Types of SEC Enforcement Action
Broadly speaking, the U.S. Securities and Exchange Commission (SEC) pursues two different types of enforcement actions: Administrative and civil. However, while the agency does not have the authority to pursue criminal enforcement actions, it can, and frequently does, refer courses of conduct that are potentially criminal in nature to other federal law enforcement agencies like the U.S. Department of Justice (DOJ). Additionally, the SEC has a series of other enforcement techniques that it uses to regulate securities professionals and the firms for which they work.
One of the most important things to do during an SEC investigation is to keep the case from escalating – whether from an administrative case to a civil one, or from a civil investigation to a criminal charge. Especially when there is evidence of fraudulent activity, keeping this from happening is one of the most fundamental goals of a good defense strategy.
The SEC litigation defense lawyers at the national law firm Oberheiden P.C. have legally represented hundreds of securities professionals who are regulated by the SEC and have been subjected to an investigation by the agency. Here are the different types of SEC enforcement actions that you can face, the differences between them, and what you can do to defend yourself during this trying time.
Administrative Actions by the SEC
One of the most common types of enforcement action taken by the SEC is an administrative one. These are cases that are handled entirely within the SEC or other federal agencies that regulate the securities industry, like the Financial Industry Regulatory Authority (FINRA).
Administrative cases are the least severe type of enforcement action that you can face from the SEC. If everything goes wrong and you lose an administrative case, you can face the following types of penalties:
- Professional sanctions, including a suspension or a revocation of your license to trade securities
- Fines and other fees
While these are not light punishments, they pale in comparison to civil or criminal sanctions.
Generally, administrative cases are centered on unintentional errors regarding the trading of securities or a failure to comply with applicable rules promulgated by the SEC or FINRA. However, many administrative cases are pursued by these agencies when the underlying conduct could potentially carry civil or even criminal liability, but the investigation seems unlikely to uncover enough evidence to satisfy the higher burden of proof for these more severe type of enforcement. The administrative prongs of these cases serve as an invitation for securities professionals who are suspected of wrongdoing to plead guilty to the administrative enforcement action in order to have the more severe one dropped.
Importantly, administrative actions stay within the SEC: Agents from the enforcement wing of the agency will act as prosecutors and try to persuade a hearing officer that you committed securities violations. That hearing officer, however, will also be an SEC agent. This internal nature of administrative cases makes them difficult to defend against. Appealing the outcome of your case to reach the federal judiciary and secure a more neutral magistrate is often a necessity.
Civil Securities Litigation Pursued by the SEC
Civil enforcement actions by the SEC are more severe than administrative actions, but less serious than criminal allegations. Securities litigation cases carry the potential for the repercussions that are present in an administrative case, plus:
- Civil fines and penalties, sometimes including treble damages
- Restitution payments or disgorgement
- Far more negative publicity from an easily-accessible and public filing of the case
- Injunctions, or court orders that are backed by contempt of court penalties, to perform or abstain from certain courses of conduct
The SEC can sue regulated securities professionals for a wide variety of issues. Some of the most common include:
- Insider trading
- Securities fraud
- Shareholder derivative lawsuits
- Accounting fraud
- Anti-money laundering (AML) claims
- Bank Secrecy Act (BSA) violations
Unlike administrative cases, though, these civil enforcement actions must be pursued outside the SEC in the judicial branch. This means that your first chances to defend yourself are not before another agent at the SEC, but before a federal district judge.
The SEC’s Ability to Make Criminal Referrals
The most severe type of SEC enforcement is to make a criminal referral to a law enforcement agency that can file and then pursue criminal charges. This is usually the DOJ, though it can also be the Federal Bureau of Investigation (FBI). If pursued as a criminal offense, the possible penalties of a conviction would include all of those in a civil case, plus the potential for prison time.
Generally, these referrals are related to fraudulent activity. Given how the criminal justice system works for financial crimes, a single act can violate multiple criminal laws. For example, securities professionals who embezzled their clients’ money but used the phone or internet to communicate the fraudulent information – as is often the case in this day and age – they would not just face allegations of embezzlement, but would also be charged with wire fraud.
With multiple criminal counts against you, the potential for a substantial prison sentence is significant. In many cases, defendants face multiple decades behind bars.
Even after the SEC hands the fruits of their investigation off to the DOJ or FBI, SEC agents will often still remain a part of the case so prosecutors in the other agencies can tap into their expertise in the securities field.
Other Enforcement Tools in the SEC’s Belt
In addition to civil, criminal, and administrative enforcement actions, the SEC can also make use of other enforcement tools to ensure compliance with U.S. securities laws. In some cases, this can be direct enforcement through the use of:
- Stop orders, which suspend trading of securities that the SEC considers to be problematic
- Administrative orders and commission opinions
- Receiverships, which appoint someone to oversee the distribution of funds, which had been obtained through fraud or some other misconduct, back to the victims
In other cases, the SEC’s enforcement actions only operate behind the scenes, often to persuade other branches of the government to do their bidding or to encourage other parties to take action against you or your securities firm. Some examples include:
- Filing amicus briefs for securities cases that do not involve the SEC
- The SEC Enforcement Division’s Cooperation Program, which encourages firms to report securities or compliance problems or regulated professionals to blow the whistle on misconduct
SEC Defense Lawyers at Oberheiden P.C.
Regardless of the type of enforcement action that the SEC is pursuing, regulated securities professionals and the firms that they work for should strongly consider getting the best legal representation that they can find. Fighting off the SEC’s allegations – be they administrative, civil, or criminal – can protect your future and your finances.
The senior SEC defense lawyers at Oberheiden P.C. have decades of experience protecting securities professionals and their employing firms against the SEC’s enforcement actions. With our skilled legal guidance and the vigorous implementation of tactful defense strategies that are tailored to your factual circumstances and interests, we have helped numerous regulated professionals successfully combat SEC allegations and obtain favorable outcomes across the country, including many instances where the SEC dropped the charges completely.
Contact us online or call Oberheiden P.C.’s law offices at (888) 680-1745.