Shawn Carter

In early May, the SEC filed a subpoena enforcement action in federal court against Shawn Carter.  According to the SEC filing, on November 17, 2017, he SEC sent Mr. Carter a subpoena for testimony and he failed to appear on the date specified in the subpoena.  The SEC was kind enough to send him a second subpoena, and then, when he failed to show for that one, proposed a new date and then a deadline.  Last week, in a well-publicized rebuke to Mr. Carter and his attorneys, the judge assigned to the case ordered Mr. Carter to appear for testimony on May 15.

I commend the SEC for bringing the enforcement action and was gratified to see that the judge assigned to the action had no patience for further delaying the testimony.  Such SEC enforcement actions are pretty rare — most often testimony dates can be worked out and filing subpoena enforcement actions take considerable time, a tedious task most staffers aren’t overly enthusiastic to deal with.  At the same time, many defense attorneys have the mistaken belief that they can delay witness testimony for a considerable amount of time or set the terms or conditions of testimony.  While at the SEC, I observed more than a few defense counsel try to delay or limit client testimony and also saw a variety of responses by staff attorneys to such tactics and demands.  For some reason, many SEC staff attorneys (and more than a few supervisors) seemed to believe that it was often appropriate to give defense attorneys and their clients considerable latitude and deference, at times treating them with undeserved kindness bordering on affection.  Similarly, I often saw staff attorneys treat statements by defense counsel about important aspects of the investigation as actual facts.  That was almost always a serious mistake.  I admit that I too made many mistakes in dealing with such basic issues, and many times treated defense counsel with considerable deference and trust for much longer than I should have.

The most effective SEC attorneys I worked alongside with usually made sure to have witnesses appear for testimony within a couple of weeks of request, while the least effective took a month or more to schedule witness testimony only to be delayed further as defense counsel found some sort of new client obligation or situation to interfere with the testimony date (say a brief to be filed in another case. a long awaited vacation, a sick pet ,or some similar emergency.)  My belief is that how a staff attorney and the staff’s supervisors dealt with such basic issues often set the tone for the course of investigation and that a lackadaisical response to certain defense tactics could unduly delay an investigation or even throw an investigation completely off track.  Hopefully, the successful action against Shawn Carter will remind SEC staff  that at least with respect to the testimony demands of witnesses, SEC staff, not defense counsel, generally holds all of the cards.

An example of how, at least in my view, to effectively deal with difficult witnesses and defense counsel might be helpful here.  While working at the SEC, I heard of a situation in which a witness who was testifying pursuant to subpoena decided that he would stop testifying and just get up and leave (presumably the witness didn’t like how it was going).  The witness left the room and walked out of the SEC offices.  The staff attorney quickly cornered the attorney for the witness and told him that his client could certainly abandon the testimony but if he did there would be severe consequences:  the staff attorney would immediately begin drafting litigation papers for a subpoena enforcement action and the action would be filed in court the next day.  I have no doubt that the SEC enforcement attorney meant what he said.  Needless to say, the witness soon returned to the room and completed the testimony.  The SEC Enforcement program enjoys significant benefits from such perfectly appropriate yet demanding actions by its attorneys — its credibility and effectiveness are both greatly enhanced.