Federal Defense Attorney Nick Oberheiden Shares Key Strategies For Dealing With The SEC

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One of the last things a company owner, business executive, or investment professional wants to discover is that the U.S. Securities and Exchange Commission (SEC) is examining their business practices. The federal securities laws impose steep penalties. SEC investigations could lead to delisting, loss of registration, negative publicity, stock losses, and other consequences as well.

When dealing with the SEC, companies and individuals need to have the utmost prudence. “SEC investigations can quickly get out of control,” says Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C. “While there are ways to deal with the SEC effectively, targeted companies and individuals that don’t react appropriately can find themselves in a very difficult situation.”

10 Key Strategies for Defending Against an SEC Investigation

Below Dr. Oberheiden shares 10 key strategies for defending against an SEC investigation:

1. Understand Your Company’s Securities Law Compliance Obligations

Public companies, privately held companies, and investment firms have variegated compliance obligations under the federal securities laws. Companies must address these obligations as well as adopt and bolster their comprehensive securities law compliance programs.

Ignorance is not a defense when dealing with the SEC. Being oblivious of your company’s legal obligations can prove to be your detriment. The SEC expects regulated entities to devote necessary resources towards compliance. When they do not, this is a significant red flag.

2. Understand the SEC’s Investigative Process

The SEC’s investigative process is unique in that it entails two distinct phases. In most cases, the SEC will launch the investigation with an informal inquiry. These inquiries consist of requests for interviews and voluntary submission of information for the agents’ assessment.

If an informal inquiry unveils evidence of possible fraud, insider trading, or other securities law violations, the proceeding may transform into a formal investigation. This is vital because a formal investigation triggers the SEC’s subpoena power. SEC subpoenas are subject to judicial enforcement. The failure or refusal to comply can unravel into criminal charges for contempt. 

3. Understand the SEC’s Priorities

Understanding the SEC’s priorities can help companies and individuals make informed decisions during informal and formal investigations. Not only can this help with gauging the focus and scope of the investigation, but it can also be beneficial when negotiating a settlement.

The SEC has a long list of priorities. That said, the SEC’s overarching concern is protecting Main Street investors. Unregistered securities offerings, fraudulent initial coin offerings (ICOs), broker fraud, and market manipulation are all epitomized areas of focus for SEC investigations.

4. Be Prepared to Receive an SEC Subpoena

The “informal” label will often lull targets of SEC investigations into a false sense of security. Even if an investigation commences informally, it can morph into a formal investigation. There is a good chance that it will unless the target executes an effective defense strategy during the informal phase.

Most companies and individuals that are dealing with the SEC should be prepared to receive an SEC subpoena. These subpoenas often demand the production of voluminous records. Compliance with such soaring requests requires an exponential undertaking. Given the potential consequences of noncompliance, targets of SEC investigations should ensure they are prepared immediately.

5. Know that the SEC Might Not Be Your Only Concern

The SEC might not be your sole concern. Alleged securities law violations often have tax implications. The SEC regularly works in concert with the Internal Revenue Service’s Criminal Investigation division (IRS CI). Securities law violations also implicate other federal criminal statutes. Many companies and individuals targeted by the SEC will also face scrutiny from the Federal Bureau of Investigation (FBI) and U.S. Department of Justice (DOJ).

6. Conduct an Internal Investigation

It is imperative to know what the SEC agents will uncover. If your company is exposed, you do not want to keep making the same mistakes while your company is under scrutiny.

Inarguably the preferred way to address these concerns is to conduct an internal investigation. If you or your company is at risk, you need to have a comprehensive understanding of your exposure and the evidence the SEC will accumulate. If the SEC’s investigation is misguided, you will want to prove it efficiently. In all cases, internal investigations should be conducted with the oversight of outside counsel to establish the attorney-client privilege.

7. Evaluate Your Company’s (or Your Personal) Exposure

One of the objectives of conducting an internal investigation is to evaluate your or your company’s exposure. If mistakes have been made, has the compliance breakdown that allowed the mistakes to transpire been resolved? Is there a risk that the SEC could allege that the mistakes were intentional and thus warrant criminal prosecution? The answers to these questions will influence the investigative process, your defense strategy, and the potential outcomes of the SEC’s inquiry.

8. Formulate a Defense Strategy

Once you understand what the SEC is investigating and what agents are likely to uncover, you can then shift your focus to formulating a defense strategy. This strategy must be tailored to the specific statutory allegations at issue. The federal securities laws are extraordinarily complex, and many securities fraud cases hinge on technicalities. Your defense strategy must address all pertinent allegations, and you must avoid asserting useless “defenses”.

9. Work with the SEC As Warranted

In many cases, it will be in a target’s best interests to work with the SEC. Rather than taking a litigious approach, it may benefit the target cooperate and begin steering the investigation toward an amicable pre-charge result. Not only can this be the most cost-effective approach in the short term, but it can also establish a good working relationship with the SEC for the years to come. That said, if the SEC is overreaching or is intent on pressing charges, then you may have no practical choice but to defend you and your company in court.

10. Know What is At Risk

Any time a company or individual is facing federal scrutiny, it is important to be mindful of the risks involved. SEC investigations can be either civil or criminal. They can trigger risks ranging from civil monetary penalties and temporary suspensions to criminal fines, permanent injunctions and revocations, and federal incarceration. When you know what is at stake, you can execute a proportional response and avoid unknowingly placing you or your company in jeopardy.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.