Over the past decade, the SEC has significantly increased its enforcement efforts across the financial sector. As business leaders in this climate, proactively understanding the SEC’s processes outlined in their Enforcement Manual can help protect both professionals and their organizations when issues arise.
In this article, we’ll summarize the key insights from the manual that are most relevant for finance teams. Whether your firm is large or small, this guidance can help prepare you for SEC engagement by highlighting areas of focus, procedures around cooperation, and litigation considerations.
SEC Investigations and Charges
When it comes to SEC investigations and charges, the department has significant latitude when handling insider trading, financial disclosure, and other priorities.
That’s why upfront cooperation is so valuable; working with authorities early often leads to reduced charges. In fact, recent cases saw upfront cooperation help entities avoid corporate penalties completely. Knowing this not only prevents business disruptions but also shows regulators your commitment to transparency.
As far as litigation, over 90% of SEC cases settle out of court. But for those that go to trial, success rates favor the Commission, with nearly a 70% win percentage in recent years. Given these dynamics, having experienced counsel for defense and settlement strategies is highly recommended, no matter the specifics of your case.
Key Areas of SEC Scrutiny: Insider Trading, Adviser Fraud, Market Manipulation, and FCPA
Now more than ever, SEC attention and enforcement spans a diverse area of financial sectors. The Manual outlines four divisions to help delineate their scope:
Insider Trading and Public Company Misconduct
Honing in on trading abuse and false disclosures remains an SEC priority. In 2021 alone, they brought over 150 insider trading enforcement actions. Having robust disclosure procedures tied to transparency expectations can protect firms here.
Investment Adviser Fraud
Issues like misappropriation of funds and inadequate performance advertising are on the rise. Last year saw fines of over $1 billion levied against investment advisors, more than doubling totals from 2020. Compliance programs that deter fraud are essential.
Broker-Dealers and Market Manipulation
Sophisticated rules govern broker-dealer equities and fixed-income activities. With advanced technologies allowing illegal practices like spoofing at unprecedented scales, stringent internal controls must be implemented to avoid noncompliance.
FCPA Violations
The SEC takes a central role in enforcing Foreign Corrupt Practices Act provisions prohibiting overseas bribery. Since international business dealings can risk exposure here, rigorous due diligence and auditing help prevent misuse.
How to Respond to SEC Inquiries
Navigating document requests, Wells submissions, and other inquiry elements requires strategy. The manual provides guidelines to streamline compliance, like:
- Formatted document production – Responding efficiently to subpoenas saves time and resources.
- Access to investigative files – Wells respondents can review these files to craft thoughtful submissions.
- Witness protections – “Witness Assurance Letters” reassure cooperators they won’t face charges.
- No-action closure letters – The SEC confirms when it closes an inquiry without recommendations.
While the SEC pursues its civil investigation independently, it can share findings with criminal authorities. So, securing knowledgeable counsel remains crucial when dealing with regulators.
Promoting a Culture of Compliance
The best defense is a good offense. The manual underscores how monitoring systems, training programs, and prompt attention to red flags demonstrate a commitment to compliance.
Fostering this culture reduces enforcement risks in the first place. It also equips firms to collaborate smoothly with investigators, avoiding missteps. Resources like the Red Book highlight areas to shore up and processes requiring clarity.
When issues arise, the SEC emphasizes seeking cooperation, not conflict. Punitive attitudes often backfire, miring cases into legal quagmires. Regulators respond favorably to organizations demonstrating accountability, integrity, and readiness to remedy problems.
Take Control of Your SEC Investigation
The securities lawyers at My RIA Lawyer empower financial professionals to navigate SEC inquiries confidently. With deep knowledge of the SEC enforcement manual and processes, they help clients make smart choices at every turn.
If you’re facing an SEC investigation, don’t go it alone. Engage experienced counsel to protect your interests. Call or visit My RIA Lawyer online at https://www.myrialawyer.com/ to discuss the specifics of your case.
