How the Securities Exchange Commission (SEC) investigates Securities Violations

The U.S. Securities and Exchange Commission (SEC) is one of the nation’s most sophisticated enforcement agencies and with years of experience…they are a formidable force. They are so good at what they do that most targets of SEC investigations seldom know they are being monitored until months or years after the investigation began. These investigations are conducted confidentially in order to preserve evidence and reputations.

Generally the secretive nature of the investigation is maintained until it becomes part of the public record. Generally, during the secretive investigative stages, the SEC will not confirm or deny the existence of the investigation. The matter becomes part of the public record when the SEC files an action through an administrative proceeding or in a court of law.

Who Does the Investigating

The Division of Enforcement is the arm of the SEC charged with evidence collection and after analyzing the gathered evidence determines whether there have been SEC regulatory violations. They then will recommend whether to prosecute or not prosecute. The SEC investigates whether there have been violations of:

1. Insider trading
2. Manipulation of market prices
3. Misrepresentation / omissions of substantial fact relating to securities
4. Client’s funds or securities theft
5. Violations of the broker /dealer responsibility to treat clients fairly

How Evidence is Collected

Evidence is collected through security industry sources, market surveillance, and investor complaints. For example, the Division’s evidence gathering strategy may entail:

1. Examining brokerage records
2. Reviewing trading data
3. Interviewing witnesses
4. Discovering other documentary evidence

It is important to remember that if a formal order of investigation is issued, the Division has authorized subpoena power to compel the release of the above information. Once all the relevant evidence is collected the Division coordinates with the SEC Commission to prosecute. In some cases, the SEC Commission may decide to forgo a trial in lieu of a settlement. Click here to learn more about which courts the SEC may utilize.

SEC investigations are serious matters that require experienced an aggressive legal representation because the SEC has a vast amount of resources in their Enforcement Division. The Kushner Law Group will defend your rights by taking proactive steps to assert strong defenses and legal strategies in order to protect you or your organization from the loss of licenses / employment and criminal prosecutions. Call us now so we can help you initiate a strong defensive posture.

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