SEC Investigation & Criminal Referral Defense

An SEC subpoena feels like a regulatory matter. Treating it as one is how people talk themselves into a criminal case.

Sworn testimony given to the Commission does not stay with the Commission. The decision about whether to testify has to be made with the criminal exposure in view.

The SEC is civil — and that is the trap

The Commission can seek injunctions, disgorgement, civil penalties, officer-and-director bars, and industry bars. It cannot indict. Criminal charges come from the Justice Department, and the SEC refers matters to it.

The consequence people miss: because the SEC proceeding is civil, its procedures are more permissive. It can compel your sworn testimony, which no prosecutor can do. And what you say is not walled off — it is available to the criminal side.

How an SEC investigation proceeds

It begins informally, often from a tip, a filing review, market surveillance, or a whistleblower under the Dodd-Frank programme. The Commission then issues a formal order of investigation authorising subpoenas for documents and testimony.

Document production comes first and is usually enormous. Testimony follows, taken under oath by staff attorneys, transcribed, with your counsel present but with a limited role — this is not a deposition where you can object freely.

The Wells notice

When the staff intends to recommend enforcement, it issues a Wells notice identifying the contemplated charges and inviting a written submission in response.

The Wells submission is a genuine opportunity to argue the case before an action is filed, and it sometimes works. It is also a written statement of your position that can be used later, including criminally, and it can waive arguments. Whether to make one, and how much to say, is a strategic decision that has to account for the criminal track — not just the civil one.

Testifying, and the Fifth Amendment

This is the central decision. If you testify and the matter becomes criminal, your transcript is available to prosecutors and any material inconsistency is a false statement or perjury exposure on top of the underlying case.

If you assert the Fifth Amendment, you cannot be criminally punished for it — but in a civil proceeding the factfinder may draw an adverse inference from the refusal. In an SEC action that can be close to fatal to the defense of the civil case.

So the choice is genuinely difficult: protect the criminal case and damage the civil one, or the reverse. It depends on the realistic likelihood of referral, the strength of the documentary record, and what a transcript would actually contain. It should never be made by civil counsel alone.

When a matter becomes criminal

Referral is more likely where the conduct was clearly intentional rather than negligent, where investor losses were large, where documents were falsified or destroyed, where the defendant obstructed the investigation, and where a cooperating insider is available.

Signals worth watching: criminal investigators attending an SEC interview, questions that focus on state of mind rather than transactions, or the SEC staff suddenly slowing down — which can mean the criminal side has asked them to stand off.

Settlement traps

Settling with the Commission can be sensible, but the terms matter enormously if a criminal case may follow.

The Commission's traditional practice permits settlement without admitting or denying the allegations — but not always, and a settlement containing factual admissions can effectively concede the criminal case. Collateral consequences also need attention: an officer-and-director bar, an industry bar, or a licensing consequence can outlast any penalty.

Sequencing is the strategic question. Resolving the criminal matter first, or negotiating them together, is frequently better than settling the civil case on terms that decide the criminal one.

What to do if agents contact you

Do not answer questions. Say that you want to speak with a lawyer, and say nothing else. That is lawful and cannot be used as evidence of guilt. Lying to a federal agent is a separate felony under 18 U.S.C. § 1001 — no oath required.

Do not consent to a search. If they have a warrant they do not need permission.

Do not destroy anything. A preservation duty attaches the moment you know of the investigation.

Write down what happened — names, agency, time, what was asked, what was taken — the same day.

Then call (214) 225-7117. The pre-indictment window is the most valuable period you have.