SEC investigations can be a harrowing experience for the witness as well as the targets. One of the first questions my clients ask when faced with a subpoena from the SEC is how long is this going to take? While I hate to give the typical lawyer answer, that answer is, “it depends.”
Mark J. Astarita, Esq. is a national securities attorney with over 30 years of experience representing investors, traders, and financial professionals in SEC investigations, administrative proceedings, and court injunctive actions. For a free consultation regarding a securities law issue, email him at email@example.com
It depends on the case. Investigations, where the SEC believes there is ongoing harm, can be in court in a matter of days. In fact, some investigations move to court before the target is even aware of the investigation.
But that is rare, and it is hard to say how long an investigation takes. All SEC investigations are conducted privately. Investigators attempt to obtain facts and evidence, first through informal inquiries, then by examining brokerage records, and reviewing trading data, and then by serving subpoenas for documents, and ultimately testimony.
Five Year Statute of Limitations?
In theory, there is a statutory requirement that the SEC is required to bring an action within 5 years:
28 U.S.C. § 2462 states that “[e]xcept as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.”
However, this is subject to interpretation, the most significant of which is “when the claim first accrued.”
Congress Makes it 10 Years
However, in January 2021, Congress enacted the National Defense Authorization Act. Tucked away in a defense spending bill were a group of securities law amendments to address the Supreme Court’s decisions in Kokesh v. SEC and Liu v. SEC. Those amendments changed the statute of limitations for disgorgement in intentional fraud cases to 10 years. The amendments also gave the SEC 10 years to seek equitable relief in all cases, and made other changes that expand the SEC’s enforcement authority.
Formal Order of Investigation
Investigations begin with a Formal Order of Investigation, which, among other things, allows the Staff to subpoena witnesses to testify and produce documents.
It is not until that process is completed that the investigation is “finished.” At that time a decision is made to file a case in federal court or bring an administrative action. In many cases, the Commission and the party charged decide to settle a matter without trial, and in others, the matter is simply dropped.
If there is a decision to charge someone, the Staff will typically send a Wells Notice to that individual or entity, notifying them that the Staff intends to file proceedings. The response to a Wells Notice is not required, and is not recommended in every case. See The Wells Notice and Wells Submission.
Termination of Investigation
However, when the SEC decides not to file a proceeding, there are limits on who the Staff is required to notify.
Specifically, the Staff must notify anyone who:
- is identified in the caption of the formal order;
- submitted or was solicited to submit a Wells submission; or
- to the staff’s knowledge, reasonably believes that the staff was considering recommending an enforcement action against them.
The Staff must also notify any person who was involved, who asks to be notified, but the reality is, witnesses who have received subpoenas often never hear back from the SEC.
Experienced Counsel is Required.
For the target or potential target of an investigation, we can usually provide a good estimate on the length of time the investigation may take, based on the details of the case, the urgency of the matter and our discussions with the Staff, but targets and witnesses need to hire experienced securities counsel to make that happen.
The attorneys at Sallah Astarita & Cox, LLC are former broker-dealer and SEC Staff attorneys with extensive experience in defending witnesses and targets of SEC, and FINRA, investigations. Call them at 212-509-6544 to discuss any issues you may have with an SEC investigation.
Mark J. Astarita, Esq. is a securities lawyer who represents investors, financial professionals and firms in litigation, arbitration and regulatory matters across the country. He is a partner in the national securities law firm of Sallah Astarita & Cox, LLC and can be reached by email at firstname.lastname@example.org or by phone at 212-509-6544.
Follow us on Twitter, Facebook and The Securities Law Blog .