When the SEC or State Securities Regulators Want Your Records and Your Testimony

By Paul J. Roshka and Alana L. Porrazzo, Securities Litigation and Government Investigations attorneys with JHKM

It can be startling to learn that the United States Securities and Exchange Commission (SEC) or a state securities regulator is conducting an investigation of your company, senior management, board members or employees.

The first contact from a regulator can take many forms. Perhaps the contact will be a phone call to senior management or in-house counsel from a Division of Enforcement staff member or a state agency enforcement attorney. The regulators may send a letter seeking voluntary cooperation with a request for information or documents. A subpoena for documents or testimony could arrive without warning. Third parties such as auditors, vendors, customers, or investors may be contacted before a company even becomes aware of an investigation. These stakeholders will likely want to understand why they were contacted, and they may very well respond reactionarily. For instance, it is not unusual for investors to question the safety of their investments, to conclude that there must be a problem if they have been contacted by the SEC or a State agency, and to demand the return of their investments.

It is important to respond to agency contacts quickly and thoughtfully. Counsel should be consulted as soon as possible after becoming aware of an investigation. Counsel’s involvement can help zero in on the perceived conduct the agencies are concerned about, and whether this conduct has occurred or is ongoing. Speaking early with the SEC or state agency enforcement staff initiates a cooperative and responsive relationship that will be helpful as the investigation proceeds. These conversations may lead to the discovery of important information that counsel can use to determine whether a problem exists, and if so, whether remedial steps can be taken to demonstrate that problem no longer exists. An internal investigation by independent counsel may be needed to understand the agency’s concerns, to address perceived issues, or to self-correct real ones.

It may be necessary to advise stockholders, employees, and other stakeholders of the existence of the investigation. These communications must be clear and consistent. Depending on its scope and the potential harm an investigation might cause, retention of a firm that specializes in crisis communications should be considered.

Navigating the investigation in such a way as to quickly determine the target issues and to identify the regulators’ focus is paramount. Collecting and preserving relevant documents in response to subpoenas and informal requests for information is critical. The inability to locate key documents or the discovery of altered documents immediately destroys credibility with the regulators. Outside counsel’s role involves guiding the company’s response with the goal of avoiding an enforcement action or minimizing potential sanctions. It is also essential that the response to an investigation be handled so that management and key employees are informed but not consumed by the inevitable distractions and time and cost burdens of the process.


Paul J. Roshka and Alana L. Porrazzo are partners with JHKM’s Securities Litigation and Government Investigations and Enforcement practices in Arizona. They have handled numerous SEC and state securities agency investigations and regularly serve clients across the country who are facing these investigations.