We previously discussed the Department of Justice (DOJ) increasing firearms prosecutions, leaving other federal agencies and state civil authorities to use civil legal processes to investigate and prosecute neglected white-collar crimes. One agency actively investigating and prosecuting financial frauds is the U.S. Securities & Exchange Commission (SEC). While the SEC does not have the authority to commence an investigation and a federal criminal prosecution, the SEC does have the ability to analyze federal criminal statutes and compose a written document outlining relevant facts and laws that federal prosecutors can use as a roadmap to commence a prosecution. Navigating SEC investigations to ensure your liberty is protected is complex. When dealing with the SEC, even if you believe you are just a witness, it is imperative to use a lawyer with federal criminal experience. The consequences of not doing so may result in significant financial penalties and long-term prison sentences.
Federal law provides the SEC very broad authority to investigate federal statutes and regulations. Pursuant to 15 U.S.C. § 78u, the SEC may “administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda or other records which the [SEC] deems relevant or material to the inquiry.” When issuing these processes, the SEC rarely discloses whether the recipient is the target of a civil or criminal inquiry, or just a witness to one of those inquiries. Responding to subpoenas for production of documents is both art and science. While the SEC has a great deal of experience, its staff may lack an understanding of your role or relation to securities matters. Often it is important to exceed the scope of what has been asked for and explain what you are producing and why it is relevant. When appearing under oath to provide testimony, the deponent’s counsel can inquire at the end. Lawyers without the right experience often treat this as a civil deposition and unwittingly assist the SEC in learning about additional avenues of inquiry.
While not required by law, the SEC can issue a “Wells Notice” indicating that the SEC believes certain violations of securities law have occurred. The Wells Notice recipient usually has thirty days to address the SEC’s findings and convince it that civil litigation should not be filed. Civil cases are brought in a U.S. District Court where the SEC must prevail by a preponderance of the evidence. Well before a trial, the SEC can use broad civil discovery rules to continue to investigate securities violations. Federal laws permit the SEC to impose fines in an administrative process in addition to seeking civil damages in federal court. But, that does not end the potential penalties. Despite Deputy Attorney General Rod Rosenstein comment in May 2018 that DOJ would “discourage disproportionate enforcement of laws by multiple authorities,” that policy is evaluated on a case-by-case basis. The SEC always has the option of providing information to DOJ to initiate a criminal investigation and prosecution.
Most people who receive these types of process immediately use a trusted civil lawyer, who can often be invaluable if the civil lawyer knows the business well. However, civil lawyers who understand civil SEC inquiries but lack experience in criminal SEC matters can lead the recipient into unnecessary peril. The time to consider criminal issues is when served with any SEC process, not during testimony before the SEC or while in a civil case. While recipients of SEC processes often wonder what will “they,” meaning federal authorities will think if a lawyer experienced in criminal law is retained. Simply put, federal authorities will not care. Our clients, after investigations conclude without any penalties, are glad they did not make decision based on what “the feds” thought.
It is imperative to retain counsel experienced in criminal and civil SEC investigations to navigate the perils you face when you are involved in an SEC investigation. If the SEC has contacted you, or if you are an attorney with a client under a SEC investigation, contact the Law Offices of Horwitz & Citro, P.A. immediately. Call (407) 901-5852 to request a free initial consultation with an experienced criminal defense lawyer.