Being caught up in an SEC Enforcement investigation may be one of the most unpleasant life experiences one can ever have. Investigations can be costly and time consuming, sometimes dragging on for months and often years. During an investigation, the SEC staff may unearth embarrassing information about you or try to get you to implicate friends or colleagues–even if you were not personally involved in wrongdoing. And, if you were involved in bad behavior, you could end up being barred from working in the securities industry or be ordered to pay stiff fines. If things really go south, you could end up in federal prison. Given the stakes involved, one of the most, if not the most, important decisions to make along the way is to figure out who should represent you. Briefly, here are a few things to consider in making that decision.
Make sure that your attorney is persuasive and will advocate fiercely on your behalf. It is extremely important that your attorney be able to communicate to the SEC staff persuasively while representing you. This aspect is almost always the most important consideration in choosing counsel. In addition, if the facts are in dispute or the law unclear in a particular situation, it might be useful to have an attorney with some degree of trial experience represent you. A defense lawyer without litigation experience will seem much less imposing to the SEC investigative staff and trial unit than one who knows their way around the courtroom. No doubt, the SEC staff will be much more concerned about litigating a case if your lawyer has spent extensive time in the courtroom. I often heard those sentiments expressed by senior officers of the SEC while I worked there.
Make sure that your attorney is capable of handling the assignment. Will the criminal authorities be involved or just the SEC? Some attorneys are excellent SEC Enforcement attorneys while others specialize in criminal law. A few are good at both. If you have criminal exposure you should make sure that you don’t make the mistake of hiring experienced SEC counsel that doesn’t have the needed criminal experience. On the other hand, if you are not exposed criminally, an experienced SEC attorney may be all you need–one who can navigate both the investigative progress and have insight as to the SEC personalities involved in the investigation. Believe it or not sometimes an experienced SEC practitioner will even know the strengths and weakness of the individuals assigned to the the SEC investigation, including the supervisors. Because SEC staff abilities run the gamut, from highly capable and effective to borderline incompetent, such information may, depending on the situation, be useful to your cause. Some attorneys that don’t specialize in SEC defense work can be excellent but their lack of knowledge of how the SEC operates and its personnel can sometimes be a downside. These attorneys can perform well, but depending on the circumstances, maybe not as well as those steeped in SEC enforcement practices.
Don’t just hire the well know firm or counsel. Often, the best known firms or highest profile attorneys may not be effective counsel. It’s a sad fact that some well know law firms and attorneys are fantastic at marketing themselves but incredibly poor advocates. In some large law firms you may also get lost in the shuffle unless you represent a significant client to the firm. Moreover, in a big firm, the partners dealing with the SEC often don’t know the details that the junior staffer working on the matter know. Of course, many of the large firms do have the necessary resources and expertise for some situations and some of those firms also have excellent securities defense practices. Surprisingly, some well known national law firms also do not have capable securities defense attorneys running their practices, even though they market themselves as if they do.
It is also worth knowing that some high profile attorneys had such poor relationships with fellow SEC staffers while working at the SEC that, in my view, it would be a terrible mistake for you to have them to represent you in an SEC matter. I know of several former SEC senior executives and staffers (and a couple of Commissioners) now in private practice who, for some reason, routinely treated their SEC subordinates and colleagues with disdain and disrespect while working at the SEC. Human nature being what it is, the SEC staffers will not forget that dynamic when that former nemesis shows up to represent someone (or some entity) in an investigation. At the same time, there are a fair number of former SEC senior executives and staffers who were universally well liked and respected by their colleagues while at the SEC. They generated a lot of goodwill with their colleagues. If at all possible try to determine which type of attorney you would be hiring because the attorney’s past relationship with the staff may have a bias effect (conscious or not) on how the staff deals with your counsel (and by extension you) and how the investigation proceeds as well as the resolution of the case. On some occasions it may to your benefit to hire someone who has a good relationship with some of the senior officers of the Enforcement Division.
Similarly, other high profile attorneys have developed deserved reputations for lying or misleading staff on investigations, which causes SEC staff to generally distrust most things these attorneys say or do. Again, if you choose to be represented by such an attorney, you are starting out with a big disadvantage and you will likely spend more time and money on the investigation than you should.
Make sure you get along with your lawyer. You may be spending more than a fair amount of time with your lawyer, so make sure that you and your counsel work well together. Take your time and interview several attorneys to make sure that your choice seems like the right fit for you; choosing who to represent you is not a decision to make casually or quickly. If you are an individual don’t take the first person listed on the paper the firm you work for provides to you on its list of counsel recommendations. If you a business, don’t necessarily use the same firm that you use for your general business matters to represent you in an enforcement proceeding. Take recommendations from trusted advisors and talk to multiple attorneys to get a feel for who you would be dealing with. After all, if the investigation lasts a while you will be spending a lot of time with this person. It makes sense that you would have a good relationship with this person and be comfortable sharing your confidences with them. Good counsel can, and often does, make a difference in how things proceed and then end up.
In sum, make a bad choice of counsel and what was a nothing burger could turn into a something burger. Ineffective counsel may require you to spend more time and money than you need to, and, in some circumstances, get you you exposed you to criminal prosecution. On the other hand, effective counsel can help you navigate the unique SEC Enforcement investigative process, help you negotiate a reasonable settlement with the SEC or possibly even persuade the SEC staff that no enforcement action is warranted in a close case. Take your time, choose wisely
The SEC in Action 