The SEC Investigation Process: An Overview

 

The U.S. Securities and Exchange Commission (SEC) investigates companies, brokerage firms, and individuals for a broad range of statutory and regulatory violations. These investigations can lead to civil or administrative enforcement action by the SEC—or potentially referral to the U.S. Department of Justice (DOJ) for criminal prosecution. In any case, the costs of an unfavorable outcome can be substantial. Thus, when an investigation arises, asserting an effective defense needs to be the target’s top priority.

So, how do you defend against an SEC investigation? This starts with understanding the process – or rather processes – the SEC uses to gather information in support of its enforcement efforts. With a clear understanding of what to expect, targets and their defense counsel can executive tailored defense strategies focused on avoiding litigation.

“SEC investigations can present significant risks for targets, but targets that take a proactive approach can achieve favorable outcomes in many cases. The key is to quickly gain a clear understanding of the issues at hand, evaluate all potential risks and defenses, and execute an effective defense strategy while working with SEC Enforcement Division staff.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

The SEC conducts two types of investigations: informal and formal. In the substantial majority of cases, investigations are informal, or at least begin informal, in nature.

As the SEC explains, “Facts are developed to the fullest extent possible through informal inquiry, interviewing witnesses, examining brokerage records, reviewing trading data, and other methods.” Following an informal investigation, SEC Enforcement Division staff may either elect to terminate the inquiry, enter into settlement negotiations with the target, or pursue a formal investigation.

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