https://www.cfobrew.com/stories/2026/02/05/amid-the-sec-s-slowdown-in-enforcement-actions-cfos-need-to-play-the-long-game-experts-caution

By Natasha Piñon

Amid the SEC’s slowdown in enforcement actions, CFOs need to tread carefully.
There’s a new sheriff at the securities regulator—but that doesn’t mean it’s the Wild West for CFOs.

“Tread carefully,” Lisa Bragança told us, addressing CFOs. “Don’t jump to conclude that just because something has changed at the SEC level, that it means you should move to that disclosure regime. You may still have obligations under state [rules] and other organizations.”

“This is a time that CFOs definitely need to be careful…to make sure that they don’t just go ‘Whee!’” she added. “It’s a more complicated time, because we will have these different views of what needs to be done, disclosed, and what a fiduciary is required to do.”

State of mind. In the years to come, Bragança thinks it’s possible that while federal regulation ebbs, state-by-state regulation will increasingly come into focus, with states stepping in to take a potentially more rigorous approach.

“Typically, state regulators defer to what the Feds are doing,” she said. “It’s not clear that that’s going to be the paradigm this coming year or in the coming years.”

“You cannot just look at what is going on at the very top, at the federal level,” Bragança said. Even in the most extreme what-if cases—like, say, the president saying fraud cases are fully a thing of the past—“that would not change the states, and it would not change the requirements that apply to CFOs as accountants,” Bragança noted.

“Maybe in a decade, the states will follow, and all the other organizations will be in perfect sync with a new regulatory regime from the federal government,” she acknowledged. “But usually these things happen more slowly, and there is more time for consensus and then you don’t have those discontinuities.”

Updated January 9, 2026

When a prospective client call us, they often tell us they don’t understand why they are being investigated because no customer complained and nobody lost any money. They believe once they show the SEC or FINRA or a state securities regulator that there is was no harm to any customer, the investigation will end with no action. Unfortunately, this is NOT TRUE.

This Violation Has No Victim; This Violation Needs No Victim

We typically understand a “victimless crime” is an act that breaks the law but does not directly harm another person – things like illegal gambling and speeding in a deserted area. In the highly complex and regulated business of finance, the line between a technical legal violation and a crime with a clear victim simply does not matter. Many government enforcement and criminal actions, from insider trading to market manipulation, are built on a theory that does not require any identifiable victim. For individuals and companies facing an investigation of such an offense, understanding this “myth of the victimless crime” is the first step in reckoning with the possible consequences of a government investigation.

Technically…That’s a Securities Law Violation

While the current Trump administration changing a lot, the SEC has continued to investigate and bring cases seeking to impose substantial civil penalties on financial services companies for what most would consider entirely technical violations of the securities laws. For example, there are the recent “off-channel” electronic communication settlements, where firms failed to ensure communications financial advisors had with clients on WhatsApp were retained in the firm’s books and records. In addition, the current administration has targeted financial firms for:

• Violations of “the custody rule” (SEC’s Rule 206(4)-2), a requirement that registered investment advisors (“RIAs”) arrange and submit to “surprise” annual examinations of their account recordkeeping (the firms violating the rule by failing to identify themselves to the SEC);
• Running afoul of Rule 105 of Regulation M which regulates certain short selling activities; and
• Failing to keep proper records for backdating certain documents subject to an SEC review.

In none of these cases was any investor harm alleged and all imposed substantial penalties and/or injunctive relief.

Where’s the Fraud?

There are many federal securities laws and regulations (as well as FINRA rules) completely unrelated to customer harm that can lead to fraud charges. Here are some examples:

• Insider Trading: Consider a classic insider trading case. An executive uses non-public information to sell shares of company stock. The person who bought those shares on the open market was already there, willing to buy at that price from any seller. They were not coerced or directly deceived by the executive. Had the executive not sold, they would have simply bought from someone else. While the executive had an informational advantage, it is difficult to argue that the counterparty to the trade was a “victim” in the conventional sense. Nor is that required.  

It is important to recall that in an insider trading case, the harm is to the owner of the information that was misused. Nevertheless, the government makes no effort to use the funds “disgorged” or recovered from the violator to compensate the owner of the information or the counterparty to the trade.

• Market Manipulation: Certain forms of alleged market manipulation, such as “spoofing” or “wash trading,” are prosecuted because they create a false appearance of market activity that moves markets. While the government argues this deceives the entire market, the government does not have to identify a specific trader who was concretely harmed. Even if there are identifiable victims (like market makers), the funds “disgorged” to the government are not paid to the victims.

• Acting as an Unregistered Broker – Federal and state securities law require that securities be sold only by registered brokers. Often salespeople discover after the fact that they are under investigation for selling an investment they were reasonably led to believe was not a security or fell within an exemption from registration as a security. That was the basis for many charges brought against cryptocurrency platforms that sold digital tokens the SEC and state regulators concluded met the definition of “securities.” While the current administration has backed off of cryptocurrency enforcement actions, there are many other types of investments that securities regulators have concluded were securities therefore required to be sold only by registered brokerage firm agents.  

The “Market” is the Victim Even if Nobody in the Market is Hurt

The SEC and other federal and state authorities argue in these types of cases that the victim is not necessarily a single person but the integrity of the U.S. financial markets as a whole. The SEC’s view is that such conduct leads to an erosion of trust by harming public confidence in the stock market. If investors believe the market is a “rigged game” where insiders and manipulators have an unfair advantage, they will be less likely to invest. This can theoretically damage capital formation and the health of the economy. In fact, even during the recently concluded government shutdown when over 90% of SEC staff was on furlough, none of the new cases filed by the remaining “skeleton staff” sought the type of emergency relief such as temporary restraining orders or asset freezes that would indicate the SEC was concerned about about redressing individual investor harm.

Of course, it is hard to square the SEC’s supposed concern about “market integrity” at the same time the SEC is overhauling its regulations to allow or encourage even the most unsophisticated investors to purchase private equity – an asset class subject to virtually no disclosure requirements.

Even in the criminal context, the Supreme Court affirmed the principle that no monetary loss need even be alleged for someone to be found guilty of fraud. In Kousisis, et al. v. United States, 145 S. Ct. 1382 (May 22, 2025), the Supreme Court unanimously upheld the conviction of a contractor and one of its managers for getting a contract with the Pennsylvania Department of Transportation (PennDOT) based on the false promise that it would obtain materials from a “disadvantaged business enterprise.” Although there was no allegation that the work was not performed in compliance with the contract, the contractor was found guilty of fraud. The Supreme Court upheld the conviction, concluding the defendants could be convicted for fraudulent inducement even if prosecutors did not allege that PennDOT lost any money as a result of the defendants’ lies. Obtaining money through lies was sufficient to support the conviction.

How bad can it be?

• Disgorgement of Fees and Commissions: Even in scenarios where no investor suffered a direct financial loss, an individual or entity might be charged with improperly obtaining payments when the law was violated. The SEC has the authority to seek “disgorgement” of these payments (called “ill-gotten gains”), which is an equitable remedy designed to prevent wrongdoers from profiting from their illegal conduct. This means that any benefit derived from the violation – profits, avoided losses, fees, or commissions – can be sought by regulators as disgorgement. For example, a corporate executive who sells shares based on material non-public information, thereby avoiding a significant personal loss before negative company news is publicly announced, would typically be considered by regulators to have obtained an “ill-gotten gain” in the form of the avoided loss. This is true even if other investors didn’t lose money because of that specific trade.
• While there is some dispute among the courts as to whether disgorgement is allowed when there is no showing that investors suffered a pecuniary loss, the majority position is that disgorgement is allowed in such situations. The U.S. Supreme Court agreed to hear the appeal of the Ninth Circuit’s opinion affirming a disgorgement judgment where no pecuniary loss was established. See Ongkaruck Sripetch v. SEC, No. 25-466 (Oct. 14, 2025). Importantly, the SEC had taken the fairly unusual step of agreeing with the petitioner that the Supreme Court should hear the case, but only because it wants the Supreme Court to resolve the circuit split and affirm that pecuniary loss is not necessary for the SEC to obtain disgorgement in such circumstances.

• Imposition of Civil Penalties: Beyond disgorgement, the SEC can impose significant civil monetary penalties for violations of securities laws. These penalties are distinct from disgorgement and serve as a direct punishment for the misconduct.

As the Supreme Court affirmed in SEC v. Jarkesy, 601 U.S. 109 (2024), when the SEC seeks civil penalties for securities fraud, these penalties are punitive in nature, designed to punish or deter the wrongdoer rather than solely to restore the status quo. This distinction underscores that the SEC’s ability to seek civil penalties is not contingent on demonstrable investor loss or the ability to provide restitution to specific individuals.

• Industry Bars: Furthermore, the SEC possesses the critical power to issue industry bars, prohibiting individuals from serving as officers or directors of public companies, or from participating in various capacities within the securities industry (e.g., as a broker-dealer, investment adviser, or accountant). These bars are supposed to remove individuals who have violated the securities laws from positions where they could commit further violations, to protect the public and the markets, independent of whether specific victims are present in a given case.

• Obey the law injunctions/orders:  The SEC and state regulators routinely seek injunctions or administrative orders requiring a defendant to obey the securities laws. That might seem innocuous, but it has serious collateral consequences. First, being subject to an injunction may mean you are considered a “bad actor” who cannot be part of management of a firm that is selling securities or that has investors. Second, an injunction or administrative order may have to be disclosed in various contexts, like on personal loan applications, in applications for government licenses, or when seeking to raise money for a business venture. These injunctions and administrative orders do not terminate on their own so the risk of inadvertently violating them years down the road is significant.It should be noted, however, that while it is still not the majority approach, courts are increasingly rejecting orders which simply require defendants to “obey the law” for failing to specify the particular conduct being enjoined.

What Should You Do?

If you sell anything that you conceivably think could be considered an investment product, if you are working in the finance industry, or if you are involved in raising money for a business venture, you should seek advice to ensure you are complying with the law. If you receive a subpoena from the SEC or other securities agency, you should not respond on your own – even if you are not aware of any harm to anyone. The lack of harm is not going to lead the regulator to go away. You need to immediately retain a lawyer who can assist you with responding to the subpoena or information request to help you get the best possible result while taking steps to protect you from having something administrative or civil escalate into a criminal prosecution.

Under Investigation? Why You Must NOT Talk to the SEC or Government Agents Without a Lawyer

If you or your company receive a subpoena or get a call or visit from the Securities & Exchange Commission (SEC), FBI, or another governmental authority, it’s not likely because they want to help you. Even if you are convinced of your innocence, you need to be very careful in how you respond.

First and foremost: Do not speak to anybody from the government until you’ve first contacted an experienced lawyer.

The Danger of Unprotected Statements

Many potential clients are shocked when the SEC moves forward with an investigation or brings charges after the clients believed they could convince the SEC of their innocence. As the late criminal attorney James Neal famously noted in an episode of the PBS series, Ethics in America, “There are very few deaf and dumb people in the penitentiary.” Indeed, cooperation with the government might be a good strategy, but only if you get the help of an experienced defense attorney.

Your Best Friend: The Fifth Amendment Privilege

The Fifth Amendment to the U.S. Constitution provides that no person “shall be compelled in any criminal case to be a witness against himself.”

• Broad Application: The Fifth Amendment Privilege applies to any government investigation or proceeding where your testimony could potentially expose you to criminal liability like SEC investigations, DOJ inquiries, and federal and state regulatory examinations. It doesn’t matter if your statements are being sought in a routine examination by a civil authority. Your statements can be given to criminal prosecutors who can bring charges against you.
• No Formal Charges Needed: You do not need to be formally charged with a crime to invoke the Fifth Amendment Privilege. The privilege applies whenever there is a reasonable possibility that your statements could be used against you in a future criminal prosecution. You need an attorney to advise you about what kind of criminal charges you could possibly face.
• Securities Cases: Securities investigations almost always raise the possibility of criminal charges. That is because the definition of securities fraud is extremely flexible and broad and the conduct can constitute not just civil securities fraud but also federal criminal securities fraud or wire fraud.

Why Securities Cases Demand Particular Caution

Investigations by the SEC and state securities regulators present significant dangers that make Fifth Amendment Privilege especially important:

• Parallel Proceedings: Securities matters routinely involve simultaneous civil (SEC) and criminal (FBI/DOJ or state) investigations. The SEC discloses in tiny print on its forms and often orally that statements you make and documents you provide to the SEC can be provided to criminal prosecutors. The SEC often seeks to convince criminal prosecutors at the Department of Justice to bring criminal fraud charges based on the evidence they have obtained. Sometimes the SEC is investigating at the same time the DOJ has convened a grand jury to investigate. As a result, without the representation of an experienced attorney, there is no safe way to provide information without risking it being used against you by criminal prosecutors.
• Complex Regulatory Framework: Securities laws are intricate, technical, and often counterintuitive. What seems like an innocent explanation to a layperson may constitute an admission of a material element of a securities violation. People often come to us after having basically admitted to securities fraud. To avoid that, contact an attorney at the beginning of the investigation.
• The Perjury Trap: Once you begin answering questions (whether under oath or not), you create a record. Inconsistent answers create the potential of being charged with perjury (18 USC §§ 1621 and 1623) or a violation of the “false statement” federal statute (18 USC § 1001). These “process crimes” can be easier to prove than the underlying securities violation and carry severe penalties. Remember, Martha Stewart did not go to prison for insider trading, but because she was convicted of making false statements to federal agents in an interview. See also US v. Cohen, No. 25-1746 (7th Cir. Nov. 24, 2025) (sentence of 21 months affirmed for individual who made false statement to U.S. Marshals Service regarding residence of a convicted sex offender).
• No “Talking Your Way Out”: Clients, particularly successful business people, routinely overestimate their skills of persuasion. They are convinced that if they explain their conduct, the government will just drop the case. In reality, investigators frequently have reached a preliminary conclusion about the conduct of the person they contact before they make contact. That means they are not looking for information that will help you, they are looking for information that confirms what they already think. You need a lawyer to help you get them to hear evidence that shows you did not violate the law.

Practical Guidance: Dos and Don’ts

If and when you are contacted by the SEC, DOJ, FBI, or any other government agency, follow these steps without deviation:

Addressing Common Concerns

Your Fifth Amendment Privilege is a fundamental constitutional safeguard. Asserting this right is not an admission of wrongdoing; it is a prudent exercise of the protections our legal system affords. You can invoke the Fifth Amendment Privilege and – with the help of an experienced attorney – still provide information to the government that leads to no civil or criminal charges.

The core rule is: Do not speak to anybody from the government until you’ve first contacted an experienced lawyer.

If you are contacted by any government agent or investigator, please contact us immediately. We will navigate this matter together, strategically and with your rights fully protected.

Photo by Chris Linnett on Unsplash

If you are subpoenaed by the SEC – the U. S. Securities and Exchange Commission – you should contact an SEC subpoena defense attorney right away. Just because you are not named in the title of the investigation or you think you have done nothing wrong, there are many ways that individuals and businesses can unknowingly commit violations of the federal securities laws. .

A subpoena from the Securities and Exchange Commission could lead to the discovery of evidence that prompts a criminal or civil charge against you. An SEC defense attorney can take the necessary steps to protect your legal rights, avoid charges being brought against you, or defend you against any charges.

When Should You Contact an SEC Defense Lawyer?

If you receive an SEC subpoena, you should contact an attorney right away. Although the letter the SEC sends with its subpoena invites you to call the SEC Staffperson with any questions you may have, you should definitely not call the SEC directly. It is important to avoid having direct conversations with SEC Staff because anything you say to the SEC may be used against you. Often recipients of SEC subpoenas call the Staff to explain why they did not do anything wrong. That is a big mistake. If the Securities and Exchange Commission contacts you personally regarding an ongoing investigation, refer their inquiries and questions to your SEC defense lawyer.

Sometimes the SEC Staff will call an individual out of the blue to ask questions before sending a subpoena. If you get a call from the SEC Staff, you should say that you are seeking an attorney to represent you and just get their name and contact information so your attorney can get back to them. Doing this does not make you look guilty. It makes you look like a smart person.

The attorney you hire should have substantial experience with SEC investigations and subpoenas.

When Does the SEC Issue Subpoenas?

If the SEC believes you may have information about an SEC investigation, it may issue a subpoena that orders you to provide testimony or produce documents. The SEC does not have to seek information in the most efficient manner or from a single source. The SEC may seek the same information from multiple individuals or entities. The SEC may order you to produce information that is publicly available on its own website (Edgar system) or on Twitter, Facebook, LinkedIn, or other social media sites. If you are subpoenaed, your lawyer can work with the SEC to help you respond appropriately.

An investigation by the SEC may be extensive and go far beyond the title of the investigation. An SEC investigation may lead to charges against persons who had little or no connection to the initial subject matter of the investigation. In addition, the SEC can share information it uncovers with federal and state regulators, regulatory organizations, and law enforcement agencies. This is set forth in a five page small print document called Form 1662 that the SEC sends with its subpoenas.

What Can Trigger an SEC Subpoena?

The SEC routinely conducts investigations of alleged crimes and misdeeds in the securities industry.

Should you become the subject of a subpoena issued by the SEC, that subpoena may be related to an ongoing SEC investigation of:

• insider trading
• omissions or misrepresentations related to securities
• securities fraud
• stock manipulation
• the offer, sale, or purchase of unregistered securities

SEC investigations may be launched on the basis of an investor’s complaint, a whistleblower’s tip, or information provided by the Financial Industry Regulatory Authority (FINRA) or other federal or state agencies. An investigation by the Securities and Exchange Commission may also be prompted by information found online or reported by the news media.

If You are Subpoenaed by the SEC, What Steps Should You NOT Take?

If you receive a subpoena from the SEC, do not discuss the subpoena with anyone other than an attorney. The SEC will ask you who you talked to about the subpoena. Only your discussions with your attorney – and if you are married certain discussions with your spouse – will be off limits. By talking to family members and friends or colleagues, you may cause them to be contacted by the SEC to testify about what you said.

You should not panic at the deadline for responding to the subpoena. The SEC typically sets very short deadlines for responses that are not reasonable. The Staff does this to get people to respond promptly. That does not mean you are not entitled to a reasonable amount of time to respond. The date the SEC may set on the subpoena for you to give testimony is always subject to change. The Staff is open to setting a date, time, and place for testimony when you and your attorney are available. Often the testimony can be given remotely.

You should not panic about the instructions for how to respond. An SEC subpoena also includes many pages of data delivery standards that do not always apply. The SEC typically does not require individuals and small businesses to produce documents in accordance with the data delivery standards. Those are the standards for production of documents and information of regulated entities like brokerage firms, investment advisers, and publicly-traded companies.

You should not ignore a subpoena from the Securities and Exchange Commission or decide to invoke your Fifth Amendment Privilege against self-incrimination before retaining an attorney. Refusing to cooperate with an SEC investigation, even when you are invoking a legitimate Fifth Amendment Privilege, has repercussions. Unlike in a criminal prosecution, the SEC can use the fact that you invoked your Fifth Amendment Privilege against you in any case that it brings. The SEC will ask that a court draw an adverse inference that whatever information it sought from you would be incriminating. If you are a professional in the financial services industry – a broker, registered investment adviser, insurance agent – you could lose your registration or license permanently.

If you ignore an SEC subpoena or fail to properly comply, the SEC may seek a federal court order to compel your response. Courts grant these orders because the SEC has a great deal of discretion and leeway in conducting its pre-filing investigations. Ignoring a federal court order could place you in contempt of court and possibly send you to jail.

Can You Object to an SEC Subpoena?

Depending on the specific details of a subpoena issued by the SEC, your attorney may raise certain objections to an SEC subpoena. The Staff may not have any problem with limiting the production of certain types of documents if it will not affect the investigation. Your lawyer can discuss potential objections with the SEC before raising them formally.

Two of the most important bases for objection are the following: 

1. The SEC cannot require you to disclose documents, information, or conversations that are covered by the attorney-client privilege or a valid marital privilege. 
2. The SEC cannot require you to serve as a witness against yourself by providing incriminating testimony. Sometimes the production of documents is subject to an “act of production” privilege against self-incrimination. 

The process of objecting to an SEC subpoena is not the same as objecting to an ordinary civil subpoena. An attorney with SEC experience will help you satisfy the requirements of an SEC subpoena while ensuring that your legal rights remain fully protected.

What Else Should You Know About SEC Subpoenas?

If you are a professional in the securities industry and you learn that you receive an SEC subpoena, do not rely on your firm’s lawyers for legal advice or representation. Instead, retain a lawyer who will look out for your best interests rather than your employer’s.

An SEC defense lawyer will advise you throughout the SEC’s investigation and will ensure that your legal rights are fully protected during the investigation process.

We aggressively protect our client’s rights, whether they’re businesses, investors, financial professionals, or whistleblowers. The tools of our trade are federal and state laws that regulate the securities industry and protect those who may be abused by it. Other laws or legal doctrines may also apply to participants in the securities industry. They include state common law doctrines of negligence and fraud, state statutes prohibiting elder financial exploitation, and unfair trade practices.  

In general, the federal system of regulation of investments is a disclosure system. The U.S. Securities & Exchange Commission (SEC) does not verify that securities offered to investors are valid, much less good investments. Most states and territories also have their own securities laws and commissioners who seek to ensure that securities offered by or to its residents comply with state/territorial and federal laws. 

The SEC and most state/territorial securities regulators seek to ensure that investors are provided with certain information that they can assess to determine whether to invest. They also seek to ensure that participants in the securities industry – like brokerage firms, individual brokers, investment advisory firms, and individual investment advisers – are complying with the law. 

There are a host of “self-regulatory organizations” like the Financial Industry Regulatory Authority (FINRA) that regulate certain participants in the securities industry. Those “SROs” have their own sets of rules with which regulated entities and individuals must comply.  Many of these laws and rules are virtually identical, but they give the government the ability to bring multiple, distinct claims based on the same conduct and also to seek additional relief like penalties.  FINRA also operates a dispute resolution forum that brokerage firms and their clients are required to use to resolve claims and disputes. 

Investment advisers are not regulated by FINRA or subject to any SRO rules, but they are required to fulfill common law fiduciary duties to their customers and comply with the Investment Adviser Act of 1940. The fiduciary duties of investment advisers historically were determined by courts of law, derived in part from cases filed in those courts. In recent years, however, investment advisory firms have often required that their customers consent to mandatory arbitration. This is usually buried in the fine print of account opening documents. 

Those arbitrations sometimes are with FINRA but often are with other more costly arbitration forums like the American Arbitration Association (AAA) and JAMS, another private arbitration provider. The filing fees and arbitrator costs in AAA and JAMS can easily reach tens of thousands of dollars. When investor losses are in the tens or even low hundreds of thousands of dollars, that can mean the investor has no practical way to vindicate their rights. 

Securities Act of 1933

The Securities Act of 1933 requires that issuers and others who are involved in the offer and sale of securities provide certain information when those securities are publicly offered and provide truthful information whether the offering is public or not. The SEC views this statute as having two objectives:

• Requiring that investors get specific financial and business information about securities offered for public sale, and
• Prohibiting and preventing fraud, misrepresentation, and deceit in connection with the sale of securities, whether those securities are publicly offered or not

For securities (like stocks and bonds) offered to the public, this law mandates that the offeror file a registration statement with the SEC. That registration statement is reviewed by the SEC, but that does not provide investors with assurance that the information is accurate or complete. 

A company offering securities to the public is required to disclose certain important facts in a registration form, like:

• The company’s business and properties
• A description of the security to be sold (like common stock, preferred stock, bond)
• Information on the company’s management
• Financial statements that are certified by independent accountants

Registration statements and prospectuses are made available to the public shortly after filing via the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.  While the SEC Staff examines registration statements, the SEC does not verify the accuracy of the information that is disclosed. Investors must do that themselves.

Companies and others involved in offerings may be charged by the SEC with failing to correct previously disclosed information in registration statements that is no longer accurate. They also may be charged with failing to timely disclose material information they learn to investors. 

This information is made available to permit investors to make informed decisions about whether to buy a company’s securities. Investors purchasing securities and later suffering losses have recovery rights if they prove essential disclosures were incomplete or inaccurate.

There are many securities offerings that are not required to be registered with the SEC. Those offerings are made under certain exemptions included in the law. Those exemptions include private offerings to a limited number of institutions or people and intrastate offerings. 

Companies making offerings under the exemptions are not required to file a public registration statement and are not required to disclose the specific information that a public offeror would have to disclose. The law still prohibits those offerings from being fraudulent, containing misrepresentations, or failing to include material information. 

Securities Exchange Act of 1934

Congress created the SEC with this law which empowers it with broad authority over the securities industry. The agency can regulate, register, and oversee transfer agents, brokerage firms, clearing agencies, and SROs like FINRA.  The SEC used its authority under this law to enact its antifraud rule, called Rule 10b-5. 

This law prohibits some types of market conduct and equips the SEC with disciplinary powers over regulated entities and people connected to them. Under this law, the SEC can also require companies with publicly traded securities to report information periodically (quarterly, annually). The law permits the SEC and individuals to file legal actions. 

This law prohibits fraud in connection with the offer, purchase, or sale of securities. The SEC often brings charges under the antifraud provisions of this act as well as the provisions prohibiting the sale of unregistered securities (that are not subject to a valid exemption) and to persons or entities acting as unregistered broker-dealers. SEC charges of unlawful insider trading are generally brought under the antifraud provisions of the act.  

The federal securities laws are periodically revised or amended by Act of Congress. They include the Sarbanes-Oxley Act of 2002, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Jump Start Our Business Startups (JOBS) Act of 2012. 

Illinois Securities Law of 1953

Federal laws get more attention than state statutes regulating securities, and state agencies don’t have the resources of the SEC and the Department of Justice. Still, they may be helpful in your situation because state law may cover securities that federal laws do not. For example, Illinois has a state statute that is enforced by the Illinois Securities Department of the Secretary of State’s office.

The Illinois Securities Law of 1953 prohibits: 

• Selling unregistered securities
• Making false or misleading material statements in reports filed under the law
• Obtaining money or property by selling securities based on an untrue statement
• Circulating a prospectus while knowing it contains material, false statements 

Other states have similar laws, but each has its own idiosyncrasies. Under Illinois law, a securities purchaser who suffers harm because the law was violated may seek a rescission of the sale. If successful, the seller must take back the security, refund the purchase price, and pay interest. Part of the process involves giving notice to responsible parties within six months of learning of the legal violation. 

FINRA Rules

FINRA has general and specific conduct rules. Brokerage firms and their registered representatives, as well as other individuals associated with brokerage firms, are regulated by FINRA. It has its own enforcement staff to investigate potential violations of its rules and of federal securities laws and regulations. 

Generally, those investigations are brought under FINRA Rule 8210, which permits FINRA to compel those it regulates to produce documents, answer questions, and appear to provide on-the-record testimony. FINRA has general and specific conduct rules. 

• Rule 2010 is a general conduct rule, which requires that a member (brokerage firm) observe high standards of commercial honor and just and equitable principles of trade
• Rule 2111 is a more specific conduct rule, which requires that any recommendation of a transaction or investment strategy involving securities be “suitable” for the investor

FINRA issues notices to clarify what its rules mean. 

Schedule a Free Consultation With Bragança Law Today

Whether you’re involved in an SEC/FINRA investigation, an investor seeking recovery of losses, or a whistleblower punished for doing the right thing, Lisa Bragança at Bragança Law can help. Your case’s outcome could affect you and your family for the rest of your life, which is why Lisa works tirelessly to get the best possible results for her clients.

Lisa Bragança works with clients nationwide, as well as those living in Chicago and its suburbs. Her office is about 26 miles from the Chicago Midway International Airport (MDW) and approximately 13 miles from the O’Hare International Airport (ORD). To schedule your free consultation, call Bragança Law at (847) 906-3460 or fill out our website’s contact form.

There is one major concern that just about everybody has when they receive an SEC subpoena. That is, “How on earth am I going to pay for this?” There are two ways that you might be able to get help paying for attorney’s fees to respond to a subpoena if the subpoena is related to work that you have done for a company. It could be a former employer. It could be a current employer. It could be a company where you are serving or served as director.

Insurance

The first way that you may be able to get help in paying for an attorney to represent you in responding to a subpoena is through a director and officer insurance policy. If you worked for the company as a director or officer, your expenses in responding to a subpoena relating to that work may be covered by a “D&O” policy.

If that sounds like you, it is worth contacting your company in order to see if they have that type of policy or any other type of policy that may cover attorney’s fees in responding to the subpoena.

Indemnification

The second way that you may be able to get help in paying for an attorney to represent you in responding to a subpoena is if your company has an obligation to indemnify its employees for those kinds of expenses. A duty to indemnify employees may be imposed by a state statute, or it could be something that the company has in its bylaws, or it could be in an employment contract.

It is worth contacting an attorney as well as the company to inquire about whether you are entitled to indemnification.

It is important to remember that indemnification and insurance coverage would not apply to a subpoena that does not relate to a company. For example, if you receive a subpoena seeking information about your personal purchases of securities, even purchases of stock of your employer, it is highly unlikely you would be covered by insurance or indemnification. That trading activity would not ordinarily be considered part of your duties as an employee.

Should You Accept Representation by Your Employer’s Attorney?

Some people think they can avoid attorney’s fees by relying on the attorneys hired by the company. This is almost always a mistake. You need an attorney who will represent you, not someone who has no duty to give you advice that is in your best interest. Company attorneys are generally very clear in saying, “We represent the company, not the employees, not any individual we might be talking to.” You should understand that the obligations of those attorneys are to their client – the company – not to you. The “advice” and information they give you must be in the best interests of their client, the company. That advice/information could be contrary to your best interests.

What Should You Do If You Receive a Subpoena?

If you receive a subpoena, it’s important to not panic. You should contact an attorney who can help you figure out whether you be able to seek insurance coverage or indemnification for attorney’s fees incurred in responding to a subpoena relating to work you did on behalf of the company. Contact Bragança Law today for help with SEC investigations and subpoenas.