If the SEC serves you with a subpoena, it is either because you are being investigated, or because the SEC believes you can offer information related to their investigation of someone else.
Depending on the circumstances, it may not be immediately apparent what potential violations the SEC is investigating, or even whether you are the source. The SEC is also famous for requesting an overwhelming quantity of documents, which can raise concerns about privacy, cost of production, and valuable time consumption.
Because an SEC investigation can eventually give rise to both civil and criminal charges, the actions you take from the moment you are served can have permanent effects on your outcome. That is why the first step you should take if you have been served with an SEC subpoena is to choose the right criminal defense attorney, who will advise you on your rights and responsibilities.
As a white-collar criminal defense firm, our attorneys have years of experience handling SEC investigations and their resulting criminal charges. This makes us uniquely qualified to represent clients in need of the kind of dual representation an SEC investigation demands.
We know that while civil penalties imposed as a result of SEC investigations can stretch into the millions, criminal penalties have the unique ability to permanently destroy lives. That is why protecting you from criminal liability remains our number one priority from the investigation stage through trial.
While this article is no substitute for legal counsel, we have compiled our best answers to the questions most commonly asked by our clients. Know that the application of these legal principles will depend on the complex fact pattern specific to your case.
However, you should come away with a solid understanding of SEC subpoenas and an improved knowledge regarding what to expect if you have been served.
The Securities and Exchange Commission (SEC) is the federal body in charge of regulating the financial industry. Their responsibilities include the following:
- Overseeing securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.
- Requiring public companies to disclose important market-related information
- Maintaining fair dealing
- Protecting investors against fraud.
Part of their regulatory authority involves investigating potential violations of their securities laws. Common examples include insider trading, accounting fraud, and providing false or misleading information. An SEC investigation may begin from an anonymous tip, trading surveillance, a customer complaint, and/or from information obtained through other government entities.
Once a potential violation of its securities laws is detected, the SEC has enforcement authority to bring civil actions against suspected individuals. While the SEC cannot in themselves bring criminal charges, they can and do refer their findings to prosecutors to pursue the matter.
What Is a Subpoena?
If you are served with a subpoena, it means the SEC has gathered enough evidence to obtain a formal order of investigation. This order entitles the staff to issue subpoenas on anyone nationwide.
In short, a subpoena is a court order requiring you to provide information. There are two main types, although some subpoenas are a combination of both:
Subpoena duces tecum – a demand for the production of documents or other tangible evidence.
Subpoena ad testificandum — a demand to provide testimony.
If you are asked to produce documents, the subpoena will provide you with instructions regarding where to send them, as well as a deadline.
Similarly, a demand for testimony will come with instructions regarding where and when to appear in court. You should take careful note of these details and honor the deadlines and time frames provided.
However, where an SEC subpoena will certainly state what it is requesting, it will likely leave you in the dark regarding the context for the request. You may not know such basic information as whether the conduct suspected is civil or criminal, or whether you are a witness or a suspect. Indeed, the identity of the person or entity being investigated is often completely absent from an SEC subpoena.
The good news is that an experienced attorney can get around this. Through a copy of the subpoena, as well as the formal order of the investigation or case number, your attorney can likely gather some basic information regarding the person being investigated, as well as the scope of the inquiry.
This rudimentary context is so important in helping you decide on and prepare for your response. Because your involvement could expose you to both civil and criminal liability, it is critical that you are fully aware of your rights.
Phone Calls from the SEC:
Remember that the SEC needs a formal order of investigation to issue a subpoena. However, this does not mean they will wait until the order is issued to gather evidence.
Indeed, the SEC will often attempt to question suspects and witnesses directly well before they can legally compel cooperation. In other words, the first you learn of the SEC’s investigation of you may not be through a formal legal document, but by phone.
Abruptly caught off guard and faced with out of context questions, many people panic. They feel intimidated into freely providing information that can be used against them, either not knowing or forgetting that they are free to end the conversation and immediately contact their attorney for guidance.
Most damaging is when they provide the SEC with false information, as the consequences of doing often far exceed those that would result from the truth.
The most important point to take away here is this: lying to the SEC is a basis for a felony charge.
We saw this famously demonstrated through the investigation of Martha Stewart’s insider trading scandal. Recall that Stewart faced jail time not because she received insider information, but because she lied to investigators.
So if you receive a phone call from the SEC, here is what you should never forget:
- Absent a subpoena, you have no legal requirement to provide testimony. Some people are concerned that refusing to answer questions will be viewed as an admission of guilt, but there is nothing wrong with telling the SEC staff that you are unable to answer questions at this time.
- If you choose to answer questions, you should always consult with your attorney first.
- You may be held responsible for the actions of the people you work with, so make sure everyone in your office is clearly informed of an agreed upon plan regarding how to handle phone calls from the SEC.
- On that point, the best response to an SEC phone call happens when you have a plan in place beforehand. Consult with an attorney to help you develop a clear strategy so that you go into this stressful situation feeling well informed.
How Should I Respond to an SEC Subpoena?
As we touched on above, the best thing you can do whenever you are served with an SEC subpoena is contact your attorney. The worst thing you can do is to lie or conceal documents.
However, it is important to note that ignoring a subpoena could cause you to be charged with contempt of court, which is punishable by financial sanctions or jail time. Avoiding this pitfall requires careful compliance with any provided deadlines, along with all relevant laws and procedures.
In other words, your response cannot be a casual matter of picking up the telephone or mailing a letter whenever you get a spare minute. You do have options, as we will get to below. But first, it is important to underscore that whatever response you choose, the manner in which you communicate it is critical.
For example, if you choose to object to the subpoena, you must do so in accordance with the Federal Rules of Civil Procedure, which provide in relevant part:
“A person commanded to produce documents or tangible things or to permit inspection may serve on the party or attorney designated in the subpoena a written objection to inspecting, copying, testing or sampling any or all of the materials or to inspecting the premises—or to producing electronically stored information in the form or forms requested. The objection must be served before the earlier of the time specified for compliance or 14 days after the subpoena is served.”
In other words, where the subpoena demands the production of documents, you can object to the demand in writing, provided that you do so within a specified timeframe. If the subpoena demands compliance within 14 days, you must stick to the date stated. If the date of compliance is after 14 days, your objection must be within those 14 days.
This is just one of many examples intended to demonstrate the specificity of federal procedural requirements. However you plan to respond, you should immediately seek counsel in order to fully educate yourself regarding your rights and responsibilities.
Objecting to a Subpoena
While you are required to respond in some manner, compliance is not your only option.
If you object to the subpoena, the SEC can enforce it through a showing of the following:
- the inquiry in question is being conducted for a proper purpose;
- the subpoena was issued in accordance with the required administrative procedures; and
- the information sought is relevant to said legitimate purpose.
Following this showing, the burden shifts to you to prove otherwise. Your attorney can help you assess whether such a challenge is likely to succeed.
In addition, there are legally recognized exceptions to a demand for evidence and/or testimony, as detailed below:
You are asked to provide privileged information:
If you are asked to provide information about someone else, know that certain relationships are considered privileged in the eyes of the law.
The attorney-client privilege, for example, protects an attorney from being compelled to provide confidential communications with his client. However, it does not indiscriminately apply to all information in an attorney’s possession. You will want to seek legal counsel to determine whether the demand you received falls into this category.
The doctor-patient privilege works similarly to the attorney-client privilege, except that it applies to a broader range of information.
Finally, the marital communications privilege provides that a husband or wife cannot be compelled to testify against his or her spouse. While this privilege applies to communications that occurred during the course of the marriage, communications that occurred prior to the marriage are not protected.
The requested documents or testimony will incriminate you:
The Fifth Amendment of the United States Constitution provides that no person “shall be compelled in any criminal case to be a witness against himself”. This simply means that if the testimony demanded would expose you to criminal liability, you can “plead the fifth”.
While the Constitutional language is limited to a criminal case, the Supreme Court has expanded its reach to civil cases. That means that even if you are the subject of a civil investigation, you can successfully plead the fifth if you believe your testimony will incriminate you. The same is true if you are a witness.
However, the nuances vary according to your role in the investigation.
As a criminal defendant, pleading the fifth is an all or nothing decision. That means that you cannot selectively choose to answer certain questions and refuse to answer others. However, if you decide not to testify, the prosecution is not permitted to instruct the jury to interpret your silence as an admission of guilt.
The same is not true if you are defending a civil case. In that context, the jury is free to consider your assertion of your right against self-incrimination in determining the likelihood that you committed the alleged acts.
Further, it is important to note that if you are called to testify as a witness, the all or nothing rule does not apply. You are free to assert your fifth amendment rights on a question by question basis.
And finally, understand that regardless of your role in the investigation, you cannot plead the fifth if you are granted governmental immunity. This means that if the government agrees not to prosecute you in connection with any information that comes up in your testimony, you cannot refuse to provide it on fifth amendment grounds.
Now that we’ve gone over two of the basic objections to a subpoena, we’ll address what to expect in the event you do comply with the request, according to which type of subpoena you were served with.
When You are Asked to Produce Documents:
A request to produce documents may initially seem less overwhelming than a request to testify, but this isn’t always the case.
Whereas providing testimony simply requires showing up and answering questions, identifying and producing the requested documents can be enormously time-consuming and highly nerve-wracking.
The reason is this: when the SEC issues a subpoena duces tecum, it often comes with the words “all documents pertaining to…”, followed by a broad category of inquiry. Depending on the size of your organization, the number of years you’ve been in business, among other factors, this language may refer to an inconceivable wealth of data.
The good news is that you may be able to challenge the request as overly broad or unduly burdensome.
In some cases, you may be able to successfully assert that the SEC’s request far exceeds that which is relevant to the investigation. Alternatively, you could argue that the request is so broad, you aren’t even certain of what you need to produce. Finally, you could show the financial and time expense of compliance would cause great disadvantage to your organization.
Consult with your attorney to determine whether you can successfully assert this defense. As discussed above, your compliance must be in accordance with procedural requirements, and your lawyer will prepare the necessary paperwork on your behalf.
Whatever you do, do not attempt to destroy evidence. As we discussed earlier, doing so could lead to a charge of obstruction, with consequences far outweighing the outcome of the investigation. Make sure your staff and business partners are well instructed on this point, as their actions can reflect on you.
On that note, do not treat the overwhelming task of document production as an opportunity to declutter. This is the worst time to get rid of excess paperwork, even for innocent reasons, as doing so could be interpreted as an effort to destroy evidence. Set aside what you think you can get rid of, and consult with your attorney before making any decisions.
When You Are Asked to Testify:
In the event that the SEC serves you with a demand to provide testimony under oath, you will be provided with a date, time, and location. Be sure to leave plenty of time and to make transportation plans in advance.
It is strongly advised that you have your attorney present. While your lawyer will have limited opportunity to object to any questions asked during your testimony, you will be permitted to seek your attorney’s advice at any point in the process.
In addition, your lawyer can help you determine whether to make a statement on the record at the end of the examination. This may be helpful if there was anything you felt you were unable to communicate clearly during questioning.
Otherwise, you should expect to be questioned regarding the specifics of the investigation. Such questions will often come after a detailed inquiry regarding your basic identifying information, your educational and professional background, as well as your previous involvement in any legal proceedings.
As emphasized throughout this article, the most important thing to remember before testifying under oath is to be truthful.
You will be instructed regarding your right to ask for clarification of questions you do not understand, as well as your right to review any documents referred to in questioning, but knowing this beforehand will hopefully help you remain aware of your options throughout.
Finally, keep in mind that the SEC may not have decided whether to formally press charges or simply involve you in a lawsuit, prior to issuing your subpoena. This is a decision they often make after you provide testimony.
Accordingly, your demeanor can go a long way in shielding you from liability. Be sure to answer the question asked–additional relevant details can be saved for your closing statement.
In addition, keep your emotions in check, and demonstrate respect for the judicial process by listening closely to instruction.
Finally, as emphasized, make sure that you seek the assistance of your attorney prior to providing testimony so that you are adequately prepared to respond to the questions asked of you.
I complied with the subpoena, now what?
Whether you were asked to turn over documents or provide testimony, the unfortunate reality of an SEC investigation is that no news is often good news.
That means you may be left hanging, wondering when you can breathe a sigh of relief and move on with your life.
If the SEC decides to continue your role in their investigation, there are a number of ways in which you may be informed. You may receive a cautionary letter, a referral to civil or criminal law enforcement organizations, or a referral to a self-regulatory agency. You also may be faced with administrative proceedings or injunctive actions.
If you are the subject of the investigation, the SEC may be given the option to settle, rather than be charged.
Whatever the outcome, your attorney will inform you of your rights, help you assess your options, as well as negotiate the best possible settlement should you choose to go that route.
Whether you are entirely certain of your innocence, concerned about your guilt, or genuinely unsure of whether you have committed any SEC violations, being served with a subpoena is not an easy experience for anyone.
Whatever your role in this process, know that an honest, timely, cooperative, and well-informed response is the best way to protect yourself from potential liability. Your attorney will help you ensure every detail is attended to, and that you are fully prepared for whatever response you choose.
Even in the unfortunate event that the SEC investigation leads to criminal charges against you, seeking the counsel of an experienced criminal attorney can make all the difference in how your case is resolved. For more on this point, see our articles below:
Finally, remember that whatever you’ve done in the past, how you handle the present and future is still in your control. Even in the unfortunate event that sanctions are unavoidable, your respect for the judicial process along with the representation of experienced counsel will help ensure your punishment is no worse than it needs to be.