SEC Defense Lawyer: Federal Defense In Securities Investigations And Enforcement

SEC Defense Lawyers

The Securities Exchange Commission (SEC) is an independent federal government agency that was created to enforce laws concerning market manipulation. In connection with that role, the SEC conducts investigations and, in some cases, enforces the laws controlling the securities market. SEC investigations often center on individuals and publicly traded companies. If you are the subject of an SEC investigation or enforcement action, it is highly recommended that you seek experienced, qualified counsel due to the high-stakes nature of your situation. Even if you have a lawyer that you trust with your business affairs, ask them about consulting a federal criminal defense attorney or contact us directly. A slight misstep or misstatement can make the difference between working with the SEC to clean up a mess and getting swept away to prison.

Take a full stop here. If you think you will avoid trouble because of something like “plausible deniability,” then do nothing else before contacting a white-collar criminal defense attorney. Otherwise, this is almost certainly not going to end the way you hope.

While many investigations result in a settlement, they can lead to criminal charges being filed in federal court. If you’re convicted of a federal crime, prison time is a real possibility. Cofer Luster criminal defense attorneys are experienced at defending clients who have been accused of white-collar crimes and have been the subject of an SEC investigation or enforcement action. We know the law and believe in the presumption of innocence that every person is entitled to. If you are being investigated by the SEC, reach out to our criminal defense lawyers today by calling (682) 777-3336 or by contacting us online to learn about how we can help.

What Prompts An SEC Investigation?

SEC investigations can be initiated due to a number of factors. In many cases, the SEC is tipped off to potential illegal activity by a whistleblower or an anonymous tip. Additionally, investors who have lost money through alleged misconduct may alert the SE. Still, not every allegation warrants a full investigation, so the SEC initially assesses alleged misconduct to determine if it should open a matter under inquiry (MUI).

An MUI is a preliminary investigation designed to gather enough facts and evidence to determine whether a full investigation is warranted. If an MUI is opened, the SEC will look into the specifics of the allegation, the possibility of harm, the seriousness of the alleged misconduct, and whether the activity in question is still taking place. A decision on whether an MUI will turn into a full investigation is generally made within 60 days.

An official full SEC investigation usually involves witnesses and documents subpoenas, gathering of evidence, and a review of financial records. The law provides the SEC with broad authority in the event that an investigation is opened and, in most cases, allows for SEC investigators to have access to many sources of potential evidence that can be used against the target of an investigation. SEC investigations and the associated proceedings are not open to the public.

How SEC Investigations Work

The SEC’s enforcement division is responsible for recommending the commencement of investigations and obtaining evidence of possible securities violations. The enforcement division attempts to uncover facts by interviewing witnesses, reviewing trading data, conducting informal inquiries, and engaging in other information-gathering methods.

If an official investigation is authorized, the enforcement division can force witnesses to testify and produce records, books, and other relevant material. At the conclusion of an investigation, the enforcement division will present its findings to the Commission for review. The Commission then decides whether an administrative action should be explored or a case should be filed in federal court.

Securities Violations That Could Lead To SEC Investigations

Stealing customer funds or securities – Also known as conversion, the SEC can begin an investigation if it is alerted to a securities broker allegedly stealing client funds or securities. This violation can not only lead to administrative sanctions but could also lead to criminal charges.

Manipulating the market prices of securities – Individual investors and securities brokers can be investigated for attempting to manipulate the market prices of securities. While this action can be difficult to detect, it is typically associated with pump and dump schemes. This action seeks to inflate the price of a security artificially. This technique is generally applied to stocks affected by micro-market capitalization.

Insider trading – This occurs when a trade is made based on material information about the stock that was not released to the public. In other words, if an employee of a publicly-traded company sells company stock right before the company files for bankruptcy, this can be considered insider trading if the employee knew of the pending bankruptcy before the information became public. Insider trading is illegal and can result in criminal charges being filed against any individual engaged in the practice.

Misrepresentation or omission of material information concerning securities – Registered brokers who sell securities have a responsibility to be fully transparent with investors. A broker who solicits the purchase of a security but leaves out key information about the investment or misrepresents material information could face an SEC investigation and administrative penalties.

Violating broker-dealers’ responsibility to treat customers fairly – Securities brokers have a responsibility to treat customer accounts with their best interests in mind. This means that brokers cannot invest customer funds into securities that clearly do not fit their investment profile. They also cannot make trades or purchase securities specifically designed to enrich themselves through commissions or trading fees. Brokers who violate their fiduciary duties may find themselves subjected to an SEC investigation.

Selling unregistered securities – In most cases, bonds, stocks, and options must be registered with the SEC before they can be sold to public investors. Investors have the right to know if the securities they are purchasing are registered with the SEC. Brokers who sell unregistered securities may be investigated by the SEC and may ultimately face criminal penalties. There is a narrow exception for private placements, but most investors are not allowed to participate in those offerings.

Possible SEC Enforcement Proceedings

Following an investigation, the SEC can bring a case in federal court or in front of an administrative law judge who is independent of the Commission. In many cases, if the misconduct is severe, the SEC can have the matter heard in both settings.

Administrative action – If the SEC is seeking sanctions through an administrative proceeding, the case is heard by an administrative law judge (ALJ). The ALJ considers the evidence put forth by the SEC and from the individual or party who is the subject of the investigation. The ALJ will then make findings and legal conclusions. The ALJ’s decision will also include recommended sanctions. Possible sanctions include revocation or suspension of registrations, civil monetary penalties, censures, cease and desist orders, and bars from association with the securities industry.

Civil action – If the SEC is seeking to bring the case in federal court, then a complaint will be filed in the appropriate U.S. District Court, where the SEC will ask the court for a remedy or sanction. In many cases, the SEC will request that the court issue an order called an injunction. An injunction is a legal mechanism that can prohibit any further practices or acts that violate SEC rules or the law. An injunction can also trigger accounting for fraud, audits, and special supervisory arrangements.

In terms of sanctions, the SEC can request the return of ill-gotten profits and/or the issuance of monetary fines. If a court order has been issued in connection with the complaint, any person who has willfully violated that order could be held in contempt and could face additional fines or jail time.

Criminal Charges Resulting From An SEC Investigation

While the SEC does not have the power to file criminal charges, it often works with the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI). Both of these government agencies have the authority to bring charges and may base their decision to do so on the facts and evidence discovered via an SEC investigation if criminal activity is uncovered. Some examples of potential criminal charges stemming from an SEC investigation include:

  • Embezzlement
  • Insider Trading
  • Fraud
  • Bribery
  • Market Manipulation
  • Conversion

Federal Defense Attorneys In SEC Investigations And Enforcement

A lot is on the line if you are facing an SEC investigation or enforcement action. Your career, your good name, your reputation in the industry, and possibly your freedom could all be in jeopardy, depending on the outcome of the investigation. That is why it is vital that you hire an experienced federal defense attorney to represent you throughout the investigative and enforcement process. You need an attorney on your side who knows how investigations work and who has your best interest at heart.

The vast majority of SEC investigations end in an agreement or settlement, which is often negotiated and brokered by experienced federal defense counsel. The SEC defense attorneys at Cofer Luster have the experience, knowledge, and drive to ensure that you receive the most favorable outcome in any SEC investigation or enforcement action. Reach out to us today by calling (682) 777-3336 or by contacting us online to learn more. We look forward to hearing from you.

Frequently Asked Questions

Can I Go to Jail If I’m Investigated by the SEC?

While SEC investigations are not criminal cases, they may uncover evidence that a crime was committed. That evidence will then likely be forwarded to the DOJ, which ultimately may decide to file criminal charges against you. Depending on the criminal activity and your level of involvement, jail time is a distinct possibility for certain offenses. You may also be forced to pay fines and lose your ability to associate with the securities industry.

Do I Have To Cooperate With An SEC Investigation?

If the SEC opens an official investigation, the agency has the authority to subpoena witnesses and documents and compel witnesses to take part in interviews. The SEC also has the power to review financial records and trading data. Failing to cooperate with the SEC’s investigation could result in sanctions and a complaint being filed in federal court. If you are being investigated by the SEC or you have been sent a notice from the SEC asking for your cooperation, it is recommended that you contact a federal defense attorney immediately to weigh your options.

How Serious Is An SEC Investigation?

SEC investigations are serious and should never be taken lightly or ignored. If you are involved or associated with the securities industry, then an SEC investigation could lead to sanctions, fines, and, ultimately, criminal charges. These are just some of the reasons why it is essential that you speak with an experienced federal defense attorney the moment you suspect or become aware that you are the target of an SEC investigation. Not all SEC investigations result in penalties, but ignoring or failing to respond to a request from the SEC could lead to severe negative consequences.


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