The Securities and Exchange Commission (SEC) conducts investigations into suspected violations of securities laws. Some of the common situations to trigger an SEC investigation include violations of obligations to treat customers fairly as a broker-dealer; manipulating the market price of securities; providing misleading information about securities; omitting important information about securities; insider trading; and selling unregistered securities.
When credible evidence of possible legal violations comes to the attention of the Securities and Exchange Commission, the SEC's enforcement division will conduct an investigation. If the enforcement division believes a securities law violation has occurred, the division may recommend a civil action in federal court or a civil action before an administrative law judge (ALJ).
The SEC will also work with law enforcement agencies in a close partnership so the law enforcement agencies may initiate criminal proceedings if any securities laws were broken. It is important to understand how securities violations investigations work, and to understand when and how defendants accused of wrongdoing can face consequences.
SEC investigations usually are initiated when the enforcement division of the Securities and Exchange Commission obtains credible evidence of a possible violation of securities laws from one of many different sources. The SEC could identify possible wrongdoing through market surveillance activities, or through complaints or tips from investors. Any SEC division or SEC officer can bring evidence of possible wrongdoing to the enforcement division. Industry sources, media report, and self-regulatory organizations could also bring evidence of possible securities law violations to the SEC.
When evidence of wrongdoing is brought to the enforcement division, the division will conduct a private investigation. The investigation process may involve conducting interviews of relevant witnesses with possible information about the wrongdoing; informal inquiries; examinations of brokerage and trading records; a review of securities trading data; and more. If there is a formal order of investigation, the SEC enforcement division's staff has subpoena power and can compel witness testimony or can compel the production of relevant documents including books and records which could provide evidence of wrongdoing.
After the enforcement divisions' investigation has been completed, the SEC staff will present findings to the Commission for review. Staff can be authorized by the Commission to initiate an administrative action, to file a civil case, and/or to consult with law enforcement on a criminal case. In many situations, either the civil action or the administrative proceedings end up being resolved by a settlement with those who were accused of wrongdoing. This makes it possible to settle many SEC matters without a civil trial taking place.
The SEC investigation process is comprehensive, and it is important to seek legal help for all those involved in an SEC investigation or those involved with any accusations of securities fraud.