Five SEC Whistleblower Defense Strategies
SEC Whistleblower Defense
Team Lead
Former DOJ Trial Attorney
Contact John directlyThe shock can be profound. Your business was just served a Civil Investigative Demand (CID), a subpoena duces tecum from the Securities and Exchange Commission (SEC), or a lawsuit naming you and your business as defendants in a financial fraud scheme. Suddenly, you are in the middle of a Department of Justice fraud investigation. What do you do now?
This article, co-written by former Department of Justice attorneys and senior FBI Agents, warns of some of most common mistakes companies make when they find themselves in the middle of a federal qui tam or whistleblower investigation.
- SEC whistleblower cases often come through Civil Investigative Demands (CID) and SEC subpoenas requesting documents to support a federal investigation.
- Even if a whistleblower allegation is without any merit, you need to initiate a vigorous defense to avoid escalation and liability.
- The moment you become aware of a litigation threat or a whistleblower situation, experienced attorneys should take over and navigate you through the process.
1. Do Not Communicate with Law Enforcement
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If your business is facing allegations of financial fraud, it can be tempting to speak with law enforcement in an attempt to clear up the allegations levied against you. Do not do this. Federal agents are trained professionals and while they can appear nice and understanding, their ultimate goal is to illicit information from you that they can use against you to support their allegations. Also, unfair as it may be, federal agents can lie to you. You, however, cannot lie to a federal agent and risk further criminal liability if you do. Under 18 U.S.C. §1001, if you lie to a federal agent, you can be charged with a crime that carries a potential prison sentence. If an agent attempts to speak to you regarding pending allegations, calmly explain to him or her that you are represented by counsel and direct all questions to your lawyer. Just as you wouldn’t perform surgery on yourself without a medical professional, don’t attempt to “operate” on your own case without your attorney.
2. Do Not Think That Just Because the Allegations are Bogus, the Investigation Will Go Away by Itself
Even if the allegations pending against your business are meritless, you still need an experienced attorney to address these allegations in order to effectively clear your reputation. Not addressing the allegations in a timely manner will allow the investigation to proceed as if the claims, are in fact, true. For example, if a former employee accuses your business of systematic accounting fraud and that employee has an history of being dishonest, then that lack of credibility will still need to be attacked – attacked intelligently not by confronting the employee directly, but by executing a vigorous defense strategy that highlights the baselessness of the allegations.
3. The Key to Defense: Professional Internal Corporate Investigation
Once you are aware that there are allegations of fraud against your business, it is critical to have a team of experts conduct a thorough internal investigation. The purpose of this investigation would entail bringing in a team of professionals that would identify if the allegations have any basis, what this basis might be, and to what extent these allegations are ongoing and widespread. An internal investigation may include employee interviews, boosting existing company compliance policies or creating new policies and procedures to comply with state and federal regulations. A complete internal investigation is the only efficient way to convince the government and also the shareholders and partners of your business that everything is under control and no future exposure would exist.
Common allegations of financial fraud that would warrant an internal investigation are as follows:
- Insider trading
- Ponzi schemes
- Corporate fraud
- Accounting fraud
- Broker fraud
- Failure to file required reports
- Filing fraudulent reports
- Misappropriation of securities
- Theft of funds
- Pump and dump
- Bogus business offerings
- Unethical mutual fund practices
- Analyst research conflicts
- Unlicensed sales agents
- Inappropriate investments
- Viatical settlements
4. Early and Ongoing Dialogue with the SEC and US Attorney’s Office
Once allegations are made against your business, it is important for your attorney to engage in timely discussions with the SEC and/or the US Attorney’s office. Having an open dialogue with the government allows your attorney to learn details about the investigation in order to tailor an effective defense to the allegations. Your attorney speaking with the government also opens an avenue for resolution that would not be possible without communication.
5. Resolution
Resolving the allegations made against your business is the obvious goal – however, you need to be careful of certain “traps” that can surround potential resolutions. Sometimes in order to make the allegations go away, the SEC or the government will require you to admit civil or criminal liability or require you to relinquish certain professional licenses you have. Do not attempt to negotiate a resolution on your own. An experienced attorney will be aware of potential ramifications that accompany resolution agreements and is in a better position to negotiate a solution that protects your personal, business and financial interests.
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About Oberheiden P.C.
Oberheiden P.C. defends companies and business owners across the country against allegations of fraud and misconduct. With many of our affiliated attorneys coming from senior Department of Justice and FBI and IRS positions, we have handled thousands of federal investigations. Contact us today.
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