Conducting Corporate Investigations for SEC Compliance

We Help Companies Conduct Corporate Investigations Focused on Evaluating, Maintaining, and Enforcing SEC Compliance

Timothy E. Allen
Corporate Investigations for
SEC Compliance Team Lead
Former U.S. Secret Service Special Agent

Companies of all sizes and at all stages of growth can face U.S. Securities and Exchange Commission (SEC) compliance obligations. The SEC enforces numerous laws and regulations that apply to the issuance and sale of securities, and violations of these rules and regulations can have significant implications not only for companies, but also for their owners, executives, and board members.

For companies that are subject to these rules and regulations, SEC compliance needs to be a priority. Not only must these companies—both public and private—adopt and adhere to comprehensive SEC compliance programs, but they must also undertake proactive efforts to maintain compliance on an ongoing basis. This means conducting regular compliance reviews and audits, and it means conducting corporate investigations for SEC compliance when concerns arise.

Issues that May Require a Corporate Investigation Focused on SEC Compliance

Several concerns can give rise to the need for a corporate investigation focused on SEC compliance. Broadly, any issue that has the potential to trigger SEC scrutiny warrants an internal corporate investigation. This includes issues arising in connection with:

Conflicts of Interest
Corporate Finance Controls
Cryptocurrency and Other Digital Assets
Initial Coin Offerings (ICOs)
Initial Public Offerings (IPOs)
Insider Trading
Marketing and Sales Practices
Mergers and Acquisitions
Private Placements
SEC Registration Exemptions
SEC Registrations and Filings

Issues in these areas (among others) can lead to SEC scrutiny and the potential for administrative, civil, or criminal enforcement action. The SEC has the authority to pursue administrative and civil enforcement actions directly, and it refers matters to the U.S. Department of Justice (DOJ) for criminal prosecution when warranted. In SEC enforcement actions and DOJ criminal prosecutions, corporations (and their owners, executives, and board members) can face penalties for violating laws and regulations including:

Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
Investment Company Act of 1940
Regulation FD
Sarbanes-Oxley Act of 2002 (“SOX”)
Securities Act of 1933
Securities Exchange Act of 1934
SEC Rule 10b-5

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester

Former U.S. Attorney

Hon. Kevin McCarthy

55th Speaker, U.S. House of Representatives (ret.)

Government Consultant

Mike Pompeo

Of Counsel

Former U.S. Secretary of State

John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara

Federal Appeals Attorney

Nicholas B. Johnson

Former Prosecutor

Roger Bach

Former Special Agent (DOJ)

Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen

Former Supervisory Special Agent (FBI)

Does Your Company Need to Conduct a Corporate Investigation for SEC Compliance?

Many executives struggle with deciding when to initiate an internal corporate investigation. While companies certainly should not waste resources on investigations that are unnecessary, corporate leaders must make informed and measured decisions, and they must not hesitate to engage counsel when an investigation is necessary. Conducting targeted corporate investigations is an integral component of effective risk management, and this is especially true in the area of SEC compliance.

So, when is a corporate investigation for SEC compliance necessary? Issues and events that will typically trigger the need for an investigation include:

Internal Whistleblower Complaints

Any time an employee reports a potential SEC violation internally, the company should take the report seriously. This doesn’t necessarily mean conducting an internal investigation immediately, but it does mean making an informed decision about whether an investigation is warranted. Typically, the company should begin by arranging for the employee to speak with the company’s legal counsel in confidence, and then counsel can assist the company’s leadership with determining appropriate next steps.

Issues Uncovered During SEC Compliance Audits

All companies should conduct periodic audits as part of their ongoing SEC compliance efforts. If an audit uncovers any compliance deficiencies, this is a circumstance in which the company’s leadership should engage counsel to assess the need for an internal corporate investigation as well.

Issues Uncovered Through Other Internal Sources

The need to conduct a corporate investigation for SEC compliance can also arise due to issues uncovered through other internal sources. This includes everything from accidentally forwarded emails to reports from the company’s financial auditors. When it comes to SEC compliance, company leaders should not dismiss any potential concerns, but rather work to address all potential concerns proactively in order to mitigate (if not avoid) any adverse consequences.

Allegations In the Media or On Social Media

In some cases, companies will first learn of internal issues from external sources. This includes media reports as well as allegations on social media. Whether a media outlet cites an anonymous source or a former employee posts allegations on his or her personal social media account, companies must approach these situations carefully and work with their counsel to formulate an appropriate and strategic response.

SEC Investigations and Enforcement Actions

When targeted in SEC investigations and enforcement actions, companies must work quickly to assess their risk and determine what defenses they have available. This begins with conducting a targeted, but comprehensive, investigation focused on evaluating their SEC compliance. Based on the information uncovered during their internal investigations, company leadership can evaluate their defense options and choose the most advantageous path forward.

Steps Involved in Conducting an Effective Corporate Investigation Focused on SEC Compliance

All internal corporate investigations focused on SEC compliance should follow a series of steps and protocols designed to protect the company’s interests in the event of enforcement action or litigation. While each investigation should be tailored to the company’s corporate structure, operations, record storage facilities, IT systems, and the specific compliance issue at hand (among other factors), the key steps involved in conducting effective internal audits generally include:

Assembling the Investigation Team – Corporations should carefully assemble their investigation teams with the assistance of outside counsel. This process involves not only selecting personnel who can lend relevant institutional knowledge or subject matter expertise, but also ensuring that no members of the team are potentially implicated in the investigation.
Formulating an Investigation Strategy – Based on the factors listed above (among others), corporate leaders should work with outside counsel to formulate an investigation strategy. This strategy should focus on gathering actionable intelligence as quickly as possible while also ensuring that the investigation is sufficiently comprehensive to allow for informed decision-making.
Identifying Data Sources and Gathering Documents – With a strategy in place, the next step is to identify data sources and gather relevant documents. During this process, it is imperative to ensure that all relevant documents are preserved and that any privileged documents are flagged so that they can be handled appropriately.
Interviewing Relevant Personnel – Along with gathering relevant documents, interviewing relevant personnel is also a critical step in many internal corporate investigations focused on SEC compliance. Generally, outside counsel should conduct all interviews, although the company’s lawyers may need to work closely with members of the internal investigation team to anticipate issues and prepare appropriate lines of questioning.
Assessing the Information Uncovered – The final major step in the internal investigation process is to digest the information that has been uncovered. The company’s counsel should evaluate the relevant facts in light of the relevant laws and regulations and then advise the company’s leadership regarding the risks and opportunities at hand.

FAQs: How Private and Public Companies Can Use Corporate Investigations to Maintain, Enforce, and Demonstrate SEC Compliance

When is it necessary to conduct corporate investigations for SEC compliance?

Both public and private companies may need to conduct corporate investigations for SEC compliance under a broad range of scenarios. In general, any time a company uncovers (or receives) information concerning a possible SEC violation, it should investigate the matter immediately.

What are the risks of failing to conduct an SEC compliance investigation?

The risks of failing to conduct an SEC compliance investigation can be substantial. If company personnel have violated federal securities laws or regulations, the violations could expose the company to administrative, civil, or criminal penalties. Federal securities investigations will often lead to negative publicity and private civil litigation as well.

Is the information uncovered during an SEC compliance investigation discoverable in litigation or enforcement proceedings?

If handled effectively by the company’s outside counsel, an internal SEC compliance investigation should not generate records or communications that are discoverable in litigation or enforcement proceedings. However, outside of the attorney-client privilege, documents and electronic records generated during these investigations generally are not protected.

Does my company need to engage a law firm to conduct an SEC compliance investigation?

Companies should engage legal counsel to conduct SEC compliance investigations for various reasons. Among them, company leaders must rely on their counsel to determine the appropriate scope and depth of the investigation, and working with counsel ensures (or should ensure) that work product generated during the investigative process is protected by the attorney-client privilege.

How do corporate investigations for SEC compliance help protect private and public companies?

Corporate investigations for SEC compliance help protect companies in several important ways. For example, these investigations allow companies to identify compliance failures before they lead to bigger problems; and, when facing SEC scrutiny, demonstrating good-faith efforts to uncover and remedy compliance failures can significantly mitigate the risks involved.

Contact the Corporate Investigation and SEC Compliance Lawyers at Oberheiden P.C.

If your company needs to conduct a corporate investigation for SEC compliance, we encourage you to contact us promptly for more information. To speak with a senior corporate investigation and SEC compliance lawyer at Oberheiden P.C. in confidence, please call 888-680-1745 or request a complimentary consultation online now.