Securities and Exchange Commission (SEC) is a federal agency, whose mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” Unlike the U.S.. Attorney’s Office, the Securities and Exchange Commission brings civil, rather than criminal enforcement actions against individuals, and corporations for violation of securities laws. Common enforcement actions involve insider trading, market manipulation, fraud associated with initial public offerings of stocks and initial coin offerings of cryptocurrency, as well as providing false or misleading information about securities and companies that issue them.


Although Securities and Exchange Commission is unable to prosecute anyone criminally, oftentimes there is a parallel investigation being conducted by the U.S. Attorney’s Office. It is essential that the attorney that you retain to represent you on the SEC Subpoena is also able to handle the criminal aspect of your case, in the event of a parallel investigation. Usually, you first find out that the SEC is interested in speaking to you or obtaining documents from you when you receive a subpoena in the mail from them. In limited situations, SEC staff makes contact with you via phone first to alert you that a subpoena is coming your way. It is essential that you do not discuss the matter, your involvement, the allegations or anything remotely related to the case with the SEC. You should request their contact information and politely tell them that you will be retaining an attorney and the attorney will contact the SEC at a later point on your behalf.


What is a Subpoena?

A subpoena is a legal document that mandates a production of documents relating to a specific case that the SEC is investigating. A subpoena that mandates production of documents or other evidence is called a subpoena duces tecum. A subpoena that demands production of testimony is called a subpoena ad testificandum. Receiving a subpoena does not mean that you committed any violations of securities laws. It is simply an indication that the Securities and Exchange Commission is investigating potential violations of securities laws, and you or the documents in your possession are material and relevant to their investigation. Sometimes, along with a subpoena duces tecum, there is a subpoena ad testificandum mandating that you appear for an “OTR,” which stands for On-The-Record Testimony. Other times, there is a notation on the document subpoena that “OTR” will be scheduled at a later date once the production of documents is complete.


What is an Order of Investigation?

Although the SEC provides detailed instructions on how they would like the documents to be formatted, labeled and submitted to them, it is very important that prior to getting anything together for the SEC, much less come in for the OTR, you consult an attorney with experience handling these SEC Subpoenas. Prior to producing a single document, your attorney will request what’s called an Order of Investigation from the SEC. This request contains very specific language explaining the need for the Order of Investigation and a promise of non-disclosure of the order (with the exception of you, the client) to other parties. The Order of Investigation will specify which securities violations the SEC is investigating and provide some background on the case. This Order of Investigation will be very useful in preparing the documents for production and in preparing you for OTR, if you are mandated to appear for one.
The SEC, unlike the U.S. Attorney’s Office does not characterize individuals as “witness,” “target,” or “subject” when serving them with a subpoena. An experienced attorney is able to figure out which of these categories you fall into and in turn, compile a response to the SEC subpoena and prepare you on for OTR testimony.


How do I produce the documents to the SEC?

It is highly advisable that you retain an attorney to help you with the document production. Together, we will review the order of investigation along with the subpoena duces tecum to identity which documents are responsive to the subpoena. Generally, we ask the clients to get all the documents requested together, erring on the side of over-inclusion. We will review everything together to determine which documents are non-responsive or can be withheld from production on some grounds – i.e. attorney client privilege. In the event documents requested are not in your possession, we will assist you with preparing an affidavit to explain the efforts you took to locate the documents or why the documents are not within your dominion and control. The actual production is a tedious process, requiring a specific pagination requested by the SEC. When the subpoena produces a large number of responsive documents, SEC will agree to an extension of the production deadline or a “rolling production” – which is a continuous partial production.


How do I prepare for the OTR?

The most important rule of meeting with the Government is to never lie, intentionally misstate a fact or make a material omission. All of the above can make you subject to a prosecution under Title 18 United States Code 1001 – making a false statement to the Government. We tell clients that if they do not know how to answer a question, it’s better to ask for a break to consult an attorney. Before going into the OTR, we do a mock OTR testimony or two with the client to prepare them for the actual day. Together, we work on figuring out how to best answer anticipated questions, while watching out for potential mine fields. Going into the OTR, we want you to feel comfortable with the questions that you may be asked and how to best answer them.


We recommend getting a good night’s sleep the day before the interview. If you are flying in for the OTR, we recommend you do it the day before and not the morning of to avoid any travel delays. OTR day is very stressful – and you should do whatever you can to eliminate other sources of stress that day.


What happens on the day of the on the record testimony?

Your attorney finds out ahead of time from the SEC how much time to set aside for the OTR. That usually is a good barometer for how extensive the questioning will be. We’ve had OTRs range from 1.5 hours to a day and a half of questioning. Often to speed up the interview, SEC will ask that you fill out a biographical questionnaire regarding your biographical information. OTR is a proceeding that takes place at an SEC Office in the presence of a stenographer with at least the SEC attorney and the SEC analyst. Sometimes, if there is a joint investigation (i.e. SEC and FBI), there may be representatives from other agencies conducting joint investigations. During COVID-19, SEC has been conducting interviews through video conferencing.
You have a right to have an attorney present with you during the OTR. Your attorney, however, will be present in an advisory, rather than an adversarial capacity. You are able to ask for a break and go outside the room to consult your attorney. After the questioning by the SEC, your attorney will be able to ask you follow up questions at the end of the meeting. You may be asked to review documents (either provided by you or someone else) during the interview and then asked questions relating to these documents. When possible, we try to get the documents ahead of time to prepare you with them.
Conclusion It is important to remember that the SEC is a civil, rather than a criminal agency. If an enforcement action is pursued against you – it may involve financial penalties and injunctions relating to your continued participation in the financial services industry. It is important to interview and retain an experienced SEC counsel, who also has federal criminal experience in the event there is a parallel proceeding. Call us after receiving a subpoena to schedule a consultation.