The Pickholz Law Offices

People often refer to a lawyer who represents defendants or whistleblowers in SEC cases as an SEC lawyer.  In an age of increased regulation and enforcement, individuals and businesses need to be prepared for when the Securities and Exchange Commission (SEC) comes knocking.

SEC investigations begin in many different ways, some of which include:

• The SEC’s own market surveillance or internal referrals arising from inspections by the SEC’s Office of Compliance Inspections and Examinations (OCIE);
• Referrals from the Financial Industry Regulatory Authority (FINRA) and other self regulatory organizations;
• Referrals from other state and federal government agencies; or 
• Tips from investors, business counterparties, and/or whistleblowers.

What Does The SEC Do?

The SEC oversees organizations and individuals involved in the securities markets by requiring truthful disclosures around market-related information.  Companies must provide accurate financial reporting and other material information to their investors and to the public.

The term “security” typically refers to a tradable financial asset used to raise capital in public and private markets.  According to one widely accepted definition, a security enables an investor to make money through someone else’s efforts.  Usually that “other person” refers to the company whose securities the investor buys.  As most commonly used, a security represents an ownership interest in a publicly-traded corporation.

In the most typical scenario, investors purchase a company’s stock on a public exchange like the NYSE or NASDAQ.  The investment or ownership interest can also arise in other ways, though.

Enforcement Inquiries And Investigations

The SEC conducts its enforcement investigations confidentially.  Usually an SEC investigation takes one of two forms.

The first type is known as an informal inquiry.  Although named an “informal” inquiry, and cooperation with it is voluntary, it should not be taken casually.

During an informal inquiry, the SEC tries to determine whether there exist enough facts to warrant opening a formal investigation.  Responses to informal SEC requests could cause the SEC Staff to either end the inquiry or open a formal investigation.  So, too, could failures or refusals to respond, which often times creates a conundrum.  A defense-side SEC lawyer can guide a client through an informal inquiry.

In a formal investigation, the SEC can compel witnesses to testify and produce documents using its subpoena powers.  Following the investigation, the SEC can choose not to bring a securities enforcement action. Alternatively, it can decide to bring a securities enforcement action in a U.S. District Court or in an administrative proceeding.  A defense-side SEC lawyer can also represent a client during a formal investigation.  (SEC lawsuits and administrative proceedings are discussed in more detail below.)

The SEC investigates a wide range of potential conduct.  Some of the more common types of conduct that the SEC investigates include:

Insider Trading

Insider trading often occurs when corporate insiders with access to confidential, non-public information about a company use that information to trade the company’s stocks or other securities. Taking advantage of privileged access to confidential, non-public information might also violate certain fiduciary duties.

Furthermore, under certain conditions, someone who does not work for the company might also face insider trading charges. This could occur where an outsider obtains confidential, non-public information about the company and then trades on it.

Unregistered Securities Offerings

Federal securities laws require registration of all securities offerings with the SEC, with certain exceptions.  A company may not offer or sell securities without registering them or receiving an exemption.

If a company or an individual sells unregistered stock in a company without an available exemption, the SEC may bring an action against them for offering unregistered securities.

Front Running

Sometimes a broker may obtain inside knowledge of a future securities transaction by someone else.  For instance, a broker might learn that a customer intends to buy or sell a particular stock.  If large enough, that customer's upcoming purchase or sale could affect the stock’s price.  Should the broker “step in front” of that customer by putting in his or her own trade first, before executing the customer’s trade, to take advantage of the price movement expected to be caused by the customer’s later trade, the broker may have committed front running.

Other times, a broker might learn that his or her firm intends to issue a buy or sell recommendation.  Front running might occur if the broker trades on this advance information before it is released to the firm's customers.

Like with insider trading, one of the key factors in front running is exploiting confidential, non-public information.

Other Securities Frauds

The term “securities fraud” covers a wide range of additional activities.  Often those activities involve the manipulation of financial markets or the deception of public investors.

One of the more commonly known types of securities fraud occurs when a company, an officer or director of a company, or certain other types of people, makes a false statement about a material fact, or fails to state a material fact, about the company or its stock.

Bribing foreign officials can violate the FCPA

For example, securities fraud could occur where a corporate officer reports false financial  information about the company to its shareholders.

Accounting fraud, books and records fraud, false statements in offering or marketing materials, bribing foreign officials to gain a business advantage (Foreign Corrupt Practices Act or “FCPA” violations), pump and dumps, Ponzi schemes, and pyramid schemes, are just some of the many other types of conduct that can fall under the broad heading of securities fraud.

If you believe that you or someone at your company may have committed a securities fraud, or you have received an SEC inquiry letter or SEC subpoena, you should seriously consider hiring your own SEC lawyer. This could be either a defense-side SEC lawyer or a whistleblowers’ SEC lawyer, depending on your particular situation.

Likewise, if you have decided to report a securities fraud to the SEC through the SEC whistleblower program, you should carefully consider consulting with a whistleblowers’ SEC lawyer first.

What Happens During An SEC Investigation?

An SEC investigation is not like litigating or negotiating during a court case.

For example, during an SEC investigation, the SEC has subpoena powers.  Typically a company or individual under investigation does not have the ability to compel non-employees or others to provide them with testimony or documents that might help them to defend themselves in the SEC investigation.

Also, during an SEC investigation, there is no impartial judge to decide disputes –– the SEC itself runs the investigation.  The SEC alone has the discretion to decide whether to bring an enforcement action or not.

For these reasons and others, it is often crucial to have your own knowledgeable SEC lawyer to assist you.  An SEC lawyer can help you navigate the complexities of the SEC investigation and protect your rights.  An SEC lawyer can also help position you in the best possible light by the end of the process.

Settling An SEC Investigation

A person or company under investigation might want to get the SEC to settle during the investigation. However, a company or an individual may find it difficult to know how to position itself for a possible settlement, how to conduct the settlement negotiation, or what type of settlement terms might be realistically attainable.  An experienced SEC lawyer can provide valuable assistance in this area.

See details of Jason Pickholz’s book on Securities Crimes here

In addition, a company or person under investigation may find it awkward or uncomfortable to advocate strongly with the very person who has the discretion to recommend an enforcement action against them.  Unanticipated questions can catch non- SEC lawyers by surprise and pressure them into giving responses without having sufficient time to think about them and consider the various ramifications.  An SEC lawyer can present those strong arguments, and can act as an intermediary or buffer between a client and the SEC.

If the investigation does not settle and the staff of the SEC believes that it has uncovered a violation of the federal securities laws, it may make a recommendation to the Commission for further action.  At that point, the Commission then decides whether to authorize the filing of a civil enforcement lawsuit in court or the institution of an administrative proceeding.

Civil Enforcement Lawsuits

In a civil enforcement lawsuit, the SEC files a complaint setting forth its allegations in a U.S. District Court, just like in any other federal civil lawsuit.

In its court complaint, the Commission often asks for a court order prohibiting the defendant from engaging in further practices that violate the law, sometimes referred to as a “further bad acts” injunction.

In addition, the SEC may also seek other types of relief, such as the disgorgement of illegal profits, monetary penalties, and industry bars, officer and director bars, or penny stock bars.

Administrative Proceedings

The SEC’s Enforcement Division sometimes brings cases in administrative proceedings presided over by an administrative law judge (ALJ), rather than in a court lawsuit.

The parties may present evidence, including witness testimony and documents, during the administrative proceeding.  A respondent in an SEC administrative proceeding has the right to have a defense-side SEC lawyer represent them.

After the hearing, the ALJ issues an initial decision that includes legal conclusions and the recommended sanctions, if any.

Depending on the circumstances, some of the sanctions available in administrative proceedings may include disgorgement, penalties, censures, bars or suspensions, and cease and desist orders.

A defendant can appeal the ALJ’s decision to the Commission (the four appointed SEC Commissioners and the SEC Chairman) or the Commission may review the decision on its own.  The Commission may affirm the ALJ’s decision, reverse it, or order additional hearings.

Navigating The Process With An SEC Lawyer

The Pickholz Law Offices is a law firm that focuses on both defending clients in SEC investigations and in helping whistleblower clients to pursue their whistleblower cases with the SEC.

After being a partner at two national law firms, Jason R. Pickholz founded The Pickholz Law Offices with the goal of providing legal representation of the same high quality as the big firms, but with the care and personal attention of a boutique.

Mr. Pickholz has been handling all aspects of SEC investigations for clients since 1995.  If you would like to learn how to put his experience to work for you, please call 347-746-1222.

Your initial hour of consultation is free, and you are under no obligation when you call.