SEC Actions & Administrative Proceedings
Most public companies realize that the Securities and Exchange Commission (the “SEC”) is a law enforcement agency. Receiving an SEC subpoena is a new experience for most market participants. SEC Actions can involve a case in federal court or an administrative action. They can be informal or formal. Any SEC subpoena should be taken seriously. SEC actions can result in penalties, fines and injunctions and lead to referrals to criminal agencies. The SEC’s Enforcement Division functions as the enforcement arm of the SEC. It is the Division of Enforcement that commences investigations of potential securities law violations, by recommending that the SEC bring SEC actions in federal court or before an administrative law judge, and by prosecuting the cases on the SEC’s behalf.
The SEC’s Division of Enforcement collects evidence of securities law violations. This evidence comes from market surveillance activities, investor tips and complaints, other Divisions and Offices of the SEC, the self-regulatory organizations such as the Financial Industry Regulatory Authority (“FINRA”) and other securities industry sources, and news and/or media reports.
SEC investigations are conducted privately. Facts are developed to the fullest extent possible through informal inquiry, interviewing witnesses, examining brokerage records, reviewing trading data, and other methods. With a formal order of investigation, the Division’s staff may compel witnesses by subpoena to testify and produce books, records, and other relevant documents. After an investigation, the Division of Enforcement’s staff presents their findings to the SEC for its review.
Sometimes, the SEC and the party charged decide to settle a matter without trial. Other times, the party charged fights the allegations and the SEC action.
Common SEC Violations that Lead to Investigations:
● Securities fraud – Misrepresentation or omission of important information about a company or its securities
● Manipulative Trading – Manipulating the market prices of securities
● Conversion of customers’ funds or securities
● Violating broker-dealers’ responsibility to treat customers fairly
● Insider trading (violating a trust relationship by trading on material, non-public information about a security)
● Selling unregistered securities
Whether the SEC brings a case in federal court or before an administrative law judge depends on various factors. When warranted, the SEC may bring both a civil and administrative proceeding.
SEC Civil Actions
The SEC files a complaint with a U.S. District Court and asks the court for a sanction or remedy. Often the SEC asks for a court order, called an injunction, that prohibits any further acts or practices that violate the law or SEC rules. An injunction can also require audits, accounting for frauds, or special supervisory arrangements. In addition, the SEC can seek civil monetary penalties, or the return of illegal profits (called disgorgement). The court may also bar or suspend an individual from serving as a corporate officer or director. A person who violates the court’s order may be found in contempt and be subject to additional fines or imprisonment.
The SEC can seek a variety of sanctions through the administrative proceeding process. Administrative proceedings differ from civil court actions in that they are heard by an administrative law judge (ALJ), who is independent of the SEC. The administrative law judge presides over a hearing and considers the evidence presented by the Division staff, as well as any evidence submitted by the subject of the proceeding. Following the hearing the ALJ issues an initial decision that includes findings of fact and legal conclusions. The initial decision also contains a recommended sanction. Both the Division staff and the defendant may appeal all or any portion of the initial decision to the SEC. The SEC may affirm the decision of the ALJ, reverse the decision, or remand it for additional hearings. Administrative sanctions include cease and desist orders, suspension or revocation of broker-dealer and investment advisor registrations, censures, bars from association with the securities industry, civil monetary penalties, and disgorgement.
For more information about SEC investigations, please contact Hamilton & Associates Law Group, at 561-416-8956 or [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyer
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
SEC Subpoena, SEC Action, SEC Enforcement, SEC suit, SEC lawsuit, SEC Charge, SEC charges