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How to Protect Yourself During an SEC Investigation

Being the subject of an SEC investigation into potential securities violations like insider trading, accounting fraud or providing false information to investors is daunting for any individual or company. However, there are a number of steps one can take to mount an effective defense during an SEC inquiry and avoid the most severe potential consequences.

In this post, I'll outline key guidance for protecting your interests and mitigating risks if you find yourself facing an SEC investigation. My experience representing numerous clients undergoing SEC scrutiny has shown that early engagement of counsel and strategic interactions with investigators are critical.

Retain Experienced Counsel

The moment you become aware of an SEC investigation involving your actions, you should retain qualified white collar defense counsel. Do not provide any verbal or written statements to SEC staff without your lawyer present. Experienced counsel knows how to interface with agency investigators to provide appropriate disclosures while safeguarding against self-incrimination.

In one insider trading case, our firm prevented a client from making speculative statements in an effort to be helpful when first questioned by SEC staff. This avoidance of the urge to fill in gaps upfront with guesses was essential to avoiding charges down the road. Our detailed preparation also ensured later testimony remained consistent.

Launch an Internal Investigation

Upon learning of the SEC investigation, your company should promptly conduct an internal investigation into the allegations. Your counsel can manage this process through document collection, interviews and forensic analysis to uncover the relevant facts.

Thorough internal investigation findings should be shared with SEC officials to demonstrate good faith cooperation. In a recent case, our internal investigation convinced the SEC our client's financial misstatement was accidental rather than intentional, leading to a settlement.

Evaluate Early Settlement Options

In many cases, the SEC may offer early settlement options prior to formal charges being filed. Experienced counsel can engage in these preliminary discussions to secure a favorable outcome. In a recent market manipulation investigation, we were able to leverage our productive engagement with SEC staff to negotiate a pre-Wells notice settlement, avoiding litigation.

Exercise Caution During Testimony

If SEC interviews involving sworn testimony are necessary, meticulous preparation with your legal team is vital. We help clients practice potentially tricky exchanges and anticipate questions. During the interview itself, we ensure no damaging speculations are made under pressure. Follow your lawyer's guidance about declining to answer certain questions.

In one high-profile insider trading case, our firm's extensive witness prep and advice during testimony was pivotal in avoiding perjury and false statement charges even when some recollection proved imperfect. Thorough SEC interview preparation is essential to managing risks.

Avoid Obstruction

Above all, understand that any attempts to conceal, destroy or alter relevant documents or emails after you become aware of the investigation could lead to serious obstruction charges. Be completely transparent with your legal team and follow our advice about evidence retention to avoid even the appearance of obstruction, which prosecutors take very seriously.

In one case, our prevention of further email deletions once the SEC investigation became known allowed us to convince regulators the initial document destruction was routine record maintenance unrelated to the inquiry. Avoiding obstruction allegations through proper guidance of counsel was crucial.

The prospect of an SEC investigation is daunting, but experienced white collar defense counsel can guide you through the process and help mitigate risks at every stage. Retaining legal representation immediately and heeding our advice is paramount to protecting your interests in the face of serious securities law allegations. Do not go it alone, and do not leave it to chance. Seasoned SEC defense lawyers can make all the difference.