SEC Investigations: What to Do if You are Charged with Securities Fraud

By Andrew J Thompson

Whatever the worst day of your life could be, it’s certainly close when you get notice from the Securities Exchange Commission that they are investigating you for securities fraud. If you’re faced with allegations that can be substantiated, and the actions were unethical, you’re wise to quickly start thinking about how to mitigate the harm to any investors, and to your own life and livelihood.

But if you’re being investigated under a cloud of false allegations, the words “innocent till proven guilty”, “reasonable doubt” and other similar phrases, suddenly take on new meaning. But how do you go about protecting yourself?

First, let’s clear the air about what we’re talking about here.  The first thing to recognize is that a complaint has almost certainly been made by an investor, and in some fashion, it’s being directed at you. The SEC is rarely self-starting in its investigative work. Someone had to bring something to its attention. In most situations, the complaint registered has to do with solicitation from a person seeking investments in a registered or unregistered security. This may have come in the form of direct solicitation, or through the dissemination of a prospectus. Less frequently, claims are made about the failure to register a security.

All this means that when you’re under investigation by the SEC, it not only has the power and prestige of the US government behind its efforts, but the moral sensibility that it is acting on behalf of defrauded investors. That is a powerful, albeit somewhat misleading motivator for the investigators working for the Commission. It’s powerful because any news account, any political engagement, and any presentation before a jury or in public made by the SEC will come with the claim that it’s doing its work for the protection and recovery of investments made by innocent citizens. But it’s also misleading in that it isn’t true. The SEC isn’t likely to recover much, if anything, for investors once it goes to work, and it rarely acts in ways that protect them.

The above reality can end up being a powerful weapon in your quiver. How? In the end, if not at the beginning, you will have the opportunity to demonstrate how you could do more to protect and recover for investors than the SEC ever could. If you do that, how likely is it that you will ever be convicted of a securities violation?

The further reality, however, is the guilty or innocent, there’s pretty good change you can do more for investors than could the SEC. Even the truly bad actor, the “fraudster”, is often in a better position to make good on investments than the government. So it does not prove your innocence to show that you can do so. But it’s a big step toward reasonable doubt.

Reasonable doubt? If you’re innocent of a crime you’re accused of, reasonable doubt may keep you come going to jail (or not), but it probably doesn’t give you the assurance you want, nor does it protect your overall reputation at the level you need it to. OK, so what it is that makes the case you want?

Remember, often it’s true that the best offense is a good defense. Strategically speaking, the best defense you’re given comes directly from the US Constitution in the Fifth Amendment. Your right against self-incrimination can protect you in many ways. Unfortunately, artful lawyering on the part of the SEC can turn it against you as well. So  developing a sound strategy for your case from the beginning is critical.

The question often is asked, how do you prove yourself innocent if you don’t tell your own story?  You have to remember that you never asked to be in a position to prove yourself innocent. You knew you were all along and so did most of the investors. So the presumption of innocence you share with the people who know you best is where you start.

But it’s not where the SEC starts and it’s important to understand that. While you have a group of investors who continue to trust and rely on you, they have only heard from those who don’t. But it remains on them to come forward with, and prove the evidence that demonstrates your guilt – not yours to do the opposite. Thus, retaining and protecting your right and your privilege against self-incrimination is tantamount to building a good case. In the end, when you’re properly acquitted of any charges, you can do and say what you want and need to have said. Until then, let your attorney be the spokesperson for you. He is your “mouthpiece” if you will – save your own words for the gratitude of getting back to doing what you do best when the investigation is over.

In future installments in this series, we’ll address some of the intermediate tactics in this kind of case, and your role in securing victory. In the meantime, “you have the right to remain silent”, keep the right in tact! Talk to your attorney about anything you need to, but don’t talk to anyone else about the case!





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