Types of SEC Enforcement Action

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Brian Kuester
Attorney Brian Kuester
SEC Enforcement Action Team Lead
Former US Attorney
Former District Attorney
Ellen Comley
Attorney Ellen Comley
SEC Enforcement Action Team Lead
Senior Counsel
Roger Bach
Roger Bach
SEC Enforcement Action Team Consultant
Former Special Agent (OIG)

The U.S. Securities and Exchange Commission (SEC) can enforce federal law and prosecute securities fraud and litigation with four different types of action:

  1. Criminal
  2. Civil
  3. Administrative
  4. Other, less formal actions by the agency

The SEC can only pursue civil, administrative, and informal enforcement actions – it does not have the legal authority to file criminal charges. However, the SEC can take part in criminal allegations by referring cases that appear to have a criminal element to them to the U.S. Department of Justice (DOJ) or other law enforcement agencies. Even after referring the case to the DOJ, SEC personnel frequently stay on the investigative team to lend DOJ officials their expertise in securities law.

Preventing an SEC enforcement action from escalating – whether from an administrative action to a civil one, or from a civil allegation to a criminal one – is among the most important goals in defending against an SEC investigation. If the case escalates, the penalties grow exponentially.

The criminal securities fraud defense lawyers at The Criminal Defense Firm have helped defendants and suspects navigate serious allegations of securities fraud across the country. With our help, many individuals and companies under investigation have successfully quashed the inquiries they have faced and protected their rights, business, and future.

Many SEC Cases are Handled Administratively

Probably the most common type of SEC enforcement action is an administrative one. Administrative cases are handled within the SEC or one of the other federal agencies that regulates the securities industry, such as the Financial Industry Regulatory Authority (FINRA). SEC agents will investigate signs of potential securities violations and attempt to prosecute you, while other SEC agents will act as arbiters and hearing officers in your case.

At least at their outset, these cases generally involve unintentional or negligent mistakes in trading securities, such as failing to comply with SEC regulations or FINRA rules. However, administrative cases frequently escalate to civil or even straight to criminal allegations if the administrative investigation uncovers evidence of fraudulent intent or significant investor losses. It is also not uncommon for SEC agents who recognize that they have a weak civil case to use an administrative one to coerce the targets of their investigation into accepting responsibility and essentially pleading guilty to prevent it from escalating.

These cases are the least pressing, though they are far from trivial. While both civil and criminal cases are more dangerous, administrative cases can lead to:

  • Fines and other monetary penalties and fees
  • Professional repercussions, such as a suspension or revocation or your securities license and potentially even a lifetime ban from the industry

Additionally, the fact that both the investigators and hearing officers are under the same roof makes it difficult to secure a favorable outcome. The hearing officers are likely to give more credence to the investigators than to you or your defense team. Appealing an unfavorable outcome into the judicial system is often necessary.

Civil Cases for Securities Fraud

More serious than administrative enforcement actions, civil SEC actions are akin to a lawsuit filed against you or your brokerage firm by the SEC. While this means that there will be a federal judge presiding over the case rather than an agent of the SEC acting as the hearing officer, is also means that the potential penalties increase dramatically and can include:

  • Disgorgement of profits obtained from the securities violation
  • Civil fines
  • Potentially treble damages
  • Court injunctions

Additionally, the negative publicity that a civil allegation can create for your or your company far surpasses that of an SEC administrative action. This can wreak havoc on your company’s profits and tarnish your reputation, even if the case is eventually dropped or if the jury finds in your favor at trial.

Some common SEC civil enforcement actions are for allegations of:

Criminal Referrals from the SEC

If the SEC’s investigations in a civil or an administrative case find evidence of criminal wrongdoing or the intent to defraud people or investors, the agency will make a criminal referral – often to the DOJ, though occasionally to the Federal Bureau of Investigation (FBI) or the Internal Revenue Service (IRS) if the circumstances call for it. Even after making the criminal referral, though, the SEC will often remain within the investigation, lending prosecutors their intimate understanding of how the complicated world of securities transactions can work unlawfully.

Charges for these white collar crimes are far more severe than civil allegations. Unlike civil or administrative claims, criminal convictions carry prison time. They also carry the potential for many of the same monetary penalties that can be imposed in a civil judgment. A criminal conviction for securities fraud will generally end your career in the industry, as well.

Additionally, when federal law enforcement agencies file criminal charges for a securities fraud offense, other attendant charges are often heaped on as well. A common one is for mail or wire fraud, which is the crime of using the U.S. postal service or a telecommunications device – including a phone or the internet – to perpetrate a fraudulent scheme. These additional criminal charges can carry decades in prison for a single count, drastically raising the legal perils that you will face.

The SEC Has Other Ways of Enforcing the Law, As Well

There are a few other ways that the SEC can investigate and enforce federal securities laws, in addition to administrative, civil, or criminal legal actions. For example, the SEC can:

  • Initiate an audit
  • Create a receivership, in which the agency appoints someone to distribute illegally-obtained funds to the victims who were defrauded
  • Impose a stop order, which suspends the trading of certain suspicious securities
  • Issue commission opinions and administrative orders

These are just the actions that the SEC can take against you or your firm that you experience directly. The SEC also:

Frequently Asked Questions About the SEC, Enforcement of U.S. Securities Law, and The Criminal Defense Firm

How Does the SEC Decide How to Respond to Evidence of Wrongdoing?

The type of enforcement action that the SEC goes with will depend on a variety of factors. Additionally, each case is unique, so the agency’s decision may be difficult to predict.

However, in general, the severity of the offense and the strength of the evidence that has been found play the major roles in deciding how the SEC will likely respond. If the SEC uncovers strong evidence of criminal wrongdoing, it may make a criminal referral right away. More often, though, cases slowly escalate: The SEC gets a tip or notices a suspicious trading pattern, starts to investigate, uncovers evidence that the issue is widespread, investigates more, and uncovers evidence of a crime.

What Sets The Criminal Defense Firm Apart from Others?

There are several things that The Criminal Defense Firm brings to the table that other criminal defense firms cannot.

First, while other attorneys focus their practice on state offenses or deal exclusively with state charges, our attorneys handle a lot of federal cases. Going up against a district attorney’s office or the state attorney general do not adequately prepare defense lawyers for fighting the full force and resources of federal law enforcement agencies.

Second, all of our lawyers are senior-level defense attorneys. Many of them even have law enforcement backgrounds, including several who investigated and prosecuted cases in the DOJ, FBI, and SEC.

Third, these senior-level lawyers are the only people in The Criminal Defense Firm. We do not delegate cases to junior associated because we have no junior associates. All of the work on your case is done by a senior attorney and not be a paralegal because we have no paralegals at The Criminal Defense Firm.

Finally, we are a national defense firm with offices across the country. Wherever you are, we have local counsel standing by to start defending you from the SEC.

Why Don't You Call Yourselves the Best SEC Defense Attorneys?

We prefer not to tout our firm like that. Instead, we encourage potential clients to read the testimonials that have been left about The Criminal Defense Firm by our former clientele.

The Criminal Defense Firm: Securities Litigation and Fraud Defense Lawyers

If you have been charged with a crime related to securities fraud, learned that you were under investigation for misconduct, or think that you might be, now is the time to hire a lawyer. Chances are good that the SEC is already gathering evidence against you or your brokerage firm. They are likely pondering what type of enforcement action to pursue. Getting ahead of the case is essential. A skilled securities defense attorney can take an active approach, learn what evidence the SEC has gathered, and advocate on your behalf to convince them that no violation has occurred or that a heavy enforcement action is not necessary.

Reach out to the attorneys at The Criminal Defense Firm today. We represent clients across the country from our numerous satellite offices. Call our central intake number at (866) 603-4540 or contact us online.

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