When the Securities and Trade Fee comes knocking, cooperation – not combativeness – is usually the perfect strategy for enforcement protection attorneys and the shoppers they signify.
That was a message Kathleen Marcus, a associate at regulation agency Stradling Yocca Carlson & Rauth, delivered throughout a panel on SEC enforcement held as a part of the Nationwide Affiliation of Bond Legal professionals’ annual convention earlier this month. Previous to becoming a member of Stradling in 2009, Marcus served as senior counsel within the SEC’s Division of Enforcement.
At Stradling, the place she co-chairs the agency’s enforcement protection and investigations observe, Marcus has helped shoppers navigate “plenty of SEC investigations within the municipal house,” she mentioned. Along with municipalities and municipal advisors, Marcus has labored with attorneys, regulation corporations and actual property builders ensnared in such probes.
An SEC investigation “just isn’t a litigation,” Marcus mentioned through the panel dialogue.
“You need a fully cooperative posture and also you need attorneys which might be going to dig in very early on [and] determine what’s been occurring,” she mentioned. “Your attorneys have to be in entrance of the SEC workers so far as the training curve as a result of that is how they will supply worth.”
An SEC investigation generally will start as a casual inquiry referred to as a “matter underneath inquiry” or MUI, Marcus mentioned. Within the MUI stage, cooperation is voluntary as a result of the SEC would not but have subpoena energy, she mentioned.
“They usually do that and also you wish to cooperate at this juncture,” she mentioned, including that despite the fact that cooperation on the MUI stage is voluntary, “it is time to get up and get it resolved straight away.”
A agency going through an SEC investigation must undertake a fast inner investigation, conducting interviews and finding key paperwork, Marcus mentioned. That may assist a agency’s attorneys negotiate the scope of a possible SEC subpoena, she mentioned.
As an alternative of simply ready to answer a subpoena, corporations needs to be proactive, Marcus mentioned.
“You wish to be in there, lowering scope, managing prices, speaking to the workers, determining what their priorities are after which being as helpful as potential to them, as a result of they will discover out anyway,” she mentioned.
For a matter to proceed to the formal investigation stage, SEC commissioners have to approve the issuance of a proper order of investigation that provides the workers “that extraordinary energy to subpoena paperwork and testimony,” Marcus mentioned.
On March 10, the SEC issued a closing rule rescinding the flexibility of the Enforcement Division director to difficulty formal orders of investigation. The director had held that energy for a lot of the final 16 years.
Whereas some may suspect that the SEC’s March transfer might gradual issues down, the fee meets recurrently to approve formal orders of investigation, Marcus mentioned.
A proper investigation sometimes takes a few years, she mentioned. Sometimes, because the investigation is nearing its shut, “you’ve got a possible for what’s known as a pre-Wells settlement dialogue,” Marcus mentioned.
A Wells Discover is a communication from the SEC to individuals or entities underneath investigation for potential securities regulation violations. Such notices advise recipients of expenses the SEC is desiring to deliver and affords them a chance to offer a response referred to as a Wells submission.
Throughout her panel feedback, Marcus additionally addressed rumors she’s heard concerning SEC enforcement workers’s willingness to open new investigations. Whereas there are rumors that “the workers cannot have any new investigations in order that they’re simply churning instances and … the morale’s dangerous on the market,” that is not true, she mentioned.
The workers is constant to open new investigations, Marcus mentioned.
“They’re persevering with to do the work, they’re simply doing it loads leaner than they used to,” she mentioned, noting the company’s diminished headcount.
Marcus acknowledged, nonetheless, that the variety of SEC enforcement actions popping out has “dropped materially,” referencing figures included in an Aug. 21 consumer alert from regulation agency King & Spalding.
King & Spalding’s evaluation confirmed a complete of 67 new actions filed by the SEC between Feb. 1 and July 31 of this yr, which marked a 47% drop from the 127 instances introduced throughout the identical interval in 2024.
Whereas the variety of SEC enforcement actions popping out has declined, “I do need of us to know that there are nonetheless individuals in chairs doing actual issues they usually’re not simply churning their outdated instances,” Marcus mentioned through the panel.
