What Happens at an SEC Interview?

What Happens at an SEC Interview?

An SEC investigation is a high-stakes matter for you and your business. If the agency files civil charges, it can be devastating, reputationally and financially. The SEC investigation process can be complex and opaque. However, experienced attorneys know that the agency likes to speak to witnesses during an investigation, both those who have information and who are targets of the investigation. 

You must seek legal help when you have received a request to talk to the SEC. Speaking to them on your own without a lawyer present can lead to unfounded accusations and penalties against you or your business. Consult with an SEC securities attorney immediately if you might be under investigation.

What the SEC Can Do When it Suspects Federal Securities Violations

What Happens at an SEC Interview

The SEC has many options for taking enforcement action against an individual or a company.

The SEC has the option to:

  • File a civil action in federal court, which can seek a sanction or remedy as well as an injunction to prohibit certain conduct from occurring in the future.
  • File charges that an Administrative Law Judge hears - if the ALJ finds that the registrant broke the law, they can impose bars, seek disgorgement, or other remedies. The agency will also seek to obtain a cease-and-desist order.
  • Negotiate a settlement with the registrant, filed as a consent order. The respondent does not necessarily have to admit the SEC's findings, but it is subject to penalties. 
  • Why Staff May Want to Interview You

    The SEC will only call you for an interview after enforcement agents have had a chance to review your case extensively. The SEC staff has likely already made document requests and may have compelled testimony from other witnesses.

    They often seek the interview for several reasons:

    • They want to confirm or corroborate what they have already seen on paper
    • They want to gauge your credibility as a witness
    • They have additional questions that they may not know the answer to based on what they have seen

    The SEC Might Interview Both Targets and Witnesses

    When you receive a subpoena for an interview with the SEC, you may not even be the target of an investigation yourself. Often, you may not even know the purpose of the interview.

    The SEC may believe you have information relevant to another investigation. However, you may not know that when you have your interview. Still, even if you are not the target of an investigation, you can become one based on something the SEC learns, either during your interview or elsewhere in their investigation. 

    The SEC Will Interview When it Is Further Along in a Case

    If the interview is pursuant to an investigation, it is often one of the last steps the agency will take before it files charges or closes your case. Thus, the enforcement attorney may know what they are looking for.

    Every question has a purpose. The agency may try to get the investigation target on the record in case of eventual litigation. Thus, knowing what question you are answering is crucial, and being very careful with what you say. While the SEC is not necessarily trying to trip you up, they are trying to learn specific information to corroborate or fill gaps in your case. 

    The SEC Has Subpoena Power

    Investigation subjects may want to avoid talking to the SEC, knowing the potential dangers. However, staff may not give them a choice. The SEC has the power to subpoena witnesses to compel their testimony.

    Usually, you will not want to fight the subpoena (although you should make this decision on a case-by-case basis in consultation with your lawyer). You can challenge an overly broad or unreasonable subpoena, but this usually applies more to subpoenas for documents than testimony.

    If a subpoenaed witness does not testify, the SEC will enter federal court to get an order compelling the testimony. If the witness still does not testify, the witness will be in contempt of court. 

    The SEC Interview Is Under Oath

    The SEC interview will occur under oath. It will be on the record, and a reporter is making a transcript of what you have said. One Enforcement attorney will usually conduct the questioning, but several can attend. Sometimes, a branch supervisor may also participate and ask the witness questions. Your lawyer will sometimes ask to go off the record. The SEC will determine when to go off the record.

    There Are Consequences for Lying to the SEC

    Once you have given sworn testimony, there are consequences if your testimony has not been truthful. Even a civil matter can become criminal if a witness allegedly lied. A witness can face obstruction of justice charges under the federal false statement law. 18 U.S. Code § 1001 makes it a crime to make false statements in conjunction with a federal investigation. 

    There are cases when the government does not file any charges for the underlying securities law matter. Still, it might file false statement charges when the investigation subject has not been truthful. 

    Once you get sworn in, the SEC can use anything you say against you later. 

    The Agency Wants Cooperation

    While the interview may seem informal, you should not let your guard down at any time. You must be well-prepared for the interview because you can be confident that the SEC attorneys are. 

    While the SEC interview is under oath and may seem adversarial, the agency is also taking notes about how cooperative witnesses are. When the SEC is considering potential penalties to seek, they will consider whether the investigation target has cooperated with the investigation. The SEC's Enforcement Manual guides how the agency will consider (and potentially reward) cooperation in the investigation process. 

    If the SEC views a witness as uncooperative, it can mean harsher penalties, even though an investigation subject still has a right to defend themselves. However, you do not want to overshare unnecessary information or answer questions they did not directly ask you.

    The SEC can misinterpret your caution as uncooperativeness, possibly leading to more severe consequences. Thus, interview subjects must walk a fine line when they talk to the SEC, and you always want legal representation to prevent misunderstandings.

    You Can Invoke the Fifth, But It Can Hurt You

    You can avoid questions at an SEC interview by invoking your rights under the Fifth Amendment. While you generally have the right not to incriminate yourself, having relied on the Fifth Amendment will allow for adverse inferences against you if there is a civil lawsuit. Different rules apply to using the Fifth Amendment in a civil matter. 

    While questioning may be more informal than expected at a trial, the process still involves formalities. Since the interview is on-the-record, your lawyer can sometimes interject to help frame the questions. However, the interview is not subject to the Federal Rules of Evidence like formal court proceedings and trials.

    Thus, your lawyer cannot object to questions the SEC asks in the interview. You cannot go to a judge over an impasse about objections to questions. Thus, you may need to answer the questions the SEC asks.

    The SEC may also ask for testimony off-the-record to help them learn more about a case. It will be up to you and your attorney to decide whether to cooperate with these requests. These interviews will usually not be under oath. The SEC will usually interview targets on the record and under oath, and penalties for untruthfulness will apply. 

    What Happens After Your SEC Interview

    How you do during the interview can dictate the SEC's actions going forward. Many civil actions can reach a settlement before the SEC takes formal enforcement action.

    If you have a strong interview, it can put you in a better position to negotiate a settlement with the SEC. The agency can also realize there is no reason to act against you because your answers can show that you have done nothing wrong.

    At the same time, the SEC is considering how to proceed further in your case. They can close the investigation without any further action. 

    The SEC will issue a Wells Notice, which will contain the staff's recommendation to the Commissioners (who will be the ones to take the actual action). The investigation subject will get a right to respond to the staff's recommendations.

    Generally, this point will be the last chance for the investigation subject to persuade the agency and state its position. Once many subjects receive the Wells Notice, they enter into settlement negotiations with the SEC to reach a possible deal. 

    SEC Enforcement Actions and Investigations Are High-Stakes Matters

    SEC enforcement action is a severe matter. Besides the financial ramifications and potential consequences, your reputation may be on the line. If your company faces accusations of wrongdoing, it can mean the complete loss of your business. The SEC can ban people from the securities industry for some time or even for life. If you are an individual, SEC action against you can be a red flag that can keep you from getting another job in the securities industry.

    At the same time, the SEC is one of the best-funded regulators in the federal government. The agency primarily gets funding from fees imposed on the industry, and it draws many elite attorneys. It is not uncommon for private attorneys to give up lucrative private sector positions to work for the federal government. Thus, you can be confident that the SEC enforcement attorneys are well-trained and know their jobs well.

    Always Hire a Lawyer When Dealing with the SEC

    You should have experienced legal representation of your own when you are dealing with the SEC. Anything you say to staff, whether at your interview or another stage in your investigation, can serve as evidence in the case against you.

    If your case is civil, the SEC will have even more ability to gather evidence because many of the stringencies of a criminal case do not apply. Of course, the SEC can also make a criminal referral to the Department of Justice based on what they learn.

    You should never attend an SEC interview or speak to the staff without an attorney. Staff will need to communicate with your attorney if you have hired a lawyer. There is a risk of making a mistake that can land you in more trouble if you try to deal with staff on your own. 

    An experienced securities enforcement attorney will know how the staff operates during investigations. While the SEC has an Enforcement Manual, certain offices or attorneys may handle investigations differently. There is a wealth of practice knowledge that an attorney accumulates when they have experience representing clients in front of the SEC.

    Not everything you will encounter is in a law book or manual, and much skill in handling SEC matters comes from direct legal experience in the field. 

    This image has an empty alt attribute; its file name is image.png
    Securities Enforcement Lawyer, Peter M. King

    In addition, there is also an informal element of some investigation processes. The defense attorney can communicate with the enforcement attorneys during the investigation process. There may even be periodic check-ins between staff and attorneys. 

    While the SEC may not show all its cards, your attorneys can learn critical information about where the investigation is heading. Sometimes, an interaction between an attorney and staff has either headed off an investigation or convinced the agency not to pursue more serious charges. Early engagement can move you out of the target zone and into the witness zone.

    You should hire your attorney when you learn that the SEC wants to speak to you or is investigating you. The SEC does not have to publicize investigations, so you may not even know they scrutinize you until later. Therefore, you cannot assume anything or take something for granted during the process.

    An attorney will guide you through the process and fill you in on what is happening. They can counsel you on handling the investigation while communicating with staff during the process.