before referring cases to the FBI or the DOJ.

Is There an Evidentiary Threshold That the SEC Must Meet Before It Recommends Criminal Prosecution?

There is no publicly available evidentiary threshold that triggers criminal referrals from the SEC. Additionally, no published dollar threshold for financial damages exists that triggers an SEC referral to the FBI or DOJ.

While no mandatory public threshold for referral exists, the SEC’s published policy statement identifies factors staff should consider, and the SEC may initiate investigations based on, including, but not limited to:

• Tips, trading surveillance and other sources
• Forms 10-K and 10-Q filings and other SEC filings
• SEC compliance examinations and related audits
• Referrals to the SEC
• Whistleblower reports, complaints, and other information

Whistleblower reports, investor complaints, and other information can prompt review by the SEC’s Enforcement Division, which is responsible for investigating suspected federal securities law violations. If the Enforcement Division discovers evidence of conduct that may be criminal in nature, it may then seek to coordinate with the DOJ or FBI.

How do SEC referrals and FBI coordination actually work?

What Role Does the Department of Justice Play in Criminal Securities Fraud Cases?

All criminal prosecutions of securities fraud in federal courts are conducted under the authority of the Department of Justice (DOJ). The FBI investigates potential criminal charges in these cases, and U.S. Attorneys’ Office prosecutors determine if the DOJ should proceed with criminal prosecution.

How Does the SEC Transmit Evidence to the DOJ?

Under 15 U.S.C. § 78u(d)(1) (which corresponds to Section 21(d)(1) of the Exchange Act), the SEC can transmit records and information to the Attorney General regarding violations of federal securities laws. A DOJ request does not itself require the SEC to transmit information; disclosure is subject to the SEC’s access-request procedures.

Can the SEC and the FBI Coordinate Investigations Directly?

Yes, if the FBI or DOJ is investigating a particular case, the SEC is authorized to work directly with law enforcement personnel to assist the FBI or DOJ as requested. Exchange Act § 21(d)(1) allows the SEC to share information with the Attorney General “at the request of the Attorney General or at the request of the United States Attorney,” so the SEC is not required to refer the case first. In fact, the SEC can refer matters to the DOJ before formally commencing an SEC enforcement proceeding.

What Does it Mean When the SEC Refers a Case to the DOJ for Criminal Investigation?

While the term “referral” has become widely-used, there is no specific meaning to it when the SEC tells the DOJ about a possible criminal securities violation. “Referral” can mean the SEC is recommending that the DOJ initiate an investigation to determine if criminal prosecution is warranted, or the SEC is recommending that criminal authorities investigate conduct that may violate federal securities laws. It can mean that the DOJ is warranted to pursue a case. It can also mean the SEC is referring the DOJ to a case it already handled. It also is very possible the SEC sent a referral to the DOJ and the DOJ decided not to investigate or prosecute.

What Does it Mean When the DOJ Requests Information from the SEC?

If the DOJ requests information from the SEC, this could be the initiation of a criminal referral, but this can also occur when the DOJ is conducting a criminal investigation of its own. The DOJ is asking for the evidence it has collected to date in order to determine whether a case for criminal prosecution exists. This does not mean it is asking for the entire file, and the SEC is only required to share information it is authorized to share.

Does the SEC Get to Decided whether Someone is at Fault or Liable?

No. The SEC has neither a judge nor jury of its own. The SEC may impose fines, seek to recover money the SEC believes it is owed, or permanently ban individuals from certain occupations. However, the SEC cannot indict defendants, find them guilty or liable of a crime, or impose imprisonment terms.

The SEC is a civil agency, and it does not have the authority to decide whether someone is at fault, liable, or guilty. This power rests with the courts and the DOJ.

Can SEC and criminal investigations proceed at the same time?

Can the SEC Contact Criminal Authorities Before Completing Its Civil Investigation?

Yes. SEC staff members may contact criminal authorities at any time, including, but not limited to, before they have completed their investigations.

Can the SEC and Criminal Authorities Conduct Parallel Investigations Targeting the Same Conduct?

Yes. Parallel investigations can be lawfully conducted. The SEC and FBI can seek evidence from the same individuals, companies, and other entities for identical conduct. Even if the DOJ and FBI have decided to investigate the conduct in a criminal case, the SEC can still proceed with a parallel civil case.

• The civil SEC case does not cease merely because criminal authorities become involved in investigating the same conduct.
• The FBI’s involvement in the case does not make the SEC’s civil proceedings criminal proceedings.
• However, it is still possible for criminal investigators to eventually obtain access to testimony that was given to the SEC and records that were produced to the SEC.

Can an SEC Case be Resumed After the DOJ and FBI Conduct a Parallel Criminal Investigation?

Yes. A criminal investigation that the DOJ and FBI conduct parallel to an SEC proceeding does not bar the SEC from continuing the case. If the criminal case ends without a guilty plea or conviction, the SEC may still decide to pursue the civil enforcement action. Conversely, if the civil case is closed, the criminal investigators can continue to investigate and bring charges if they believe they have done so.

How Does a Parallel Criminal Case Affect an SEC’s Decision to Pursue Civil Enforcement Action?

When the SEC and DOJ are conducting a parallel investigation, one decision cannot preclude the other from being pursued. For example, if the DOJ resolves a criminal case with an investor’s fraud plea, the SEC can still pursue a separate civil enforcement action based on the same conduct.

One high-profile example of a parallel investigation involved celebrity Martha Stewart. Stewart was ultimately convicted of criminal conspiracy, obstruction of justice, and making false statements to the FBI. However, the judge in that case dismissed Stewart’s criminal securities fraud charge just before the case went to the jury, so Stewart never faced the consequences of criminal securities fraud conviction. Although Stewart was convicted at trial and the DOJ sought to impose prison time, the SEC continued with its case and sought civil penalties based on the same conduct.

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

How long can the SEC investigate before taking action?

Who Has the Authority to Pursue Civil Enforcement Proceedings at the SEC?

Generally, for contested civil enforcement actions, the Commission will decide how it wants to move forward. To initiate a civil enforcement proceeding that contests the underlying allegations, a majority of the Commissioners, who are nominated by the President and confirmed by the Senate, must approve. No individual commissioners have the authority to initiate contested SEC enforcement proceedings on their own.

What Is the Meaning of a Wells Notice?

After the Enforcement Division completes its investigation into a suspected violation of federal securities laws, it may issue a notice of intention to recommend civil enforcement action, also known as a “Wells notice.” After giving the suspected violator an opportunity to respond, the Enforcement Division can present its case to the SEC commissioners. As explained above, for contested cases, the commissioners then decide if the SEC will pursue enforcement action against the suspected violator.

Notably, a Wells notice is:

• No criminal charge
• Not a referral to the FBI
• Not conclusive of any other action
• Not a form of guilty plea or admission of wrongdoing

Can the SEC Close Its Investigation Without Taking Action?

Yes. If the SEC closes its investigation without recommending enforcement action to the Commission or proceeding with a criminal referral, the SEC staff will typically notify the targets of its inquiry of its decision not to take action.

Even if the SEC decides to pursue criminal referral for some of the conduct, this does not necessarily mean it will pursue enforcement action for all of it.

How Long Does the SEC Take to Investigate Securities Violations?

SEC investigations do not have a universal duration and can last for months or years. Factors that can cause an SEC investigation to last longer include:

• The scope of the investigation
• Efforts to conceal wrongdoing
• Complexity of the case
• Coordination with DOJ, FBI, or other federal authorities
• Conflicts and cooperation between the SEC and DOJ

Does the SEC Have a Legal Deadline to Act Under Section 4E of the Exchange Act?

Generally, yes. When the SEC staff issues a Wells notice, Section 4E of the Exchange Act, codified at 15 U.S.C. § 78d-5, subjects the enforcement process to a legal deadline. According to Section 4E, the SEC must initiate its proceedings within 180 days from the date on which it mails its formal written Wells notice to the targeted party.

• With respect to this Section 4E deadline, 15 U.S.C. § 78d-5 allows the Director of Enforcement or the Director’s designee, after providing notice to the Commission’s Chair, to extend the deadline for one additional 180-day period.
• The section allows for the SEC commissioners to grant further extensions if the investigation is sufficiently complex. However, to do so, the Commission must “provide an explanation for the extension.”

Can the SEC Pursue Civil Enforcement Action for Criminal Securities Fraud Cases?

Yes. Even when the DOJ and FBI investigate and prosecute suspected cases of criminal securities fraud, the SEC is authorized to pursue civil enforcement proceedings in addition to the criminal case. These civil proceedings can be handled either with or without the consent of the criminal authorities, as long as the underlying civil charges are not based on facts that the criminal case has already adjudicated.

What Should I Do if I Worried Criminal Exposure Seems Possible?

If you are being investigated by the SEC and have reason to believe that criminal exposure is on the table, do not take any risks. Remember that false statements and obstruction of a federal investigation can create exposure independent of the under-lying securities violations. While technical or negligent securities violations may be civil in nature, even if they do not rise to the level of a criminal violation on their own, making a false statement or obstructing a federal agent’s efforts will create criminal exposure.

Criminal exposure is specific to each individual situation. To determine whether criminal charges are warranted, individuals who have received a target letter or who believe that the FBI or U.S. Attorney’s Office is interested in pursuing a case should consult with an experienced defense lawyer to determine their best way forward.

Can Invoking the Fifth Amendment Right to Remain Silent Prevent SEC Criminal Referrals and Civil Enforcement Action?

Invoking the Fifth Amendment can present challenges in SEC investigations. While in criminal cases an adverse inference may not be drawn from the Fifth Amendment claim, in civil cases, a factfinder may be permitted to draw an adverse inference from a party’s invocation of the Fifth Amendment. However, this does not mean that an invocation of the Fifth Amendment alone is sufficient to establish civil liability.

Additionally, information provided by a suspected violator as a part of a Wells submission can be shared with the DOJ if it is not expressly restricted. Also, if you settle an SEC proceeding, this does not itself immunize you from criminal prosecution.

Can the SEC Punish FINRA-Registered Broker-Dealers for Invoking the Fifth Amendment?

FINRA Rule 8210 requires broker-dealers, as well as other individuals, to cooperate and respond with information provided. Importantly, Rule 8210 says that if an individual has “failed to provide information” upon request, this is a violation. It does not say that an individual who invokes the Fifth Amendment is violating the rule. In many cases, the refusal to provide information to FINRA can lead to sanctions under Rule 8210, but the invocation of the Fifth Amendment alone does not necessarily lead to sanctions.

What Factors May Impact the Level of Sanctions That the SEC Imposes in Its Civil Enforcement Proceedings?

If the SEC decides to pursue enforcement action against a suspected violator, a variety of factors may impact the level of sanctions the SEC imposes. Factors such as self-reporting to the SEC, cooperating with the SEC’s enforcement staff, remediation, and providing victim compensation can influence the level of civil penalties, as well as impact the possibility of a criminal prosecution by the DOJ and FBI.

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.