Helping Clients Defend Against SEC Actions
Before a Subpoena is Issued
Often (although by no means always) the first indication of the existence of an SEC investigation is a telephone call from SEC staff to the company's legal department. It is not unusual for the SEC to initially obtain information from a company voluntarily, before the staff has fully developed its focus. If the investigation continues, the staff will almost invariably issue a subpoena to ensure that documents and data (whether already obtained or still to be provided) relevant to the investigation are safeguarded and available.
How do I know that what I received is an SEC subpoena?
When the SEC sends a subpoena, it will usually comprise a relatively thick packet of material at least 12 pages in length. The components include:
• a two- to three-page cover letter;
• a single page which is the actual “subpoena,” in that it informs the recipient of the date, time, and location at which they are required to produce documents and/or appear and testify;
• an often lengthy list of definitions, instructions, and document requests attached to the subpoena;
• a few pages on how and in what format to produce electronically stored data; and
• Form 1662, which is an SEC document that explains the ways in which the SEC routinely uses the information provided.
What can the subpoena tell me?
To an experienced SEC enforcement attorney, the subpoena will provide insights into what issues the SEC is investigating, the nature of the violations the SEC suspects have taken place, the persons likely to have knowledge of the issues the SEC is interested in, and more.
What is a subpoena anyway?
A legal document, called a writ, which is created to command you to be present (or described documents to be produced) at the location it lists on the date and at the time it time states. A court or one of many governmental agencies, either a federal agency or a state agency, can complete and send you a subpoena. An “administrative subpoena” is a subpoena that an administrative agency (federal or state), not a court, creates. SEC subpoenas are administrative subpoenas.
What happens if I ignore a subpoena sent by the SEC?
You may ultimately be subjected to a penalty. The word “subpoena” literally means “under” (sub) “penalty” (poena). This is never a recommended response. However, if you do ignore an SEC subpoena the SEC will have to undertake what is called a “subpoena enforcement action,” in which it immediately files a lawsuit in U.S. District Court with jurisdiction over you or your company, and requests the federal court to order compliance with the subpoena. Ignoring the federal court order can result in a contempt finding, which could land you, or the person responsible for blocking compliance with the court’s order, in jail and subject to monetary sanctions. The statutory authority for doing this can be found in Section 21(c) of the Exchange Act, 15 U.S.C. § 78u(c).
What should I do if get a subpoena from the SEC?
There are two things that you should not do: (1) ignore the subpoena (see above) or (2) destroy or delete any documents or data that the subpoena seeks to be produced. You should consider retaining counsel to assist you in negotiating the parameters of the subpoena with the SEC staff and begin the process of organizing a defense strategy. If the subpoena is directed to your company, you need to immediately put employees who may have responsive documents or data on notice not to destroy any such information. You should immediately notify your IT department to suspend the regular deletion of electronic data until you can isolate responsive documents; also, they should take steps to ensure that individual custodians of relevant data cannot delete responsive data.