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Securities and Exchange Commission
Division of Enforcement
Enforcement Manual
Office of Chief Counsel
February 24, 2026
Table of Contents
1.
1.1.
1.2.
1.3.
1.4.
1.4.1.
1.4.2.
1.4.3.
1.4.4.
Introduction .............................................................................................................. 1-1
Purpose and Scope ..................................................................................................... 1-1
Origin ......................................................................................................................... 1-1
Public Disclosure ....................................................................................................... 1-1
Fundamental Considerations ...................................................................................... 1-1
Mission Statement...................................................................................................... 1-1
Ethics and Professional Responsibility ...................................................................... 1-2
Consultation ............................................................................................................... 1-3
Updating Internal Systems ......................................................................................... 1-4
2.
2.1.
2.1.1.
2.1.1.1.
2.1.1.2.
2.1.2.
2.1.2.1.
2.1.2.2.
2.1.2.3.
2.1.2.4.
2.1.2.5.
2.2.
2.2.1.
2.2.2.
2.2.3.
2.2.3.1.
2.2.3.2.
2.2.3.3.
2.2.4.
2.2.5.
2.3.
2.4.
2.5.
2.5.1.
2.5.2.
2.5.2.1.
A Guide to Matters Under Inquiry and the Stages of Investigations.................. 2-4
Tips, Complaints, and Referrals................................................................................. 2-4
Complaints and Tips from the Public ........................................................................ 2-4
Processing Tips and Complaints from the Public ...................................................... 2-4
Whistleblower Award Program ................................................................................. 2-5
Other Referrals ........................................................................................................... 2-6
Referrals Involving Bank Secrecy Act Material ........................................................ 2-6
Referrals from the Public Company Accounting Oversight Board ........................... 2-7
Referrals from State Securities Regulators ................................................................ 2-7
Referrals from Congress ............................................................................................ 2-8
Referrals from Self-Regulatory Organizations .......................................................... 2-8
Matters Under Inquiry and Investigations ................................................................. 2-9
Opening a MUI .......................................................................................................... 2-9
Opening an Investigation and Converting or Closing a MUI .................................. 2-11
Formal Orders of Investigation ................................................................................ 2-14
Formal Order Process .............................................................................................. 2-15
Supplementing a Formal Order ................................................................................ 2-15
Requests for a Copy of the Formal Order ................................................................ 2-16
Ranking Investigations and Allocating Resources .................................................. 2-17
Quarterly Reviews of Investigations and Status Updates ........................................ 2-19
The Wells Process .................................................................................................... 2-20
White Papers and Other Materials (excluding Wells Submissions) ........................ 2-25
Enforcement Recommendations .............................................................................. 2-26
Relief ........................................................................................................................ 2-26
The Action Memo Process ....................................................................................... 2-27
Simultaneous Consideration of Enforcement Settlement Recommendations and
Waiver Requests ...................................................................................................... 2-27
Commission Authorization ...................................................................................... 2-27
Closed Meetings....................................................................................................... 2-28
Seriatim Consideration............................................................................................. 2-28
Duty Officer Consideration...................................................................................... 2-29
Delegations of Commission Authority .................................................................... 2-29
Closing an Investigation .......................................................................................... 2-30
Policies and Procedures ........................................................................................... 2-30
Termination Notices................................................................................................. 2-32
2.5.3.
2.5.3.1.
2.5.3.2.
2.5.3.3.
2.5.4.
2.6.
2.6.1.
2.6.2.
3.
3.1.
3.1.1.
3.1.2.
3.1.3.
3.1.4.
3.2.
3.2.1.
3.2.1.1.
3.2.2.
3.2.3.
3.2.4.
3.2.5.
3.2.6.
3.2.7.
3.2.7.1.
3.2.7.2.
3.2.7.3.
3.2.8.
3.2.9.
3.2.9.1.
3.2.9.2.
3.2.9.3.
3.2.9.4.
3.2.9.5.
3.2.9.6.
3.2.10.
3.2.10.1.
3.2.10.2.
3.2.10.3.
3.2.10.4.
3.2.10.5.
3.2.10.6.
3.2.10.7.
3.3.
3.3.1.
3.3.2.
3.3.3.
3.3.3.1.
3.3.3.2.
3.3.4.
3.3.5.
3.3.5.1.
3.3.5.2.
3.3.5.3.
A Guide to Investigative Practices........................................................................ 3-33
Special Considerations ............................................................................................. 3-33
External Communications Between Senior Enforcement Officials and Persons
Outside the SEC Who Are Involved in Investigations ............................................ 3-33
Statutes of Limitations and Tolling Agreements ..................................................... 3-36
Continuing Investigations During Ongoing SEC Litigation.................................... 3-37
Parallel Investigations and the State Actor Doctrine ............................................... 3-38
Documents and Other Materials .............................................................................. 3-39
Privileges and Privacy Acts ..................................................................................... 3-39
Supplemental Information Forms (SEC Forms 1661 and 1662) ............................. 3-40
Document Preservation Letters ................................................................................ 3-40
Voluntary Document Requests ................................................................................ 3-41
Document Requests to Regulated Entities ............................................................... 3-41
Subpoenas for Documents ....................................................................................... 3-42
Subpoenas and Document Requests to the News Media ......................................... 3-43
Subpoenas and Document Requests to Attorneys ................................................... 3-43
Service of Subpoenas ............................................................................................... 3-43
Forthwith Subpoenas in Investigations .................................................................... 3-44
Obligations in Responding to Subpoenas ................................................................ 3-44
Blue Sheets and Consolidated Audit Trail Data ...................................................... 3-45
Form of Document Production to the SEC .............................................................. 3-46
Electronic Production of Documents ....................................................................... 3-47
Accepting Production in Paper Format .................................................................... 3-48
Bates Stamping ........................................................................................................ 3-49
Privilege Logs .......................................................................................................... 3-49
Business Record Certifications ................................................................................ 3-50
Confirming Completeness of Production................................................................. 3-50
Investigative and Litigation Files............................................................................. 3-51
Document Control .................................................................................................... 3-53
Complying with Rule 26(a) of the Federal Rules of Civil Procedure...................... 3-54
Preserving Evidence in Anticipation of Litigation .................................................. 3-54
Off-Site Storage ....................................................................................................... 3-55
Preserving Internet Evidence ................................................................................... 3-55
Preserving Audio Recordings .................................................................................. 3-55
Preserving Electronic Media .................................................................................... 3-56
Witness Interviews and Testimony .......................................................................... 3-57
Privacy Acts ............................................................................................................. 3-57
No Targets of Investigations .................................................................................... 3-57
Voluntary Interviews ............................................................................................... 3-58
Privacy Act Warnings and Forms 1661 and 1662 ................................................... 3-58
Documenting the Interview...................................................................................... 3-58
Voluntary On-the-Record Testimony ...................................................................... 3-59
Testimony Under Subpoena ..................................................................................... 3-59
Authority .................................................................................................................. 3-59
Using a Background Questionnaire ......................................................................... 3-60
Witness Right to Counsel......................................................................................... 3-61
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3.3.5.4.
3.3.5.5.
3.3.6.
3.3.7.
3.3.7.1.
3.3.7.2.
3.3.8.
Going off the Record ............................................................................................... 3-62
Transcript Availability ............................................................................................. 3-62
Engaging with Investors .......................................................................................... 3-63
Special Cases ........................................................................................................... 3-63
Contacting Employees of Represented Issuers and Other Entities .......................... 3-63
Contacting Witnesses Residing Overseas ................................................................ 3-64
Proffers and Proffer Agreements ............................................................................. 3-66
4.
4.1.
4.1.1.
4.1.1.1.
4.1.2.
4.1.3.
4.2.
4.2.1.
4.3.
4.3.1.
4.4.
4.5.
4.6.
4.7.
Privileges and Protections ..................................................................................... 4-67
Assertion of Privileges ............................................................................................. 4-67
Attorney-Client Privilege ......................................................................................... 4-67
Multiple Representations ......................................................................................... 4-69
Attorney Work Product Doctrine ............................................................................. 4-70
The Fifth Amendment Privilege Against Self-Incrimination .................................. 4-70
Inadvertent Production of Privileged or Non-Responsive Documents .................... 4-72
Purposeful Production Without Privilege Review ................................................... 4-73
Waiver of Attorney-Client Privilege or Attorney Work Product Protection ........... 4-73
Confidentiality Agreements ..................................................................................... 4-75
Compliance with the Privacy Act of 1974 ............................................................... 4-76
Compliance with the Right to Financial Privacy Act of 1978 ................................. 4-77
Compliance with the Electronic Communications Privacy Act of 1986 ................. 4-78
Handling Bank Secrecy Act Material ...................................................................... 4-79
5.
5.1.
5.2.
5.2.1.
5.2.2.
5.3.
5.4.
5.5.
5.6.
5.6.1.
5.6.2.
5.6.3.
5.6.4.
Working with Other Agencies and Organizations.............................................. 5-80
Disclosure of Information and Access Requests ..................................................... 5-80
Cooperation with Criminal Authorities ................................................................... 5-82
Parallel Investigations .............................................................................................. 5-82
Grand Jury Matters .................................................................................................. 5-84
Cooperation with the Food and Drug Administration ............................................. 5-84
Cooperation with the Public Company Accounting Oversight Board ..................... 5-85
Coordination and Consultation with Banking Agencies .......................................... 5-85
Referrals from the Division to Other Authorities .................................................... 5-86
Referrals to Criminal Authorities............................................................................. 5-88
Referrals to Self-Regulatory Organizations ............................................................. 5-89
Referrals to the Public Company Accounting Oversight Board .............................. 5-90
Referrals to State Agencies ...................................................................................... 5-91
6.
6.1.
6.1.1.
6.1.2.
6.2.
6.2.1.
6.2.2.
6.2.3.
6.2.4.
6.2.5.
6.2.6.
Cooperation ............................................................................................................ 6-92
Analytical Frameworks ............................................................................................ 6-92
Framework for Evaluating Cooperation by Individuals .......................................... 6-92
Framework for Evaluating Cooperation and Related Efforts by Companies .......... 6-95
Cooperation Tools .................................................................................................... 6-97
The Cooperation Committee .................................................................................... 6-98
Cooperation Agreements ......................................................................................... 6-98
Deferred Prosecution Agreements ......................................................................... 6-100
Non-Prosecution Agreements ................................................................................ 6-101
Other Benefits of Cooperation ............................................................................... 6-103
Immunity Requests ................................................................................................ 6-103
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6.2.7.
6.2.8.
6.2.9.
6.3.
Oral Assurances ..................................................................................................... 6-105
Termination Notices............................................................................................... 6-106
Settlement Recommendations................................................................................ 6-106
Publicizing the Benefits of Cooperation ................................................................ 6-106
7.
Index of Defined Terms ....................................................................................... 7-108
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1.
Introduction
1.1.
Purpose and Scope
The Enforcement Manual (“Manual” 1) is a reference for staff in the Division of
Enforcement (the “Division”) of the U.S. Securities and Exchange Commission (“SEC” or
“Commission”) in the investigation of potential violations of the federal securities laws. It
contains various general policies and procedures and is intended to provide guidance only to the
staff of the Division, in the exercise of its responsibilities to the Commission for conducting
enforcement activities. The Manual is not intended to and does not constitute a rule, regulation,
or statement of the Commission. It is not binding on the Commission and may not be relied upon
to create any rights, substantive or procedural, enforceable at law by any party in any matter,
civil or criminal.
1.2.
Origin
The Manual was prepared under the general supervision of the Division’s Office of Chief
Counsel (“OCC”). This Manual expresses the policies and common practices of the Division in
the exercise of its responsibilities to the Commission. OCC and the Office of the Director of the
Division coordinate periodic revision of the Manual, which will be updated and posted on an
annual basis. The Manual is intended to provide general guidance, but decisions about particular
individual investigations, cases, and charges are made based on the specific facts and
circumstances presented.
1.3.
Public Disclosure
The Manual is United States government property. It is to be used in conjunction with
official SEC duties. This Manual is publicly available at sec.gov/divisions/enforce/
enforcementmanual.pdf.
1.4.
Fundamental Considerations
1.4.1. Mission Statement
The Division’s mission is to protect investors and the markets by investigating potential
violations of the federal securities laws and litigating the SEC’s enforcement actions. Values
integral to that mission are:
1
•
Integrity: acting honestly, forthrightly, and impartially in every aspect of our work.
•
Fairness: assuring that everyone receives fair and respectful treatment, without regard to
wealth, social standing, publicity, politics, or personal characteristics.
For an alphabetical list of all defined terms and acronyms used through this Manual, see Section 7.
•
Commitment: recognizing the importance of, and caring deeply about, our mission of
protecting investors and markets.
•
Engagement: engaging with harmed investors and other members of the public in a
professional manner.
•
Teamwork: working collaboratively with colleagues within the Division and in the SEC’s
other divisions and offices, as well as with other fellow law enforcement professionals.
1.4.2. Ethics and Professional Responsibility
Maintaining and fostering a culture of integrity and professionalism is a Division priority.
The Office of Government Ethics (“OGE”) regulation titled “Standards of Ethical Conduct for
Employees of the Executive Branch” lays out the basic obligation of public service:
Each employee has a responsibility to the United States Government and its citizens to
place loyalty to the Constitution, laws, and ethical principles above private gain. To
ensure that every citizen can have complete confidence in the integrity of the Federal
Government, each employee must respect and adhere to the principles of ethical
conduct[.] (5 C.F.R. § 2635.101(a))
The SEC has a number of resources from which Division staff can obtain guidance on
questions regarding ethical conduct and professional responsibility. Chief among them are the
SEC’s Office of Ethics Counsel (“Ethics Office”) and the SEC’s Professional Responsibility
Counsel (in the Office of the General Counsel (“OGC”)), which ensure that the staff adheres to
the canons of ethics set out in 17 C.F.R. § 200.50, et. seq. Staff should not hesitate to consult
with the attorney staff in the SEC’s Ethics Office on any question of ethics and may consult
Ethics Office bulletins and applicable statutes and regulations available from the Ethics Office.
Attorneys can also consult with the Commission’s Professional Responsibility Counsel on
compliance with applicable rules of professional conduct governing attorneys. State rules of
professional conduct, including the rule regarding candor in tribunals, and other laws apply to
many aspects of Commission attorneys’ work. Attorneys should review the rules of professional
conduct for each jurisdiction in which they are licensed and any other jurisdictions whose rules
govern their conduct.
Licensed accountants should consider state board of accountancy laws and other rules in
the relevant jurisdictions where licensed.
Division staff maintaining any other licenses or credentials should consider all applicable
professional obligations, including those arising from federal or state regulations.
Considerations:
•
If staff is uncertain about an ethical issue, staff should seek guidance from the Ethics
Office or Professional Responsibility Counsel before acting.
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•
Staff should remain alert to new rules and updates posted by the Ethics Office.
•
Staff should be aware of ethical issues that may arise, including policies on:
o Confidentiality and the protection of nonpublic information;
o Attorney responsibility (under the OGE Standards of Ethical Conduct for
Employees of the Executive Branch, the rules of professional conduct for each
jurisdiction in which the attorney is licensed to practice law, and the rules of
professional conduct of the jurisdiction in which the attorney is appearing on
behalf of the Commission before a tribunal or otherwise engaging in such other
behavior as may be considered the practice of law under the rules of professional
conduct of that jurisdiction);
o Securities transactions by employees;
o Conflicts of interest (including financial and personal interests);
o Recusals (including applicable recusal policies for Division staff);
o Referral of professional misconduct;
o Publication and outside speaking engagement guidelines;
o Gifts and invitations;
o Outside employment and activities;
o Requirements under the Hatch Act of 1939;
o Misuse of public office for private gain;
o Pro bono activity; and
o Seeking and negotiating employment outside the SEC.
Further Information:
For further information about ethics and professional responsibility, see the OGE Standards
of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. Part 2635, et seq., the OGE
compilations of federal ethics laws, available at OGE: Standards of Ethical Conduct, and the
criminal conflict of interest statutes, including 18 U.S.C. §§ 203, 205, 207–9 and other related
statutes, available at OGE: Criminal Conflict of Interest Laws.
1.4.3. Consultation
Although this Manual is intended to be a reference for Division staff responsible for
investigations, no set of procedures or policies can replace the need for active and ongoing
consultation with colleagues, supervisors, other divisions and offices at the SEC, and internal
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experts. Investigations often require careful legal and technical analysis of complicated issues,
culminating in difficult decisions that may affect market participants, individuals, issuers, and
investors. Therefore, when an issue arises for which colleagues or other divisions or offices may
hold particular expertise, the staff will consult with those experts as appropriate. In addition, staff
should keep other divisions and offices informed regarding issues of interest that arise during
investigations and consult with relevant divisions and offices before making recommendations
for action to the Commission, including as set forth in Section 2.5.2.
1.4.4. Updating Internal Systems
The Division uses several internal systems, including the Hub and the Tips, Complaints,
and Referrals system (“TCR System”), to help manage case information. The reliability and
usefulness of each of the Division’s internal systems is dependent upon timely and accurate entry
of information by the staff.
2.
A Guide to Matters Under Inquiry and the Stages of Investigations
2.1.
Tips, Complaints, and Referrals
2.1.1. Complaints and Tips from the Public
Introduction:
Public complaints and tips are primarily received through the SEC’s TCR System or
through contact with staff at any of the SEC’s offices. The vast majority of complaints and tips
received by the Division are in electronic form and the Division encourages the public to
communicate with it through the TCR System. Complaints are assessed for apparent reliability,
detail, and potential violations of the federal securities laws. After review, the complaint or tip
generally is processed according to the guidelines below.
2.1.1.1.
Processing Tips and Complaints from the Public
Guidelines for Processing Public Complaints and Tips:
•
Complaints that appear to be credible, probative, and substantive are usually forwarded to
staff in the Home Office or the appropriate regional office or Specialized Unit for more
detailed review, and may result in the opening of a “matter under inquiry” (“MUI”).
•
Credible, probative, and substantive complaints that relate to an existing MUI or
investigation are generally forwarded to the staff assigned to that existing matter.
•
Credible, probative, and substantive complaints that involve the specific expertise of
another division or office within the SEC are routinely forwarded to staff in that
particular division or office for further analysis, including, as appropriate, for assistance
in evaluating the merit of the TCR.
•
Consistent with Commission policy, complaints that fall within the jurisdiction of another
federal or state agency should be referred to that agency, consistent with the
2-4
considerations and procedures set forth in Sections 5.6.4, et seq. Referrals of complaints
to the Department of Justice (“DOJ”) should be made consistent with the Commission’s
“Policy Statement Concerning Agency Referrals for Potential Criminal Enforcement,”
Exchange Act Release No. 34-103277 (effective June 20, 2025) (“Criminal Referral
Policy Statement”), issued pursuant to Executive Order 14294 and codified at 17 C.F.R.
§ 202.14. See Section 5.6.1. Because of statutory requirements to protect the identity of
whistleblowers, staff should consult with the Division’s Office of the Whistleblower
(“OWB”) before sharing any information with other agencies that may reasonably
identify a whistleblower.
•
Complaints that relate to the private financial affairs of an investor or a discrete investor
group are usually forwarded to the SEC’s Office of Investor Education and Advocacy
(“OIEA”). Comments or questions about agency practice or the federal securities laws
are also forwarded to OIEA.
Searching the TCR System:
Staff are encouraged to search the TCR System periodically to ensure that they are aware of tips,
complaints, and referrals related to their MUIs and investigations. Staff should search the system
as frequently as needed and before making material decisions about a matter, including whether
to open a MUI or investigation, or to add a related party. Prior to closing a matter, staff should
use their best judgment in considering whether to search the TCR system, taking into account
whether the existence of a related TCR potentially could affect the decision to close the matter.
Staff may request the assignment of any related tip, complaint, or referral discovered as a result
of their search.
Further Information:
Staff should address any questions regarding the handling of tips, complaints, and
referrals to their group’s TCR point of contact.
2.1.1.2. Whistleblower Award Program
Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(“Dodd–Frank Act”) provides that the Commission shall pay awards to eligible whistleblowers
in certain statutorily-defined, covered judicial or administrative actions and related actions. The
Dodd-Frank Act provides that the Commission, subject to applicable regulations, shall pay
awards of not less than 10 percent and not more than 30 percent of what has been collected of the
total monetary sanctions imposed in the covered action. The Dodd–Frank Act also prohibits
retaliation by employers against whistleblowers and provides them with a private cause of action
in the event that they are discharged or discriminated against by their employers in violation of
the Act. Whistleblower information is highly confidential and there are strict limitations on its
disclosure. Subject to certain exceptions, the Dodd-Frank Act prohibits disclosure of information
that could reasonably be expected to reveal the identity of a whistleblower. See Section 5.1.
2-5
Further Information:
OWB.
For further information on the SEC’s whistleblower award program, staff should consult
2.1.2. Other Referrals
2.1.2.1. Referrals Involving Bank Secrecy Act Material
Enacted in 1970 and amended by the USA PATRIOT Act, the Bank Secrecy Act
(“BSA”) is designed to prevent financial institutions, including broker-dealers, from being used
as vehicles through which criminals hide the transfer of illegally obtained funds. The
recordkeeping and reporting requirements of the BSA create a paper trail for federal, state, and
local law enforcement to investigate the movement of funds in money laundering and other
illegal schemes. The BSA is codified at 31 U.S.C. § 5311, et seq. The regulations implementing
the BSA are located at 31 C.F.R. Chapter X.
For the SEC, the primary mechanism for enforcing compliance by brokers and dealers
with the requirements of the BSA is Section 17(a) of the Securities Exchange Act of 1934
(“Exchange Act”) and Rule 17a-8 thereunder. Under Rule 17a-8, every registered broker or
dealer must comply with the reporting, recordkeeping, and record retention provisions of 31
C.F.R. Chapter X, Rule 17a-8, 17 C.F.R. § 240.17a-8. In the investment company context, the
registered “funds” must comply with Rule 38a-1 of the Investment Company Act of 1940
(“Investment Company Act”). Rule 38a-1 states that funds must adopt and implement written
policies and procedures reasonably designed to prevent violation of the “Federal Securities
Laws,” by the fund which, for purposes of that rule, include the BSA. Rule 38a-1(e)(1), 17
C.F.R. § 270.38a-1(e)(1).
BSA information is highly confidential, and subject to the strict limitations set out by the
Financial Crimes Enforcement Network (“FinCEN”), a bureau in the Department of the
Treasury. Enforcement staff has access to and reviews certain electronic reports filed under the
BSA.
The Division’s BSA Review Group handles, evaluates, and assigns BSA information for
consideration by divisions and offices within the Commission. Enforcement staff may receive
information from the BSA Review Group about Suspicious Activity Reports (“SARs”) or other
BSA reports that either relate to open Enforcement matters or warrant further Enforcement
consideration.
Handling Referrals Based on Bank Secrecy Act Information:
Certain BSA information, particularly SARs and related materials that would reveal the
existence of a SAR, is highly sensitive and must be handled with great care. All SAR materials
must be segregated and marked to indicate that they contain sensitive SAR information.
2-6
Further Information:
Staff should contact the Division’s BSA Review Group for specific information and
guidance about how to handle BSA materials properly. See Sections 3.2.10. and 4.7.
2.1.2.2. Referrals from the Public Company Accounting Oversight Board
Basics:
The enforcement staff of the Public Company Accounting Oversight Board (“PCAOB”)
may forward referrals or tips to the staff of the Division. The Division’s Office of Market
Intelligence (“OMI”) and, depending on the referral or tip, the Division’s Office of the Chief
Accountant, makes an initial assessment regarding whether an investigation may be warranted
and, if so, the matter is assigned to investigative staff for further action.
If appropriate, staff will then get approval to open a MUI. See Section 2.2.1.
Considerations:
If necessary, staff and their supervisors should notify the Division’s Office of the Chief
Accountant about obtaining documents and information regarding the tip.
Further Information:
Please refer any questions about receiving a tip from the PCAOB to the Division’s Office
of the Chief Accountant.
2.1.2.3. Referrals from State Securities Regulators
Basics:
State securities regulators enforce state-wide securities laws known as “blue sky laws.”
The Division receives information and referrals from state securities regulators. These referrals
should be entered into the TCR System for tracking and assignment purposes. Most of the state
securities regulators have relationships with the SEC regional office that covers the territory in
which they are located, and the state regulators direct their referrals to that office.
Considerations:
•
Staff should discuss the information received from state securities regulators promptly
with their supervisors.
•
Consider ongoing coordination with the state securities regulator, as appropriate.
Further Information:
If the opening of a MUI is appropriate, staff will follow the instructions for opening a
MUI. See Section 2.2.1.
2-7
2.1.2.4. Referrals from Congress
Basics:
The SEC frequently receives complaints and other information from members of
Congress on behalf of the constituents whom they represent. Most of these letters are directed to
the Commission’s Office of Legislative and Intergovernmental Affairs or the Office of the
Chairman and then assigned to the appropriate division or office within the SEC. The
Commission’s Office of the Chairman tracks the responses to congressional letters. As with
complaints and other information received from other sources, complaints and tips received by
the Division from Congress and congressional constituents are carefully reviewed by staff.
Considerations:
•
Because disclosure of nonpublic information requires Commission approval, staff should
not share nonpublic information, including whether the staff has or will commence an
investigation, with the complainants or members of Congress.
•
Staff should provide timely responses to congressional letters, using the appropriate
format and meeting the deadlines required by the Office of Legislative and
Intergovernmental Affairs or the Office of the Chairman.
•
If staff believes the information obtained from the congressional letter warrants the
opening of a MUI, staff should follow the instructions for opening a MUI. See Section
2.2.1.
Further Information:
Staff should consult the Office of Legislative and Intergovernmental Affairs and the
Office of the Chairman when drafting responses to congressional letters.
2.1.2.5. Referrals from Self-Regulatory Organizations
Basics:
OMI is the primary point of contact for referrals by self-regulatory organizations
(“SROs”). Each equity and option exchange is responsible for monitoring its own markets and
enforcing exchange rules and regulations and the federal securities laws. If an SRO discovers
potentially violative conduct and believes that it has jurisdiction, it may conduct its own
investigation and/or refer one or more potential violations to the SEC. If an SRO determines that
it does not have jurisdiction, it will refer the potential violations to the SEC.
Considerations:
Consider ongoing consultation with SROs, as appropriate.
2-8
Further Information:
If the referring SRO continues with a parallel investigation, please refer to the policy on
parallel investigations. See Section 3.1.4.
2.2.
Matters Under Inquiry and Investigations
2.2.1. Opening a MUI
Introduction:
The purpose of the procedures and policies for the review and approval of new MUIs is
to help ensure efficient allocation of resources.
Opening a MUI requires that the staff assigned to a MUI (at the Assistant Director 2 level
and below) first conduct preliminary analyses to determine: (1) whether the facts underlying the
MUI show that there is potential to address conduct that violates the federal securities laws; and
(2) whether the assignment of a MUI to a particular office, Associate Director group, or unit will
be the best use of resources for the Division as a whole. If the preliminary analyses indicate that
a MUI should be opened, then the staff should follow the procedures below for opening a MUI
within the internal system and seeking approval of the assigned Associate Director/Unit Chief.
Prior to any other considerations, the staff should consult the Hub for related investigations. Staff
should also search the TCR System for related TCRs. If a related investigation or TCR is found,
the staff assigned to that investigation or TCR should be consulted. In addition, staff should
determine whether there are any open examinations of any of the entities or individuals
potentially involved in the new MUI.
Prior to opening a MUI, the assigned staff (Assistant Director and below) should
determine whether the known facts show that an Enforcement investigation would have the
potential to address conduct that violates the federal securities laws. The Division receives
information from a variety of sources that may warrant the opening of a new MUI, including
newspaper articles, complaints from the public, whistleblowers, and referrals from other agencies
or SROs. Assigned staff are encouraged to use their discretion and judgment in making the
preliminary determination of whether it is appropriate to open a MUI. The considerations
described below are suggestions only and should not discourage the opening of a MUI based on
partial information. MUIs are preliminary in nature and typically involve incomplete
information. The threshold determination for opening a new MUI is low because the purpose of a
MUI is to gather additional facts to help evaluate whether an investigation would be an
appropriate use of resources.
“Assistant Director” is used to refer both to Assistant Directors in the Home Office and in the regional offices.
Similarly, “Associate Director” is used to refer both to Associate Directors in the Home Office and in the Regional
Offices. “Unit Chief” refers to the heads of the Division’s five national specialized units: the Asset Management
Unit, the Cyber and Emerging Technologies Unit, the Complex Financial Instruments Unit, the Market Abuse Unit,
and the Public Finance Abuse Unit. “Deputy Director” refers to Deputy Directors of the Division, who report to the
Director of the Division. Separately, the Division’s Trial Unit is led by the Division’s Chief Litigation Counsel and
Deputy Chief Litigation Counsel, and the Division’s accountants are led by the Division’s Chief Accountant.
2
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To determine whether to open a MUI, the staff attorney, in conjunction with the Assistant
Director, should consider whether a sufficiently credible source or set of facts suggests that a
MUI could lead to an enforcement action that would address a violation of the federal securities
laws. Basic considerations used when making this determination may include, but are not limited
to:
• The statutes or rules potentially violated;
• The egregiousness of the potential violations;
• The potential magnitude of the potential violations;
• The potential losses involved or harm to an investor or investors;
• Whether the potentially harmed group is particularly vulnerable or at risk;
• Whether the conduct is ongoing;
• Whether the conduct can be investigated efficiently and within the statute of limitations
period; and
• Whether other authorities, including federal or state agencies or regulators, might be better
suited to investigate the conduct.
The presence or absence of U.S. investors should be a factor considered, but should not
control, whether to open a MUI. After determining that a MUI has the potential to address
conduct that violates the federal securities laws, the assigned staff should evaluate whether, from
a resource standpoint, it is reasonable for their office, unit, or Associate Director group
(“Investigative Group”) to handle the investigation. Basic considerations used when making this
determination may include, but are not limited to:
• The location of the potentially wrongful conduct;
• The location of the potential wrongdoers;
• The location of the issuer’s, entity’s, or SRO’s headquarters;
• The location of most witnesses or potentially harmed investors; and
• The resources and expertise of the Investigative Group.
If an Investigative Group believes it has compelling reasons to handle a MUI or
investigation for which another Investigative Group may have a substantial nexus, it must
consult with the other group to determine which group should pursue the MUI or investigation,
or whether the two Investigative Groups should jointly pursue the MUI or investigation. There
may be some exceptions to the general guidance. For example, if a MUI is closely related to a
previous investigation, a determination should be made whether the Investigative Group that
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handled the previous investigation should handle the new MUI, regardless of whether that
Investigative Group has a nexus to the new MUI.
If it later becomes clear that a MUI or investigation is centered in a specific region,
consideration should be given to referring the investigation to that regional office, depending on
available staff in the regional office and the stage of the MUI or investigation. In some situations,
such as where witnesses are dispersed or where an Investigative Group has special expertise, it
may make sense for staff from more than one Investigative Group to work together on a matter.
Procedures for Opening a MUI:
(1) Log into the Hub and select “Open a MUI/INV.”
(2) Fill out the required and other applicable fields to request the opening of a MUI, including
a MUI Opening Narrative, Primary Classification, Origin, etc. Click “Submit.”
(3) The request will be routed to the designated Associate Director/Unit Chief for
consideration.
(4) The Associate Director/Unit Chief should review the request promptly and, if satisfied
that the MUI has the potential to address conduct that may violate the federal securities
laws, approve the opening of the MUI in the Hub.
(5) Supervisors at the level of Associate Director or above will receive a weekly report of all
MUIs opened during the prior week.
Considerations:
As a general matter, MUIs should be closed or converted to an investigation within sixty
days. Staff should follow the policies and procedures for closing a MUI or converting a MUI.
See Section 2.2.2.
Further Information:
For more information on filling out MUI forms, please check for instructions on the Hub
or contact one of the Division’s Case Management Specialists.
2.2.2. Opening an Investigation and Converting or Closing a MUI
Introduction:
Investigations are opened in two ways: (1) the investigation is opened when a MUI is
converted to an investigation, or (2) an investigation is opened independent of a MUI. In both
cases, the opening of an investigation requires that the assigned staff (at the Assistant Director
level and below) conduct an evaluation of the facts to determine the investigation’s potential to
address conduct that violates the federal securities laws. The analysis for whether to convert a
MUI to an investigation, or open an investigation, differs from the analysis for whether to open a
MUI. While a MUI can be opened on the basis of very limited information, an investigation
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generally should be opened after the assigned staff has done additional information gathering and
analysis. If the investigation was opened from a MUI, it may also be appropriate at this time to
revisit whether the Investigative Group has a sufficient nexus to the matter.
Analysis of Whether the Investigation Has the Potential to Substantively and Effectively Address
Conduct that Violates the Federal Securities Laws:
The assigned staff, in consultation with the assigned Associate Director/Unit Chief,
should evaluate the information gathered to determine whether it is an appropriate use of
resources to open an investigation (either through conversion of the MUI or independent of a
MUI). While the threshold analysis for opening a MUI is relatively low, determining whether the
MUI should be converted to an investigation or whether to open an investigation is typically a
more detailed evaluation that is based on additional information.
The evaluation for whether to convert a MUI to an investigation (or open an
investigation) turns on whether, and to what extent, the investigation has the potential to address
conduct that violates the federal securities laws. Threshold issues to consider when evaluating
the facts include:
•
Do the facts suggest a possible violation of the federal securities laws involving fraud or
other serious misconduct?
•
If yes, is an investment of resources by the staff merited by:
o the magnitude or nature of the potential violation;
o the size of the potentially harmed investor group;
o the amount of potential or actual losses to investors;
o for potential insider trading or other manipulative trading, the amount of profits or
losses avoided; or
o for potential financial reporting violations, materiality?
•
If yes, is the conduct:
o ongoing; or
o within the statute of limitations period?
In addition to the threshold issues identified above, staff should consider the following
supplemental factors:
• Is there a need for immediate action to protect investors or to minimize losses suffered by
harmed investors?
• Does the conduct affect the fairness or liquidity of the U.S. securities markets?
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• Does the conduct involve a recidivist?
• Has the SEC or Division designated the subject matter a priority?
• Does the matter fulfill a programmatic goal of the SEC and the Division?
• Does the matter involve a possibly widespread industry practice that should be addressed?
• Does the matter give the SEC an opportunity to be visible in a community that might not
otherwise be familiar with the SEC or the protections afforded by the securities laws?
• Does the matter present a good opportunity to cooperate with other civil and criminal
agencies?
As always, the presence or absence of U.S. investors should be considered as a factor but
should not, in itself, control whether to open an investigation.
Considerations:
Assigned staff are encouraged to revisit whether the Investigative Group still has a
sufficient nexus under the new facts learned during the period of the MUI. If the staff’s
understanding of the relevant facts has changed, assigned staff should consider whether it is
appropriate to contact another Associate Director group, office, or unit that may be better suited
to handle the investigation.
Prior to the conversion of a MUI to an investigation, the staff should endeavor to identify
any threshold issues of law or policy that may be relevant to the investigation and any possible
violations of the securities laws. As appropriate, the staff will consult with internal subject matter
experts and the Division’s liaisons to other offices and divisions within the SEC to assess
relevant investigative steps and legal issues.
Procedures for Converting a MUI to an Investigation:
As a general matter, MUIs should be closed or converted to an investigation within sixty
days as follows:
(1) The assigned staff, in consultation with an assigned Associate Director/Unit Chief as
necessary, should evaluate the facts gathered during the MUI, using the factors listed
above, to determine whether, and to what extent, the investigation will have the potential
to address conduct that violates the federal securities laws.
(2) If it is determined that it is appropriate to proceed with the investigation, then the
assigned staff will request approval to convert the MUI to an investigation in the Hub by
completing an Investigation Opening Narrative and clicking “Convert.” The request will
be routed to the designated Associate Director/Unit Chief for consideration.
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(3) The Associate Director/Unit Chief should review the request promptly, and, if satisfied
that an investigation has the potential to address conduct that violates the federal
securities laws, approve the conversion of the MUI to an investigation in the Hub.
(4) If the assigned staff, in consultation with an assigned Associate Director/Unit Chief,
determines that the investigation does not have the potential to address conduct that
violates the federal securities laws, or there is another reason that the investigation would
be an inappropriate use of resources, then the assigned staff, in consultation with the
assigned Associate Director/Unit Chief, should close the MUI. To close the MUI, the
assigned staff should enter a closing narrative in the Hub explaining why the matter is
being closed and request that the assigned Case Management Specialist designate the
MUI as closed in the Hub.
Procedures for Opening an Investigation, Independent of a MUI:
In certain circumstances, it is appropriate to open an investigation without having opened
a MUI. As when opening a MUI, the staff should consult the Hub for related investigations. Staff
should also search the TCR System for related TCRs. If a related investigation or TCR is found,
the staff assigned to that investigation or TCR should be consulted. In addition, staff should
determine whether there are any open examinations of any of the entities or individuals
potentially involved in the new investigation.
To open an investigation, independent of a MUI:
•
Log into the Hub and select “Open a MUI/INV.”
•
Fill out the required and other applicable fields to request opening of an investigation,
including an Opening Narrative, Primary Classification, Origin, etc. Click “Submit.”
•
The request will be routed to the designated Associate Director/Unit Chief for
consideration.
•
The Associate Director/Unit Chief should review the request promptly, and, if satisfied
that the investigation has the potential to address conduct that violates the federal
securities laws, approve the opening of the investigation in the Hub.
•
Supervisors at the level of Associate Director or above will receive a weekly report of all
investigations opened independent of a MUI during the prior week.
2.2.3. Formal Orders of Investigation
The federal securities laws authorize the SEC, or any officer designated by the SEC, to
issue subpoenas requiring a witness to provide documents and testimony under oath. See Section
19(c) of the Securities Act of 1933 (“Securities Act”), Section 21(b) of the Exchange Act,
Section 209(b) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 42(b) of
the Investment Company Act. The Commission designates members of the staff to act as officers
of the Commission in an investigation by issuing a Formal Order of Investigation (“Formal
Order”).
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The staff may request that the Commission issue a Formal Order in an investigation to
determine whether a violation of the federal securities laws may have occurred or may be
occurring. As such, the Formal Order does not represent a determination that any violations have
occurred and is more properly viewed as an early step in an investigation rather than the
conclusion of one.
The Formal Order serves two important functions. First, it generally describes the nature
of the investigation that has been authorized. Second, it designates specific staff members to act
as officers for the purposes of the investigation and empowers them to administer oaths and
affirmations, subpoena witnesses, compel their attendance, take evidence, and require the
production of documents and other materials. Attorneys and non-attorneys, such as staff
accountants, analysts, and investigators, may be designated as officers and empowered to take
testimony and issue subpoenas.
Investigative proceedings are nonpublic unless otherwise ordered by the Commission.
2.2.3.1. Formal Order Process
Basics:
The staff should first convert the relevant MUI to an investigation in the Hub if the staff
has not done so already. A Formal Order can only be issued in an investigation.
To seek a Formal Order in an investigation, the staff should prepare and submit a memo
describing the investigation and need for a Formal Order, along with a proposed Formal Order,
for review by the Division’s Office of the Director. The memo should succinctly describe the
relevant conduct, along with the potential violations of relevant laws, rules, or regulations at
issue in the investigation. Once reviewed and approved by the Office of the Director, the staff
should submit the memo and proposed Formal Order to the Commission. If approved by the
Commission, the Formal Order will be issued by the Office of the Secretary (“OS”).
Considerations:
When considering whether to seek issuance of a Formal Order, the staff should assess a
variety of factors, including, but not limited to, the need to subpoena witnesses for testimony,
subpoena documents and communications from entities and people who may not otherwise be
obligated to preserve and produce relevant materials to the staff, and enforce deadlines for the
expeditious production of relevant materials to the staff.
Staff may determine that it is important to communicate to the recipients of investigative
requests that the absence or presence of a Formal Order does not signify anything, in and of
itself, about the staff’s views on the matter under investigation.
2.2.3.2. Supplementing a Formal Order
Once a Formal Order has been issued, the Director of the Division (“Director”) has
delegated authority to issue supplemental orders adding or removing staff members as officers
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empowered to act pursuant to the order or removing previously named staff. See 17 C.F.R.
§ 200.30-4(a)(1) and (4).
2.2.3.3. Requests for a Copy of the Formal Order
Basics:
Rule 7(a) of the SEC’s Rules Relating to Investigations provides that a person who is
compelled or requested to furnish documentary evidence or testimony at a formal investigative
proceeding shall, upon request, be shown the Formal Order. However, a copy of the Formal
Order shall not be furnished to that person for retention without the express approval of a
Division official at the level of Assistant Director or higher. See 17 C.F.R. § 203.7(a).
Procedures for Responding to a Request for a Copy of the Formal Order:
When a member of the staff receives a request for a copy of the Formal Order, staff
should keep in mind the following procedures when determining whether the request should be
granted:
•
The request must be made by a person or counsel for a person who has been asked to
furnish documents or testimony in the investigation for which the person is requesting a
copy of the Formal Order.
•
The request for a copy of the Formal Order must be in writing. A copy of the Formal
Order may not be provided on the basis of an oral request. Therefore, staff should advise
the person to submit the request in writing to the Assistant Director assigned to the
investigation.
•
The written request for the Formal Order must include representations to show that
approval of the request is “consistent both with the protection of privacy of persons
involved in the investigation and with the unimpeded conduct of the investigation.” 17
C.F.R. § 203.7(a).
•
Only an Assistant Director or higher-level Division official may approve a written
request for a copy of a Formal Order. There may be circumstances that warrant denial of
the request, such as when there is evidence that the requester intends to use the Formal
Order for purposes outside the representation in the matter, or does not intend to keep the
Formal Order confidential. See 17 C.F.R. § 203.7(a) (“Such approval shall not be given
unless the person granting such approval, in his or her discretion, is satisfied that there
exist reasons consistent both with the protection of privacy of persons involved in the
investigation and with the unimpeded conduct of the investigation.”).
Even if a request for a copy of the Formal Order is denied, a requesting person who is
compelled or requested to furnish documentary evidence or testimony at a formal investigative
proceeding is still entitled to review the Formal Order without retaining a copy. 17 C.F.R.
§ 203.7(a).
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2.2.4. Ranking Investigations and Allocating Resources
Introduction:
The Division handles a number of investigations that vary in their size, complexity, and
programmatic importance. Devoting appropriate resources to investigations that are more
significant will help ensure high quality investigations and maximize desired program outcomes.
To make effective decisions regarding resources and priorities, Associate Directors/Unit Chiefs
are required to designate their “Top 5” priority matters, based on potential programmatic
significance, on each of their dockets. Associate Directors/Unit Chiefs will review and, as
appropriate, update their Top 5 lists on a quarterly basis.
Considerations When Ranking an Investigation:
In compiling their Top 5 lists, Associate Directors/Unit Chiefs should consider the
following criteria:
•
Whether the matter involves potentially widespread and extensive harm to investors;
•
Whether the matter presents an opportunity to send a particularly strong and effective
message of deterrence, including with respect to emergent issues in the market, or
involves matters that present limited opportunities to detect wrongdoing and thus to deter
misconduct;
•
Whether the matter involves particularly egregious or extensive misconduct;
•
Whether the matter involves misconduct by persons occupying positions of substantial
authority or responsibility, or who owe fiduciary or other enhanced duties and obligations
to a broad group of investors or others;
•
Whether the matter involves potential wrongdoing as clearly prohibited under newly
enacted legislation or regulatory rules;
•
Whether the potential misconduct occurred in connection with products, markets,
transactions, or practices that pose particularly significant risks for investors or involve a
systemically important sector of the market;
•
Whether the matter involves a substantial number of potential harmed investors and/or
particularly vulnerable harmed investors;
•
Whether the matter involves products, markets, transactions, or practices that the
Division has identified as priority areas; and
•
Whether the matter provides an opportunity to pursue priority interests shared by other
law enforcement agencies on a coordinated basis.
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Although determining the overall significance of an investigation should take the above
factors into consideration, the ranking of an investigation is a judgment to be made based on all
of the facts and circumstances known to date.
Considerations When Allocating Resources Among Investigations:
Allocating resources among investigations requires that Associate Directors, Unit Chiefs,
Deputy Unit Chiefs, and Assistant Directors engage in active supervision of staff, exercising
flexibility and creativity in that process. Associate and Assistant Directors and Unit Chiefs will
normally assign staff to more than one investigation at a time, specifying the priorities of
competing investigations so that staff members may plan their work.
Priorities among investigations may change rapidly depending on the stage of the
investigation. For example, two significant investigations may compete for resources, but staff
may be assigned to review and analyze evidence in one investigation while waiting for
documents to be produced in another investigation. Therefore, when allocating resources among
competing investigations, Associate and Assistant Directors and Unit Chiefs should take into
account not only the significance of the investigation, but the phase of the investigation,
considering, among other things:
•
Whether there is an urgent need to file an enforcement action, such as an investigation
into ongoing fraud or conduct that poses a threat of imminent harm to investors;
•
The volume of evidence that the staff must collect and review, such as trading records,
corporate documents, and electronic communications;
•
The level of analysis required for complex data and evidence, such as auditor
workpapers, trading records, or financial data;
•
The number and locations of harmed investors and other witnesses, and the scheduling of
testimony;
•
Travel requirements;
•
Timelines for preparing internal memoranda, evaluation of the matter by relevant SEC
offices and divisions, the Wells notice process, and the Commission’s consideration of
recommendations from the Division; and
•
Coordination with and timing considerations of other state and federal authorities.
For investigations included in their Top 5 lists, Associate Directors/Unit Chiefs should
consider assigning a minimum of two staff attorneys to ensure that there is continuity on the
investigation in the event of absences or staff transitions. In addition, the assignment of at least
two attorneys may contribute to a collaborative approach that improves the quality of the
investigation and promotes accountability. Additional attorneys may be assigned depending on
the phase and needs of the investigation.
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2.2.5. Quarterly Reviews of Investigations and Status Updates
Introduction:
The Division has established a practice of conducting quarterly case reviews that is
designed to facilitate communication among staff members and enhance the quality and
effectiveness of our investigations. Quarterly reviews are not intended to substitute for the
ongoing case meetings and discussions between Associate Directors, Unit Chiefs, Assistant
Directors and other staff members that take place in the ordinary course of investigations.
Quarterly Case Review Meetings by Assistant Directors:
Each Assistant Director will conduct a quarterly case review meeting with each staff
member under the Assistant Director’s supervision. Unless a decision has been made not to
prepare an investigative plan, Assistant Directors should instruct staff members under their
supervision to prepare, for each active matter, a written investigative plan either in the Hub or as
a separate standalone document to assist with case tracking and planning. The investigative plan
should be shared with team members and periodically revised, and should provide a vehicle for
productive conversations during quarterly reviews.
The purpose of the quarterly review is to ensure that ongoing investigations are
proceeding on course, to revise investigative plans as appropriate and to provide an opportunity
for dialogue on major open issues. Prior to each quarterly review, the Assistant Director should
confirm that staff members under their supervision have updated the Hub to reflect the current
status of each ongoing investigation in their inventory. Suggested topics to cover during
quarterly case review meetings include:
•
Progress in meeting investigative goals and objectives for each investigation
assigned to the staff member;
•
Identification of major issues in open investigations that need further attention
or discussion;
•
Whether target deadlines are being met, and identification of causes for any
delay and development of a plan to address that delay and move the
investigation toward resolution;
•
Allocation of staff members’ time among assigned investigative matters,
matters in litigation, and other responsibilities;
•
Engagement with potentially harmed investors;
•
Coordination issues with state and federal authorities; and
•
Any other topics that the Assistant Director or staff member would like to raise
for discussion.
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Quarterly Case Review Meetings Between Assistant Directors and Associate Directors or Unit
Chiefs:
Each Associate Director/Unit Chief should conduct a quarterly review meeting with each
Assistant Director on ongoing investigations under the Associate Director/Unit Chief’s direct
supervision. These reviews may be combined with the above-referenced reviews involving the
Assistant Director and staff members. Suggested topics to cover during these meetings include
the status of significant ongoing investigations or investigations at significant inflection points, a
discussion of any major issues presented, estimated completion time of investigations, and the
need for any assistance or additional resources to advance investigations to completion.
Periodic Case Review Meetings Between Associate Directors/Unit Chiefs and Director/Deputy
Directors:
In their discretion, the Director and/or appropriate Deputy Director may conduct periodic
review meetings with each Associate Director/Unit Chief. Topics to be covered may include the
status of significant matters, any major issues presented, coordination with other law
enforcement agencies, estimated completion time of investigations, and the need for any
assistance or resources to advance investigations to completion.
Processes, Confirmation, and Reporting:
For each quarterly review period, Associate Directors/Unit Chiefs and/or Assistant
Directors should confirm that quarterly reviews for each applicable ongoing investigation have
taken place. This should be done in a manner determined by the Office of the Director.
Ongoing Updates to the Hub System:
•
The assigned staff should review and periodically update in the Hub the status of an
ongoing investigation.
•
The Executive Summary in the Hub should summarize what the matter is about, the
activity to date, current status, and plans for the upcoming period. For example, the staff
might note that they are engaging with harmed investors, taking testimony, or conducting
settlement negotiations, or that a potential party to an enforcement action has been
indicted.
•
Any inaccurate or out-of-date information should be corrected.
2.3.
The Wells Process
The Commission’s Wells Rule:
Rule 5(c) of the SEC’s Rules on Informal and Other Procedures states that “[p]ersons
who become involved in . . . investigations may . . . submit a written statement to the
Commission setting forth their interests and position in regard to the subject matter of the
investigation.” (a “Wells submission”). The rule further provides that, “[u]pon request, the staff,
in its discretion, may advise such persons of the general nature of the investigation, including the
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indicated violations as they pertain to them, and the amount of time that may be available for
preparing and submitting a statement prior to the presentation of a staff recommendation to the
Commission for the commencement of an administrative or injunction proceeding.” (a “Wells
notice”) 17 C.F.R. § 202.5(c).
The practice reflected in Rule 5(c) evolved from recommendations made by an advisory
committee chaired by John Wells. The objective of the practice is, as the Commission stated in
its 1972 release (the “Wells Release”), for the Commission “not only to be informed of the
findings made by its staff but also, where practicable and appropriate, to have before it the
position of persons under investigation at the time it is asked to consider enforcement action.”
See “Procedures Relating to the Commencement of Enforcement Proceedings and Termination
of Staff Investigations,” Securities Act of 1933 Release No. 5310 (Sept. 27, 1972). As the
Commission stated in the Wells Release, “[t]he Commission, however, is also conscious of its
responsibility to protect the public interest. It cannot place itself in a position where, as a result
of the establishment of formal procedural requirements, it would lose its ability to respond to
violative activities in a timely fashion.” The Commission made clear in the Wells Release that
the practice is “informal” and involves the exercise of discretion by the staff. However, the
expectation is that such staff discretion will be exercised with the goals of the Wells Release in
mind.
Providing a Wells Notice:
The staff is required to obtain an Associate Director’s or Unit Chief’s approval and then
approval from the Office of the Director before issuing a Wells notice or determining to
recommend an enforcement action without issuing a Wells notice.
A Wells notice will be provided in most cases in which the staff makes a preliminary
determination to recommend that the Commission file an action or institute a proceeding.
However, as the Commission explained in the Wells Release, it has a “responsibility to protect
the public interest” and “is often called upon to act under circumstances which require immediate
action if the interests of investors or the public interest are to be protected.” In assessing whether
or when to provide a Wells notice, staff should consider all of the relevant facts and
circumstances, including but not limited to:
•
Whether the investigation is substantially complete as to the recipient of the Wells notice;
•
Whether immediate enforcement action is necessary for the protection of investors. If
prompt enforcement action is necessary to protect investors, providing a Wells notice and
waiting for a submission may not be practical (for example, a recommendation to file an
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emergency action requesting a temporary restraining order and asset freeze to stop an
ongoing fraud);
•
Whether providing a Wells notice may alert potential defendants to a possible asset
freeze or otherwise put at risk investor funds that the recommendation is intended to
protect; and
•
Whether there is a parallel covert criminal investigation that may be adversely affected
by providing a Wells notice.
The Wells Notice:
A Wells notice is a communication from the staff to a person involved in an investigation
that: (1) informs the person the staff has made a preliminary determination to recommend that
the Commission file an action or institute a proceeding against them; (2) identifies the securities
law violations that the staff has preliminarily determined to include in the recommendation; and
(3) provides notice that the person may make a submission to the Division and the Commission
concerning the proposed recommendation.
Recipients of a Wells notice should recognize that such a notice is provided only after the
staff, including an Associate Director/Unit Chief, have thoroughly evaluated and discussed the
evidence developed during the investigation and the proposed charges, remedies, and sanctions.
As a practical matter, most recipients of a Wells notice have been aware of the investigation for
some time and, whether through news articles alleging misconduct, document requests (on a
voluntary basis or subject to a subpoena), or interviews by staff (voluntary or subject to a
subpoena) both know the area or areas of interest and have had multiple interactions and
communications with staff prior to the Wells notice.
The Content of the Wells Notice:
A Wells notice should be in writing when possible and follow the general guidance
below. The staff should, when feasible, give advance notice of the intention to send a written
Wells notice to the recipient or the recipient’s counsel orally, such as by telephone (a “Wells
call”), and should promptly follow the Wells call with a written Wells notice. As in a Wells
notice, the substance of a Wells call should follow the general guidance below.
The written Wells notice and Wells call should:
•
Identify the specific charges and type(s) of relief the staff has made a preliminary
determination to recommend to the Commission;
•
Inform the recipient of the Wells notice of the opportunity to provide a voluntary
statement in writing or via video format, setting forth the recipient’s position with respect
to the proposed recommendation, which in the recipient’s discretion may include
arguments why the Commission should not bring an action or why proposed charges or
remedies should not be pursued, or bring any relevant facts to the Commission’s attention
in connection with its consideration of the matter;
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•
Set reasonable limitations on the length of any submission made by the recipient
(typically, written submissions should be limited to 40 pages, not including exhibits, and
video submissions should not exceed 12 minutes), including, in the absence of timing
constraints, a four-week time period allowed for the recipient to provide a Wells
submission. Requests for extensions of time should be made in writing, clearly state the
basis for the request, and be directed to the appropriate Assistant Director. The staff may
determine not to grant a request for an extension of time for good cause, including but not
limited to the bases for and/or the length of the extension requested;
•
Advise the recipient that any Wells submission should be addressed to the appropriate
Assistant Director;
•
Inform the recipient that any Wells submission may be used by the Commission in any
action or proceeding that it brings and may be discoverable by third parties in accordance
with applicable law;
•
Include a link to (or attach a copy of) the Wells Release, which is posted on the
Commission’s website at sec.gov/divisions/enforce/wells-release.pdf; and
•
Include a link to (or attach a copy of) the SEC’s “Supplemental Information for Persons
Requested to Supply Information Voluntarily or Directed to Supply Information Pursuant
to a Commission Subpoena,” which is posted on the Commission’s website at sec.gov/
about/forms/sec1662.pdf. (“SEC Form 1662”).
As part of the Wells process, staff should inform the recipient of the Wells notice of the
salient, probative evidence that the staff has gathered or received, which the staff may have or
should have reason to believe may not be known to the recipient (subject to confidentiality or
other constraints for sharing of information).
Acceptance of a Wells Submission:
As discussed above, a Wells notice informs a recipient that the recipient may make a
voluntary submission to the Commission regarding the staff’s proposed recommendation.
However, there are limited circumstances in which the staff may reject a Wells submission:
•
If the Wells submission exceeds the limitations on length specified in the Wells notice,
the staff may reject the submission;
•
If the Wells submission is submitted after the deadline, including any extensions of time
granted by the staff, the staff may reject the submission. Requests for extensions of time
should be made in writing, clearly state the basis for the request, and be directed to the
appropriate Assistant Director. The staff may determine not to grant a request for an
extension of time for good cause, including but not limited to the bases for and/or the
length of the extension requested;
•
The staff will reject a Wells submission if the person making the submission seeks to
limit (including by reserving the right to limit) either its admissibility under Federal Rule
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of Evidence 408 or the Commission’s ability to use the submission for the purposes
described in SEC Form 1662; or
•
The staff will reject a Wells submission if the submission contains or discusses a
settlement offer. Offers of settlement may not be combined with, or included in, Wells
submissions, and instead must be made in a separate document.
Wells submissions that are accepted by the staff will be provided to the Commission
along with any recommendation from the staff for an enforcement action against the recipient of
the Wells notice. Wells submissions that are rejected on one of the bases above generally will not
be provided to the Commission, and the basis for rejecting the Wells submission will be provided
to the Commission.
Accepted Wells submissions are most helpful when they focus on disputed factual or
legal issues, or raise significant legal risks or policy or programmatic concerns. In general,
accepted Wells submissions that are helpful:
•
Accurately reflect the evidence, legal issues, and precedent;
•
Focus on disputed factual or legal issues;
•
Acknowledge and address evidence and precedent in support of the staff’s position, while
highlighting exculpatory evidence and adverse precedent;
•
Address legal elements required to establish violations and explain why the evidence
would not satisfy those elements;
•
Address litigation risks or policy or programmatic concerns that would arise if the staff
recommended the charges or sought the relief in the Wells notice;
•
Provide documents or citations to the investigative record or legal precedent to support
key factual or legal arguments;
•
If applicable, discuss the factors described in the “Report of Investigation Pursuant to
Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the
Relationship of Cooperation to Agency Enforcement Decisions,” Securities Exchange
Act Release No. 44969 (Oct. 23, 2001) (“Seaboard Report”). See Section 6.1.2.; or
•
Finally, where charges are particularly complex or technical, an expert report may add to
the effectiveness of a Wells submission.
The Post-Notice Wells Process:
•
Recipients of Wells notices occasionally request to review portions of the staff’s
investigative file. In the interests of increasing transparency and efficiency of the
investigative process and the Commission’s deliberations, the staff should be
forthcoming about the content of the investigative file. On a case-by-case basis, the staff
should make reasonable efforts to allow the recipient of the Wells notice to review
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relevant portions of the investigative file that are not privileged, do not implicate
Whistleblower information, do not contain BSA information, and are not subject to other
confidentiality restrictions or statutes. In considering a request for access to portions of
the staff’s investigative file, the staff should keep in mind, among other things:
o Whether access to portions of the file would be a productive way for both the staff
and the recipient of the Wells notice to assess the strength of the evidence that forms
the basis for the staff’s proposed recommendation;
o Whether access to portions of the file would facilitate the ability of the recipient of
the Wells notice to respond meaningfully to the staff’s proposed recommendation;
o Whether the prospective defendant or respondent was unresponsive to staff requests,
failed to cooperate, or otherwise refused to provide information during the
investigation; and
o The stage of the investigation with regard to other persons, witnesses, or harmed
investors, including whether certain witnesses have yet to provide testimony, and
whether there is a parallel criminal or regulatory investigation or proceeding that may
be adversely affected by granting access to the staff’s investigative file.
Recipients of Wells notices may request meetings with the staff to discuss the substance
of the staff’s proposed recommendation after their Wells submission. Requests should be
addressed to the staff assigned to the investigation. Assigned staff should consult with
appropriate supervisors if a request is made. Requests for a post-Wells notice meeting are
typically granted, but a Wells recipient generally will not be accorded more than one
post-Wells notice meeting.
•
o A post-Wells notice meeting should be scheduled to occur within a reasonable time
after the recipient makes a Wells submission, but in any event no later than four
weeks after receipt of the Wells submission.
o The post-Wells notice meeting will include a member of senior leadership at the
Associate Director level or above.
The staff may engage in appropriate settlement discussions with the recipient of the
Wells notice. However, the staff may choose to inform the recipient that the staff will not
engage in ongoing settlement discussions that would delay timely consideration of the
matter by the Commission.
•
Further Information:
Staff should consult with OCC concerning any questions relating to the Wells process.
2.4.
White Papers and Other Materials (excluding Wells Submissions)
During an investigation, persons may produce to the staff, on a voluntary basis,
substantive materials other than in response to Wells notices, including, for example, white
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papers, legal memos, or letter briefs (collectively “White Papers”). The Commission may use the
information contained in a White Paper as an admission, or in any other manner permitted by the
Federal Rules of Evidence, or for any of the “Routine Uses of Information” described in SEC
Form 1662. White Papers also may be discoverable by third parties in accordance with
applicable law. White Papers that are accepted by the staff will generally be provided to the
Commission along with any recommendation from the staff for an enforcement action against
the submitting party.
Staff may reject a White Paper if:
•
The person producing the White Paper seeks to limit (including by reserving the right to
limit) either its admissibility under Federal Rule of Evidence 408 or the Commission’s
ability to use the White Paper for the purposes described in SEC Form 1662;
•
The White Paper contains or discusses a settlement offer. Offers of settlement should not
be included in White Papers that also address other topics, and instead, must be made in a
separate document; or
•
The White Paper exceeds 40 pages in length, not including exhibits.
Further Information:
Staff should consult with OCC concerning any questions relating to acceptance of White
Papers. See Section 2.3. for information relating to Wells submissions.
•
2.5.
Enforcement Recommendations
2.5.1. Relief
The Division may recommend, and the Commission may seek, various types of relief in
enforcement actions, including injunctive relief, payment of ill-gotten gains (called
disgorgement) and prejudgment interest thereon, civil money penalties, bars or suspensions from
future involvement in the securities industry, and/or other prospective or prophylactic relief.
Considerations:
•
The Division may recommend that the Commission forgo seeking civil penalties, or seek
reduced civil penalties, against an entity in consideration of any self-policing, selfreporting, remediation, and cooperation by the entity. See Seaboard Report, Section
6.1.2., and Section 6.2.5. The Division may also recommend that the Commission forgo,
or seek reduced civil penalties, against individuals. See Section 6.1.1.
•
The Commission has adopted a small entity enforcement penalty reduction policy in
compliance with Section 223 of the Small Business Regulatory Enforcement Fairness
Act. See 17 C.F.R. § 202.9.
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2.5.2. The Action Memo Process
The filing or institution of any enforcement action must be authorized by the
Commission. In addition, while the Commission has delegated certain authority to the Director
or the OS, most settlements of previously authorized enforcement actions, as well as certain
aspects of civil litigation, among other things, require Commission authorization. Staff will
consult with the supervising Associate Director/Unit Chief, OCC, and, if appropriate, OGC,
before taking action to ensure that proper authorization is requested.
Commission authorization is sought by submitting an action memo to the Commission
that sets forth a Division recommendation. The action memo provides a comprehensive and
objective explanation of the recommendation’s factual and legal foundations and objectively
addresses significant evidentiary issues, litigation risks, and the primary arguments in any Wells
submissions and White Papers that were accepted. An action memo will also detail whether
Wells notices were provided, an explanation for any Wells notices that were not provided, and an
explanation for any Wells submissions or White Papers that were rejected.
Before an action memo is submitted to the Commission, OCC, OGC, and other relevant
SEC divisions or offices are provided an opportunity to review and comment on the proposed
recommendation. The staff must also receive approval from the supervising Associate
Director/Unit Chief, as well as approval from the Office of the Director prior to submitting an
action memo to the Commission.
2.5.2.1. Simultaneous Consideration of Enforcement Settlement
Recommendations and Waiver Requests
In September 2025, the Commission restored its prior practice of permitting a settling
entity to request that the Commission simultaneously consider an offer of settlement and any
related request for Commission waivers from automatic disqualifications and other collateral
consequences that result from the underlying enforcement action. In those matters, staff will
present for the Commission’s simultaneous consideration both the offer of settlement and the
waiver request, along with recommendation(s) from the relevant Division(s). If the Commission
accepts the settlement offer, but rejects the waiver request, Enforcement and the relevant
Division staff will promptly notify the prospective defendant or respondent and will request a
decision from the prospective defendant or respondent (typically within five business days) about
moving forward with that portion of the settlement offer accepted by the Commission. If the
prospective defendant or respondent does not promptly notify the staff of its agreement to move
forward with the portion of the settlement offer put forward to the Commission or otherwise
withdraws its offer of settlement, the staff will determine whether to negotiate and recommend a
new settlement or recommend a litigated proceeding.
2.5.3. Commission Authorization
After the Division presents a recommendation to the Commission, the Commission will
consider the recommendation and vote on whether to approve or reject the recommendation. The
Commission’s consideration of the recommendation takes place in a closed Commission
meeting, by seriatim consideration, or by Duty Officer consideration.
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Before any recommendation is considered by the Commission, the staff must identify the
parties and relevant witnesses to the proposed enforcement action and their counsel, so that the
Commissioners may determine whether to recuse themselves from considering the matter.
2.5.3.1. Closed Meetings
The Commission considers and votes on some of the Division’s recommendations in
“closed meetings,” which are meetings that the Commission, pursuant to exemptions in the
Government in the Sunshine Act (“Sunshine Act”), 5 U.S.C. § 552b, has voted to close to the
public. For each matter which will be considered in a closed meeting, the staff prepares a
Sunshine Act certification, to be signed by the General Counsel of the Commission or the
General Counsel’s designee, certifying that the matter falls within one of the exemptions
provided by the Sunshine Act and the Commission’s Sunshine Act regulations, 17 C.F.R.
§ 200.402(a). Generally, recommendations that are eligible to be considered at a closed
Commission meeting include recommendations to institute, modify, or settle an enforcement
action or to consider an offer of settlement or other proposed disposition of an enforcement
action.
At a closed meeting, staff orally present a recommendation to the Commission and
answer any questions before the Commission votes on the recommendation. As necessary and
appropriate, other divisions and offices may be represented at the meeting to discuss substantive
issues of securities law and to advise the Commission on aspects of the recommendation. The
Office of General Counsel is always present at such closed meetings and may articulate views
pertinent to the Commission’s deliberation.
Except in unusual circumstances, the Commissioners receive a copy of the Division’s
written recommendation and any Wells submissions and White Papers that were accepted prior
to the closed Commission meeting. Staff should be prepared to answer the questions that are
likely to be asked by the Commissioners and should contact the Commissioners’ offices prior to
the meeting to learn of any particular concerns or questions about the recommendation,
consistent with the preferences of the Commissioners’ offices.
2.5.3.2. Seriatim Consideration
If the Chairman of the Commission (“Chairman”) or the Duty Officer (see Section
2.5.3.3.) determines that consideration of a recommendation at a closed meeting is “unnecessary
in light of the nature of the matter, impracticable, or contrary to the requirements of agency
business,” but that the recommendation should be the subject of a vote by the entire
Commission, the recommendation may be acted upon separately by each Commissioner in turn –
in other words, by seriatim consideration. Seriatim consideration may be used when the date of a
closed meeting is too distant to meet the timing needs of a particular recommendation, or the
matter is routine. Matters that urgently require action before the next available closed meeting,
but raise issues sufficient to warrant consideration by the entire Commission, may circulate on an
expedited basis for rapid seriatim consideration. Staff should consult OCC and the OS for the
specific procedures required for submitting seriatim items.
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Each Commissioner will record a disposition on the recommendation electronically. Even
if a majority of the Commission enters a vote approving a seriatim recommendation, the matter is
not authorized until each Commissioner has either recorded a vote or entered another type of
disposition such as not participating, recused, or abstained. Seriatim circulations may be
withdrawn and instead placed on a closed Commission meeting agenda for further consideration,
with the timing of subsequent consideration determined by the Chairman. At the request of any
one Commissioner, a matter circulated for seriatim voting will be withdrawn from seriatim
consideration and scheduled instead for joint Commission deliberation. 17 C.F.R. § 200.42(b).
2.5.3.3. Duty Officer Consideration
The Commission delegates one of its members (other than the Chairman) as the Duty
Officer on a rotating basis, empowering the Duty Officer to act, in that Commissioner’s
discretion, on behalf of the entire Commission when urgent action is required before a
recommendation can be considered at a closed meeting or by seriatim. 17 C.F.R. § 200.43.
Actions taken by the Duty Officer are deemed to be actions of the Commission. All decisions of
the Duty Officer subsequently circulate among the other Commissioners for affirmation.
Generally, requests for Duty Officer consideration should result from an unavoidable and
pressing external need. Typically, Duty Officer consideration is sought when there is risk of
imminent potential harm to investors, and the Division intends to recommend an emergency
enforcement action, such as an immediate trading suspension or a civil action for a temporary
restraining order or asset freeze. Duty Officer consideration should, as a general matter, not be
sought where an enforcement recommendation presents close legal issues regarding jurisdiction
or liability. Additionally, Duty Officer consideration is generally not an appropriate means to
obtain approval of a proposed settlement. Staff should consult with OCC and the OS to
determine whether Duty Officer consideration might be appropriate.
2.5.4. Delegations of Commission Authority
The Commission has delegated certain limited aspects of its authority to the various
divisions and offices, including delegations to the Director to, among other things, issue
supplemental Formal Orders, submit witness immunity order requests, and file subpoena
enforcement actions, and delegations to the OS to issue certain orders in administrative
proceedings. 17 C.F.R. § 200.30-4.
Supplemental Formal Orders:
To expedite the investigative process, the Commission has delegated authority to the
Director to issue supplemental Formal Orders adding or removing staff members as officers
empowered to act pursuant to a previously issued Formal Order or removing previously named
staff. 17 C.F.R. § 200.30-4(a)(1) and (4).
Witness Immunity Order Requests:
To improve the effectiveness and efficiency of its investigations, the Commission has
delegated authority to the Director to submit witness immunity order requests to the DOJ with
respect to individuals who have provided or have the potential to provide substantial assistance
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in the Commission’s investigations and related enforcement actions. 17 C.F.R. § 200.304(a)(14).
Subpoena Enforcement Actions:
If a person or entity refuses to comply with a subpoena issued by the staff pursuant to a
Formal Order, the Commission may file a subpoena enforcement action in district court, seeking
an order compelling compliance. See Section 21(c) of the Exchange Act, Section 22(b) of the
Securities Act, Section 209(c) of the Advisers Act, and Section 42(c) of the Investment Company
Act. The Commission has delegated the authority to institute such an action to the Director. 17
C.F.R. § 200.30-4(10).
2.6.
Closing an Investigation
2.6.1. Policies and Procedures
Basics:
Properly closing an investigation is an important part of managing investigations and
making the best use of the Division’s resources. The staff is encouraged to close an investigation
as soon as it becomes apparent that there is no violation of applicable law or that circumstances
indicate that no enforcement action will be recommended. Staff and their supervisors are
encouraged to make this decision when appropriate so that resources can be redirected to other
investigations. The appropriate Associate Director/Unit Chief is responsible for approving a
closing recommendation.
Generally, factors that should be considered in deciding whether to close an investigation
include:
•
The seriousness of the conduct and potential violations of the federal securities laws;
•
The staff resources available to pursue the investigation;
•
The sufficiency and strength of the evidence;
•
The extent of potential investor harm if an enforcement action is not commenced;
•
The age of the conduct underlying the potential violations; and
•
Whether the conduct is more appropriately addressed by another U.S. regulator or law
enforcement authority, a foreign regulator, or through private litigation.
The presence or absence of U.S. investors should be a factor considered but should not, in
itself, control whether to close an investigation.
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Considerations:
Once a decision has been made to close an investigation, there are several steps that the
staff must take. These include:
•
Determine whether any current litigation hold notices apply to the case files.
•
Prepare a closing recommendation. The closing recommendation is a short memorandum
and serves as the basic historical record summarizing what the staff did in the
investigation, any enforcement action brought, and the basis for closing the investigation.
•
Prepare and send appropriate termination notices. See Section 2.6.2.
An investigation that has resulted in an enforcement action cannot be closed until all
enforcement actions in the case are complete. This requires (1) the Commission has approved
dismissal of the action or (2) there is a final judgment or Commission order and all ordered
monetary relief is accounted for. Accounting for monetary relief means:
•
All disgorgement and civil penalties have been paid in full or the Commission has
authorized the staff to terminate collection of any unpaid amounts;
•
All funds collected have either been distributed to harmed investors or paid into the
Treasury; and
•
All money has been properly recorded.
Further, an investigation cannot be closed if any debts of a defendant or respondent are
the subject of collection activity by the Commission or on the Commission’s behalf (e.g., by the
Department of the Treasury’s Financial Management Service or the DOJ), or if any funds are
being held pending final distribution.
Once the investigation is closed, the files should be prepared for proper disposition.
Electronic records obtained or generated during the investigation will also require proper
disposition. In addition, the Commission’s Freedom of Information Act (“FOIA”) Office will
need to be consulted. If the FOIA Office determines that documents (non-record materials)
should be retained, the office will advise the staff. For example, the staff may be asked to include
documents subject to a pending FOIA request in the files even though the documents would
otherwise not have to be retained after the case is closed.
Further Information:
Staff should contact OCC with questions about closing an investigation.
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2.6.2. Termination Notices
Basics:
The Division’s general policy is to notify individuals and entities at the earliest
appropriate time after the staff has determined not to recommend to the Commission an
enforcement action against them. This notification takes the form of a termination letter. The
staff should continuously review the status of open investigations and send a termination letter
when appropriate. As noted below, notwithstanding the general policy, the staff may, with proper
supervisory approval, delay the issuance of a termination letter or determine not to send a
termination letter in limited circumstances.
The staff may send termination letters to individuals or entities before the investigation is
closed and before a determination has been made as to every potential defendant or respondent.
Except as noted herein, assuming the staff has decided that no enforcement action will be
recommended against that individual or entity, a termination letter should typically be sent to any
individual or entity who:
•
Is identified in the caption of the Formal Order, if a Formal Order was issued in the
investigation;
•
Submitted or was solicited to submit a Wells submission;
•
Asks for such a notice; or
•
To the staff’s knowledge, reasonably believes that the staff was considering
recommending an enforcement action against them.
The Director or appropriate Deputy Director, Unit Chief (or Deputy Unit Chief, if a
Senior Officer), or Associate Director must approve any decision not to send a termination letter
to persons or entities that fall into any of the above categories. The termination letter should be
signed by staff at the Assistant Director level or above and reference the Commission’s Wells
Release, which authorized termination notices. As noted in the Commission’s Wells Release, the
provision of a termination notice “must in no way be construed as indicating that the party has
been exonerated or that no action may ultimately result from the staff’s investigation of that
particular matter. All that such a communication means is that the staff has completed its
investigation and that at that time no enforcement action has been recommended to the
Commission.”
Considerations:
Staff should also consider sending termination letters to companies that provided
information concerning their securities in connection with insider trading investigations.
Staff are also encouraged to send a termination letter to any party who made significant
productions in an investigation to enable that party to determine that the matter has been closed.
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3.
A Guide to Investigative Practices
3.1.
Special Considerations
3.1.1. External Communications Between Senior Enforcement Officials and
Persons Outside the SEC Who Are Involved in Investigations
Introduction:
The purpose of these best practices is to ensure that external communications between
senior enforcement officials (at the Associate Director/Unit Chief level and above) and persons
outside the SEC are handled with the appropriate care, sensitivity, and transparency. These best
practices concern only external communications that: (1) are material; (2) relate to ongoing,
active investigations; and (3) occur between senior enforcement officials and persons outside the
SEC who are involved with investigations (other than persons at agencies or organizations with
which the SEC cooperates).
Outside persons involved in investigations, such as defense attorneys, seeking to contact
the staff of the Division, including senior officials (at the Associate Director/Unit Chief level and
above), should in the first instance seek to schedule any such discussions through an appropriate
staff attorney or Assistant Director assigned to the matter.
Senior officials in the Division who receive direct requests for discussions from outside
parties should adhere to the below guidelines on best practices. These guidelines are in place to
provide consistency to persons involved in investigations, and to continue to maintain the
Division’s impartiality and history of handling investigations with integrity both in appearance
and in fact. Underlying these best practices is the recognition of the importance of the
investigative team’s responsibility to gather evidence, raise questions, and manage relationships
with outside persons during an investigation. The best practices reflect the practical realities of
the teamwork required by all staff involved in an investigation (from staff attorney to the most
senior official), while providing the flexibility necessary to engage in communications in
situations and under circumstances that may present unforeseen variables.
Best Practices:
These best practices should be applied to all situations in which senior officials engage in
material communications with persons outside the SEC relating to ongoing, active investigations:
•
Generally, senior officials should include other staff members on the investigative team
when engaging in material external communications and should avoid initiating
communications without the knowledge or participation of at least one of the other
investigative team members. However, “participation” could include either having
another staff member present during the communications or having a staff member
involved in preparing the senior official for the communications. For example, if the
investigative team believes that a communication could be more productive as a one-onone communication between the senior official and the outside person, members of the
team could participate by discussing the case with the senior official prior to the meeting,
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or by assisting in preparing talking points for the senior official to use during the
communication.
•
Although senior officials should include other staff members on the investigative team
when engaging in an external communication, there are circumstances in which none of
the staff members are available to participate when an outside person initiates a
communication. Under those circumstances, the senior official may need to balance
several factors to determine whether to engage in the communication without the
participation of other staff members, including:
o Whether the senior official is familiar with the context and facts that are the subject of
the communication;
o Whether the investigative team is aware that the outside person planned to initiate a
communication with the senior official;
o Whether the outside person had previously discussed the matter with others on the
investigative team (and how the team responded);
o Whether the senior official was briefed by the investigative team regarding the
communication; and
o Whether the communication involves a matter of urgency, a routine issue, or a more
complex situation in which the outside person is seeking an agreement or
representation regarding a material aspect of the investigation.
•
If a senior official engages in an external communication without the participation or
presence of other staff members, then the senior official should communicate to the
outside person that the senior official will inform the other members of the investigative
team that the communication occurred and include all pertinent details for their
information and consideration, and should consider:
o Communicating to the outside person that the fact that the senior official engaged
in the communication does not imply acquiescence or agreement; and
o Communicating to the outside person that the senior official is not in a position to
reach an agreement or make a representation without reviewing the circumstances
with other investigative team members (however, the senior official need not
avoid reaching an agreement or making representations if any of the staff
prepared the senior official for the communication in anticipation that agreements
or representations might be discussed).
•
Within a reasonable amount of time, the senior official should document material
external communications related to the investigation involving, but not limited to,
potential settlements, strength of the evidence, and charging decisions. The senior official
may take contemporaneous notes of the communication, send an email to any of the
assigned staff, prepare a memo to the file, or orally report details to any of the assigned
staff (who may then take notes or prepare a memo to the file).
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•
The senior official should at all times keep in mind the need to preserve the impartiality
of the Division in conducting its fact-finding and information-gathering functions.
Propriety, fairness, and objectivity in investigations are of the utmost importance, and the
investigative team cannot carry out its responsibilities appropriately unless these
principles are strictly maintained. The senior official should be particularly sensitive that
an external communication may appear to be, or may be an attempt to supersede, the
investigative team’s judgment and experience.
Considerations:
•
There may be circumstances in which a senior official and an outside person find it
necessary to discuss the professionalism of assigned staff or allegations regarding
questionable conduct by the assigned staff. It is important that the public is comfortable
communicating about sensitive matters with staff, including senior officials. In such
circumstances, even if the communication could be considered a material communication
about the investigation itself, the senior official may choose not to inform any of the
assigned staff about the communication. The senior official, however, should be sensitive
to the possibility that allegations about questionable conduct may serve as a pretext to
complain about minor events or annoyances during the investigative process, to gain an
advantage in the investigation, or to undermine the progress of the investigation.
Depending on the apparent motivation of the communication, the senior official should
consider whether to inform the investigative team of the communication, following the
best practices above.
•
If any of the investigative team members learn that an outside person might contact a
senior official, the staff member should alert the senior official as soon as possible and
provide all pertinent details concerning the anticipated subject matter of the
communication.
•
In addition to the best practices above and the typical considerations that apply when a
staff member communicates with someone outside the agency who is involved in an
enforcement investigation, senior officials and other investigative team members should
recognize the discretion and judgment inherent in balancing all the circumstances of a
potential communication with outside persons, including:
o The time, place, and context of the communication;
o The availability and accessibility of any of the assigned investigative team to
participate in the communication;
o The expected or anticipated subject matter of the communication;
o The priority, phase, and sensitivity of the investigation, including the status of the
Wells process or any pending settlement discussions;
o The complexity and circumstances of the suspected securities law violations at issue;
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o The need to further the Commission’s interests in the investigation and to protect
investors;
o The level of cooperation of witnesses and their counsel; and
o The existence of interest by the Department of Justice or other agencies with criminal
prosecutorial authority.
Further Information:
OCC.
For questions concerning the applicability of these best practices, staff should contact
3.1.2. Statutes of Limitations and Tolling Agreements
Basics:
•
28 U.S.C. § 2462 states that “[e]xcept as otherwise provided by Act of Congress, an
action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture,
pecuniary or otherwise, shall not be entertained unless commenced within five years from
the date when the claim first accrued if, within the same period, the offender or the
property is found within the United States in order that proper service may be made
thereon.” This five-year statute of limitations is non-jurisdictional and may be tolled. See
SEC v. Fowler, 6 F.4th 255, 262 (2d Cir. 2021). The statute of limitations is also an
affirmative defense that is waived if it is not raised in timely fashion. See Canady v. SEC,
230 F.3d 362, 363 (D.C. Cir. 2000).
•
Section 6501 of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”)
establishes a statute of limitations for other remedies. See § 21(d)(8) of the Exchange Act.
For disgorgement generally, the limitations period is five years. That period is extended
to ten years for securities law violations for which scienter must be established. In
addition, the NDAA provides a limitations period of ten years for claims for “equitable
remedies,” specifically including “for an injunction or for a bar, suspension, or cease and
desist order.”
•
If the staff, in the course of an investigation, believes that any of the relevant conduct
arguably may be outside the applicable limitations period before the SEC would be able
to file or institute an enforcement action, the staff may ask the potential defendant or
respondent to sign a “tolling agreement.” By signing a tolling agreement, the potential
defendant or respondent agrees not to assert a statute of limitations defense in the
prospective enforcement action for a specified time period, which is excluded for statute
of limitations purposes. If the staff believes that a tolling agreement is appropriate, staff
should in the first instance obtain approval from the appropriate Associate Director/Unit
Chief for up to 90 days. Any requests to extend tolling agreements beyond the initial 90
days require approval from the Director or appropriate Deputy Director. After approval, a
tolling agreement must be signed by staff at the Assistant Director level or above. Staff
should save all fully executed tolling agreements in the case file.
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•
When opening a MUI or investigation, staff must add the applicable statute of limitations
date in the Hub. As the MUI or investigation proceeds, staff must update the statute of
limitations, including with any tolling agreements, as appropriate. It is imperative that the
Hub reflect an accurate statute of limitations date for each matter.
Considerations:
•
Consider the statute of limitations issue early in the investigation. Tolling agreements
should be obtained prior to the expiration of all applicable statutes of limitation. As a
general matter, retroactive tolling agreements are disfavored.
•
Take into account the amount of time needed for the recipient of a Wells notice to
complete Wells submissions, for staff to prepare recommendations to the Commission,
for relevant divisions and offices at the SEC to review recommendations, and for the
Commission to consider the recommendation.
•
Staff should be sensitive to investigative delays leading to statute of limitations problems
as a result of requests for extensions of time from defense counsel, and, where abused,
should refuse requests for more time.
•
Staff should take care not to delay or slow the pace of an investigation based on the
potential availability or existence of a tolling agreement. Consequently, staff themselves
should limit requests for extensions. Swift investigations generally are most effective and
enhance the public interest.
3.1.3. Continuing Investigations During Ongoing SEC Litigation
Basics:
The Division may continue to investigate and issue investigative subpoenas pursuant to a
Formal Order while simultaneously litigating a related civil action if there is an independent,
good-faith basis for the continued investigation. An independent, good-faith basis may include
the possible involvement of additional persons or entities in the violations alleged in the
complaint, or additional potential violations by one or more of the defendants in the litigation.
Considerations:
While the SEC has broad investigative authority, staff should exercise judgment when
deciding whether to continue investigating while litigating a related case. The staff should
consider the following:
•
In assessing whether to issue subpoenas, the staff should consider all relevant facts and
circumstances, including the degree of factual and legal overlap, the prior course of the
litigation and investigation, and the likely views of counsel and the judge assigned to the
case.
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•
If the staff obtains testimony or documents in the investigation that are properly
discoverable in the litigation, the SEC must produce them in the litigation in accordance
with the Federal Rules of Civil Procedure (“FRCP”).
•
Although there is some case law to support the practice, staff should not use investigative
subpoenas solely to conduct discovery with respect to claims alleged in the pending
complaint. A court might conclude that the use of investigative subpoenas solely to
conduct discovery is a misuse of the SEC’s investigative powers and circumvents the
court’s authority and the limits on discovery in the FRCP.
•
In addition, there are special considerations and restrictions on continuing an
investigation following the institution of a proceeding brought in an administrative forum
(“administrative proceeding” or “AP”). In the AP context, continuing investigations are
subject to Rule 230(g) of the SEC’s Rules of Practice, which requires the Division to
inform the hearing officer and each party promptly if the staff issues any new subpoenas
under the same Formal Order or investigative file number. The rule also directs the
hearing officer “to order such steps as [are] necessary and appropriate” to assure that the
subpoenas are not issued “for the purpose of obtaining evidence relevant to the
proceedings.” The hearing officer must ensure that any relevant documents obtained
through the use of such subpoenas are made available for inspection and copying to each
respondent “on a timely basis.” 17 C.F.R. § 201.230(g).
Further Information:
Before continuing an investigation while there is related pending litigation, or if the staff
is going to recommend simultaneously that the Commission file a civil action and issue a Formal
Order, the investigative staff should discuss the issue with the Chief or Deputy Chief Litigation
Counsel within the Division’s Trial Unit and should revisit the issue whenever contemplating the
service of investigative subpoenas that could be seen as relating to pending litigation.
Staff should consult with OCC and the Chief or Deputy Chief Litigation Counsel with
any questions about continuing an investigation while there is related pending litigation.
3.1.4. Parallel Investigations and the State Actor Doctrine
Basics:
The State Actor Doctrine may be implicated when action by a private entity (e.g., an
SRO, a company, or a law firm) is fairly attributable to a government entity and the government
entity influences the specific conduct of the private entity. The action may be fairly attributable if
there is a sufficiently close nexus between the government entity and the challenged action of a
private entity.
The State Actor Doctrine may apply to a wide variety of private actions in which
government is in some way concerned. It has been analyzed under a two-prong test, and
satisfying either prong can result in a finding of state action:
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•
Under the “joint action” prong, private entities may engage in state action when they are
willful participants in joint action with state officials.
•
Under the “government compulsion” prong, coercive influence or significant
encouragement by the state can convert private conduct into state action.
Guidelines:
When staff is aware that a private entity is investigating conduct that is the same as or
related to the conduct involved in the staff’s investigation, staff should keep the following
guidelines in mind:
•
In fact and appearance, the SEC and the private entity’s investigations should be
conducted in parallel and should not be conducted jointly. Staff should make
investigative decisions independent of any parallel investigation that is being conducted
by a private entity.
•
The staff should not take any investigative step principally for the benefit of the private
entity’s investigation.
•
The staff should not direct the private entity to conduct an investigation or mandate the
manner in which the private entity conducts an investigation or the investigative steps
taken by the private entity. The private entity always retains discretion as to how to
conduct an investigation, but should keep in mind that the staff finds indicia of the
investigation’s independence, thoroughness, and effectiveness to be helpful indicators
when deciding whether to credit an internal investigation’s findings.
•
In SEC investigations in which a witness has asserted or indicated an intention to assert
the Fifth Amendment in testimony, the staff should not suggest any line of questioning to
the private entity conducting a parallel investigation or provide to the private entity any
document or other evidence for use in questioning a witness, other than pursuant to an
approved access request.
Further Information:
Staff should consult with OCC concerning any questions relating to the State Actor
Doctrine.
3.2.
Documents and Other Materials
3.2.1. Privileges and Privacy Acts
In connection with any request for document production, staff must comply with the
Privacy Act of 1974 (“Privacy Act”), the Right to Financial Privacy Act of 1978 (“RFPA”), the
Electronic Communications Privacy Act of 1986 (“ECPA”), and the rules regarding the assertion
of privileges and protections. See Section 4. In addition, staff must comply with policies on
contacting witness’s counsel (see Section 3.3.7.1), parallel investigations (see Section 3.1.4), and
ongoing litigation (see Section 3.1.3).
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3.2.1.1. Supplemental Information Forms (SEC Forms 1661 and 1662)
When requesting documents or information from regulated persons and entities other
than pursuant to a subpoena, the staff must provide a copy of the SEC’s “Supplemental
Information for Entities Directed to Supply Information to the Commission Other Than Pursuant
to Commission Subpoena” (“SEC Form 1661”).
When requesting documents or information from regulated persons or entities pursuant to
a subpoena or from any other witness either voluntarily or pursuant to a subpoena, the staff must
provide the witness with a copy of SEC Form 1662.
These forms provide information on the following topics:
•
Potential consequences for providing false statements and documents and for failure to
supply information;
•
Wells submissions and how they may be used;
•
Requests for confidential treatment pursuant to the Freedom of Information Act; and
•
The Commission’s authority to solicit information and how the Commission may use
information provided to it.
Additionally, the SEC Form 1662 provides testimony-related information, including
about witness rights and responsibilities.
3.2.2. Document Preservation Letters
Basics:
A duty to preserve documents generally arises when litigation is reasonably anticipated or
foreseeable, as well as when litigation is pending. A document preservation letter informs the
recipient of the need to preserve certain documents and other materials pursuant to this duty so
that evidence is not destroyed, either inadvertently or intentionally. The staff should consider
sending a document preservation letter as early as is appropriate in an investigation, keeping in
mind that such letters can later be supplemented with additional categories of documents that
should be preserved.
In a standard document preservation letter, the staff should make clear that the notice
applies to all forms of documents and communications, including those in electronic form, that
are potentially relevant to an investigation. Document preservation notices should explicitly
request the preservation of all relevant communications sent or received on any and all
messaging platforms and messaging applications, including those communications sent or
received on personal devices, such as smartphones or tablets. The preservation notice should
request that the recipient of the notice, or the recipient’s counsel, respond to the notice, in
writing, acknowledging receipt of the letter.
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Considerations:
A preservation letter will inform the recipient of the existence of an investigation. The
staff may therefore determine not to send a preservation letter in an investigation, for example, in
an ongoing fraud where assets may be dissipated.
3.2.3. Voluntary Document Requests
During a MUI or investigation, the staff may request the voluntary production of
documents. The staff also may request the voluntary creation of documents, such as chronologies
of events. In a MUI or investigation, the staff can also request that witnesses agree to voluntary
interviews and testimony.
When the staff begins a MUI, voluntary document requests can be a principal means of
gathering documents, data, and other information. Often the fruits of these requests will help the
staff assess the merits of a potential investigation at its earliest stages, before the staff opens an
investigation or seeks the issuance of a Formal Order.
Considerations:
•
A voluntary document request should be accompanied by a copy of SEC Form 1662.
•
Many issuers, individuals, harmed investors, and other parties are willing to provide
significant materials to the staff voluntarily, without a subpoena. Regulated entities are
required to produce certain records without a subpoena. See Section 3.2.4.
•
Staff can consider, on a case-by-case basis, whether and how a voluntary document
request as opposed to a subpoena may affect a witness’s diligence in searching for
documents and the witness’s responsiveness.
•
The staff should include a copy of the SEC Data Delivery Standards with every document
request.
3.2.4. Document Requests to Regulated Entities
Basics:
•
The staff may request information from regulated entities, such as registered investment
advisers and broker-dealers. Pursuant to Sections 17(a) and (b) of the Exchange Act and
Section 204 of the Advisers Act and the rules thereunder, among other statutes and rules,
regulated entities must provide certain information to the staff even without a subpoena.
•
Records from regulated entities are often essential cornerstones of an investigation.
Because regulated entities must produce certain records without a subpoena, the staff can
often obtain documents, such as brokerage account statements or account opening
documents, which might otherwise require a subpoena to obtain from an individual.
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Considerations:
•
A document request to a regulated entity should be accompanied by a copy of the SEC
Form 1661.
•
For reasons of efficiency and strategy, the staff should consider what types of records to
obtain from a regulated entity. For example, in addition to customer account statements, a
broker-dealer will have documents such as order tickets, order confirmations, trading
blotters and transfer records.
•
Some regulated entities have specific policies regarding whether (and, if so, when) to
notify a client or customer that the staff has requested documents related to that
customer’s or client’s account. Even if there is no formal policy in place, the customer or
client might be provided some informal notice. Depending on the conduct, potential for
investor harm, or other circumstances, the staff should consider requesting that the entity
not disclose the request for documents, at least for a certain limited period of time.
•
The staff should include a copy of the SEC Data Delivery Standards with every document
request to a regulated entity.
Further Information:
•
See Sections 2.1.2.1. and 4.7. for information relating to BSA materials.
•
For additional information on documents that may be requested from broker-dealers, and
what information such documents can provide, the staff should contact the Market
Surveillance Group in OMI.
3.2.5. Subpoenas for Documents
Basics:
The Commission, or the staff it designates as officers in a Formal Order, may issue
subpoenas for documents or witness testimony, pursuant to Section 19(c) of the Securities Act,
Section 21(b) of the Exchange Act, Section 209(b) of the Advisers Act, and Section 42(b) of the
Investment Company Act. The Commission or its designated officers may require the production
of any records deemed relevant or material to the inquiry and may require their production from
any place in the United States.
To issue a subpoena for documents, a staff member must be named as an officer for
purposes of an investigation in the Commission’s Formal Order. See Section 2.2.3. Once the
Commission has issued a Formal Order, the staff named as officers in the order may issue
subpoenas.
Considerations:
•
A subpoena for documents should be accompanied by a copy of SEC Form 1662.
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•
A subpoena for documents should include an attachment to the subpoena listing the
documents requested (generally by category or type of document) and any additional
requirements for compliance with the subpoena.
•
The staff should include a copy of the SEC Data Delivery Standards with every
subpoena.
Further Information:
•
Subpoenas to financial institutions such as banks and credit card issuers are subject to the
RFPA, see Section 4.5.
•
For procedures on granting a request for a copy of the Formal Order, see Section 2.2.3.3.
•
For more information about SEC Form 1661 and SEC Form 1662, see Section 3.2.1.1.
3.2.6. Subpoenas and Document Requests to the News Media
In April 2006, the SEC issued a policy statement concerning SEC subpoenas to members
of the news media. See Policy Statement Concerning Subpoenas to Members of the News Media,
Exchange Act Release No. 34-53638 (April 12, 2006) (“News Media Subpoena Policy
Statement”), codified at 17 C.F.R. § 202.10. The staff should refer to and must comply with
News Media Subpoena Policy Statement.
3.2.7. Subpoenas and Document Requests to Attorneys
A subpoena or voluntary request to an attorney or law firm can raise complex issues.
Before issuing a subpoena or voluntary request to an attorney or law firm for an attorney’s
documents or testimony, staff should first consult with OCC and the Commission’s Professional
Responsibility Counsel.
3.2.7.1. Service of Subpoenas
Under Rule 8 of the SEC’s Rules Relating to Investigations (17 C.F.R. § 203.8), service
of subpoenas issued in formal investigative proceedings shall be effected in the manner
prescribed by Rule 232(c) of the SEC’s Rules of Practice (17 C.F.R. § 201.232(c)). Rule 232(c),
in turn, states that service shall be made pursuant to the provisions of Rule 150(b) through (d) of
the SEC’s Rules of Practice (17 C.F.R. §§ 201.150(b) through (d)).
Rule 150, in relevant part, provides that service of investigative subpoenas may be
effected:
(b) Upon a person represented by counsel. Whenever service is required to be made
upon a person represented by counsel who has filed a notice of appearance pursuant to
[Rule 102], service shall be made pursuant to paragraph (c) of this section upon counsel,
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unless service upon the person represented is ordered by the Commission or the hearing
officer.
(c) How made. Service shall be made electronically in the form and manner to be
specified by the Office of the Secretary in the materials posted on the Commission’s
website. Persons serving each other shall have provided the Commission and the parties
with notice of an email address.
Moreover, Rule 150(d) provides:
[I]f service is of an investigative subpoena pursuant to 17 CFR § 203.8, service may be
made by delivering a copy of the filing.
3.2.7.2. Forthwith Subpoenas in Investigations
Basics:
Forthwith subpoenas, which call for the immediate production of information, are one of
many tools staff can use to compel the production of evidence during an investigation. However,
they should only be used in exigent circumstances. For example, a forthwith subpoena may be
appropriate where records are sought from a witness or custodian who: (i) we have specific
reason to believe may destroy or falsify records, (ii) is a flight risk, or (iii) has been
uncooperative or obstructive during the investigation.
A forthwith subpoena, as with other investigative subpoenas, is not self-enforcing.
Absent a court order, staff cannot compel a witness or custodian to comply with a forthwith
subpoena. Staff should expect courts to scrutinize closely subpoenas that demand immediate
production. See Section 2.5.4.
Further Information:
If the staff believes there may be a need to issue a forthwith subpoena due to exigent
circumstances, the staff should consult with the Division’s Chief and Deputy Chief Litigation
Counsel immediately.
3.2.7.3. Responding to Subpoenas
Considerations:
•
A subpoenaed entity or individual is required to produce all subpoenaed items that are in
its possession, custody, or control. This includes items that are not in the subpoenaed
entity’s or individual’s immediate possession, but that the subpoenaed entity or individual
has the effective ability to obtain.
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•
If copies of a document differ in any way, they are to be treated as separate documents,
and the subpoenaed entity or individual must produce each copy. For example, if the
subpoenaed entity or individual has two copies of the same letter, but only one of them is
marked with handwritten notes, the subpoenaed entity or individual must produce both
the clean copy and the copy with notes.
•
The term “document” in the context of a production responsive to a subpoena generally
includes, but is not limited to, any written, printed, or typed matter including, but not
limited to, all drafts and copies bearing notations or marks not found in the original, letters
and correspondence, interoffice communications, slips, tickets, records, worksheets,
financial records, accounting documents, bookkeeping documents, memoranda, reports,
manuals, telephone logs, facsimiles, messages of any type, telephone messages, text
messages, voice mails, tape recordings, video recordings, notices, instructions, minutes,
summaries, notes of meetings, file folder markings and any other organizational indicia,
purchase orders, information recorded by photographic process, including microfilm and
microfiche, computer printouts, spreadsheets, and other electronically stored information,
including but not limited to writings, drawings, graphs, charts, photographs, sound
recordings, images, and other data or data compilations that are stored in any medium from
which information can be retrieved, obtained, manipulated, or translated. The term
“document” also includes all electronic communications, such as email, text messages,
messages sent via messaging applications (such as WhatsApp, iMessage, or Signal),
messages sent on communication platforms (such as Teams, Slack, Discord, or
Telegram), and messages sent or received on personal devices such as smartphones or
tablets.
3.2.8. Blue Sheets and Consolidated Audit Trail Data
Basics:
Blue Sheets: Blue Sheeting is a process by which the SEC requests and obtains trading
data from the broker-dealer community. Member firms are required to provide trading
information pursuant to Section 17(a) of the Exchange Act and Rule 17a-25 thereunder. See 17
C.F.R. § 240.17a-25.
Although the process is now handled electronically through the SEC’s Blue Sheet
application, the name derives from the fact that blue paper was once used to make such requests.
Blue Sheet data provide information identifying the account holder for whom specific
trades were executed and indicate whether the transaction was a buy or a sell and long or short,
among other data elements. The data also identifies proprietary and customer trades executed on
all domestic or foreign markets, all “in-house cross” transactions, transactions cleared for
introducing brokers, and prime broker transactions.
Consolidated Audit Trail: The Consolidated Audit Trail (“CAT”) is a database that
contains the full lifecycle of customer orders to buy or sell equity and options securities across
all U.S. market venues. CAT data is anonymized and customer information is maintained in a
separate database. The data collected does not include social security numbers or birth dates. The
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CAT was developed pursuant to Rule 613 under Regulation NMS (Regulation of the National
Market System). See 17 C.F.R. § 242.613.
Application:
It may be appropriate to obtain and review Blue Sheet data, or query CAT data, in a
variety of investigations, but such data is typically obtained in matters involving possible insider
trading or market manipulation violations.
Further Information:
For additional information on Blue Sheeting, staff should consult with the Blue
Sheets Operations Group in OMI.
For information about Consolidated Audit Trail data, staff should contact the
Division’s Office of Investigative and Market Analytics.
3.2.9. Form of Document Production to the SEC
Basics:
The staff should include a copy of the SEC Data Delivery Standards with every subpoena
and document request. The SEC Data Delivery Standards describe the general and technical
requirements for electronic and paper productions to the SEC. Adherence to these standards will
ensure consistency across all cases within the Division. Staff should consult with the Division’s
IT staff in the Litigation Support Branch if they or a producing party have any questions or
concerns regarding the SEC Data Delivery Standards.
All requested or subpoenaed documents should be produced directly to the Division’s
Centralized Processing Unit (“CPU”).
To ensure proper processing by CPU, an entity or individual producing materials should
enclose a cover letter with each document production containing the following information:
•
Case number, case name, and requesting SEC staff member name;
•
A copy of the document request or subpoena;
•
All Bates numbering ranges included in the production (see Section 3.2.9.3.);
•
A brief description of items produced, including the Bates ranges and custodians for each
item and the paragraph(s) in the subpoena attachment to which each item responds; and
•
For each document withheld from production on the grounds of any privilege or
protection, a detailed privilege log (see Section 3.2.9.4.);
•
If any documents responsive to the document request or subpoena no longer exist
because they have been lost, discarded, or otherwise destroyed, the producing entity or
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individual should identify the documents and the date on which they were lost, discarded,
or destroyed;
•
A brief description of what steps were taken to identify and produce documents
responsive to the document request or subpoena, including who searched for documents,
who reviewed documents for responsiveness to the document request or subpoena, what
sources were searched, and where the original documents are maintained and by whom;
and
•
A statement as to whether the producing entity or individual believes it has met its
obligations under the document request or subpoena by searching carefully and
thoroughly and producing all required documents or materials.
Considerations:
In producing copies of original documents, the entity or individual should be aware that:
•
The SEC cannot reimburse the entity or individual for costs, except in the case of RFPA
subpoenas or certain productions under the ECPA.
•
The entity or individual must maintain the originals of all documents responsive to the
subpoena or voluntary document request in a safe place in the event production of the
original documents is required at a later date.
•
If it appears that the copy of an original document may not represent the original
document in its entirety, whether by means of post-it(s), notation flag(s), removable
markings, erroneous copying, or for any other reason, the staff should request the original
document so that the staff can verify that the copy represents the original document in its
entirety, including all of the markings contained within it.
Further Information:
•
Staff should refer any questions about the form of production to the Division’s IT staff in
the Litigation Support Branch.
•
For more information on privilege logs, see Section 3.2.9.4.
•
For information on certifications of completeness of production, see Section 3.2.9.6.
3.2.9.1. Electronic Production of Documents
Basics:
For an electronic production, the entity or individual must produce documents in
accordance with the SEC Data Delivery Standards and must maintain the originals of all
responsive documents, including all metadata, in their native software format in the event
production of the original documents in native format is required at a later date.
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Considerations:
Most accounting firms create and maintain their workpapers electronically. The SEC
Data Delivery Standards include instructions for producing workpapers, including in native
format via laptop computer, web-based viewing platform, or otherwise to allow for viewing in
the same format and organization as the audit team. Firms may raise concerns about producing
electronic workpapers and other audit documents, citing to intellectual property rights in what
they view as proprietary programs. The staff does not necessarily agree with such concerns, but,
as an accommodation, may consider alternative approaches such as web-based production and
production on a dedicated laptop computer. These requests may be evaluated on a case-by-case
basis to determine whether an alternative approach is appropriate in the investigation.
Further Information:
•
Staff should refer any questions about the form of electronic production to the Division’s
IT staff in the Litigation Support Branch.
•
For more information about when and how to request electronic workpapers, staff should
contact the Division’s Office of the Chief Accountant.
3.2.9.2. Accepting Production in Paper Format
Basics:
In circumstances in which documents are not electronically maintained, the staff may
allow an entity or individual to produce documents in paper format. If this occurs, the entity or
individual should scan the paper documents and produce them in an electronic format consistent
with the SEC Data Delivery Standards and adhere to the following guidelines:
•
The copies must be identical to the originals, including even faint marks or print.
•
The producing entity or individual should put an identifying notation on each page of
each document copy to indicate that it was produced by the entity or individual, and
number the pages of all the documents submitted. (For example, if Jane Doe sends
documents to the staff, she may number the pages JD-1, JD-2, JD-3, etc., in a blank
corner of the documents.) However, the entity or individual should make sure the
notation and number do not conceal any writing or marking on the document.
•
If producing a copy of an original document that contains post-it(s), notation flag(s), or
other removable markings or attachments that may conceal all or a portion of the
markings contained in the original document, copies of the original document both with
and without the relevant post-it(s), notation flag(s), or removable markings or
attachments should be produced.
In limited circumstances, such as when interacting with a potentially harmed investor
who lacks access to scanning capabilities and/or witnesses unrepresented by counsel, the staff
may allow the entity or individual to produce original documents in paper format. In such cases,
the staff will scan the original documents and return the originals as soon as practicable. If the
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subpoenaed entity or individual sends the staff original documents, it should not add any
identifying notations to the original documents. In such cases, the staff should also prepare a
chain of custody log that is prepared, dated, and signed by someone other than the investigating
attorney in case the authenticity of the scanned documents is later challenged.
Further Information:
•
Staff should refer any questions about the production of paper documents to the
Division’s IT staff in the Litigation Support Branch.
3.2.9.3. Bates Stamping
Introduction:
Bates stamping (also known as Bates numbering) refers to the use of unique identifiers on
documents as they are scanned or processed.
Bates stamping is commonly used to label and identify documents for production.
Marking each document with a unique identifier is a useful tool both at the investigative stage
and in litigation and provides an efficient and clear way to identify documents on the record in
testimony and depositions.
Basics:
•
The SEC Data Delivery Standards contain instructions on use of Bates numbers.
•
Original documents should not be altered for any reason, including with Bates stamps.
Original documents should be scanned, and only the copies (not the originals) should be
Bates stamped. See Section 3.2.9.2.
•
Although there is no standard method for numbering documents, the best practice is to
place an identifying notation on each page of each document (1) to indicate the source of
the production and (2) to number the pages of all the documents submitted. For multiple
productions from the same source, the best practice is to continue the numbering from the
previous production.
•
The Bates stamp should not conceal any writing or marking on the document.
3.2.9.4. Privilege Logs
Basics:
With respect to each document that has been withheld from production, or produced with
redactions, on the grounds of any privilege or protection, the producing entity or individual
should provide the staff with a detailed privilege log at the same time as the responsive
documents. For each document withheld on the basis of a claim of attorney-client privilege, the
privilege log should include the identity of the attorney and client involved. For each document
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withheld on the basis of the attorney work product doctrine, the privilege log should identify the
litigation in anticipation of which the document was prepared.
Considerations:
Staff should keep in mind the following considerations when requesting and reviewing
privilege logs:
•
After each production is received, the staff should ask for written confirmation that all
requested materials have been produced and that any document withheld or produced
with redactions based upon an assertion of any privilege has been noted in the privilege
log.
•
The staff should carefully review the privilege log to determine whether the privilege has
been properly asserted. In addition, the staff should compare redacted documents against
the privilege log to determine whether a privilege has been properly asserted for each
redacted portion.
•
The staff should obtain additional information where entries in the privilege log are
incomplete or do not otherwise provide sufficient information to determine whether the
privilege has been properly asserted.
•
See Section 4.1.1. for considerations if privilege is asserted over a document during
testimony.
•
For questions about whether a privilege was properly asserted, staff should consult OCC
and the Chief or Deputy Chief Litigation Counsel.
3.2.9.5. Business Record Certifications
Basics:
•
At the time an entity produces business records (e.g., telephone records, bank account
statements, brokerage account records), the staff should simultaneously obtain from a
custodian of records or other qualified person a declaration certifying that the documents
are records of regularly conducted business activities.
•
A certification should eliminate the need to have a custodian of records testify at
deposition or civil trial because the records can be authenticated by the certification under
Rules 902(11) and 902(12) of the Federal Rules of Evidence. A certification may also
avoid the need for testimony by the custodian in an administrative proceeding.
3.2.9.6. Confirming Completeness of Production
Introduction:
When recommending that the Commission accept a settlement offer from an entity or
individual, it is important to obtain an executed Certification as to Completeness of Document
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Production (“certification”) from the settling party. In the certification, the settling party
acknowledges that the Commission has relied upon, among other things, the completeness of the
settling party’s production.
Basics:
•
A settling individual must declare under penalty of perjury that the individual has made a
diligent search of all files in the individual’s possession, custody, or control that are
reasonably likely to contain responsive documents and that those documents have either
been produced or identified in a privilege log.
•
In the case of an entity, the certification should contain similar language, but require a
representative to declare that the representative has made a diligent inquiry of all persons
who reasonably had possession of responsive documents, and that those documents have
been produced or identified in a privilege log.
•
The certification requirement applies to SEC subpoenas, document requests, and requests
for voluntary production of documents.
Considerations:
•
Because of the significance of this certification, the staff should inform individuals and
entities of this requirement early in the investigation and should reiterate the obligation
when staff is made aware of changes in counsel and when commencing settlement
negotiations.
•
As a best practice, during the course of the investigation, staff should confirm in writing
any agreed-upon modifications to document subpoenas, document requests, or requests
for voluntary production of documents.
3.2.10.
Investigative and Litigation Files
Various federal laws, the Commission’s internal rules and policies, and the Division’s
procedures require proper maintenance of investigative and litigation files.
Following the Division’s procedures for maintaining investigative and litigation files
helps ensure that any loss of or damage to the Division’s offices, files, or equipment will cause
minimal disruption to the work of the Division. Consistency in document management practices
helps facilitate information sharing and limit loss of information associated with staff turnover.
Maintaining investigative and litigation files in a systematic way increases the likelihood of
success in litigation.
Basics:
•
For all MUIs, investigations, and litigations, the staff should implement a system for
handling all documents and work product typically created or received in the course of an
investigation or litigation. This system will include the opening of a matter-specific subdirectory in the appropriate shared location and also, as appropriate, the opening of
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matter-specific databases in the Division’s document review platform, testimony
transcript review platform, and other applicable platforms.
•
Typically, document productions will be logged by CPU and routed for loading into the
Division’s document review platform, where the staff will be able to review the
documents. Similarly, testimony transcripts will be processed by the Division’s IT staff
and loaded into the Division’s transcript review platform, where the staff will be able to
review transcripts.
Considerations:
•
Documents produced to the staff or otherwise obtained from third parties should be
segregated from staff work product and other privileged materials.
•
In the event documents require additional protections (e.g., if they come from a foreign
government and are not supposed to be transmitted pursuant to an access request or if
they would directly or indirectly identify the whistleblower status of someone), they
should be kept separate and well-marked.
•
Information from whistleblowers that could reasonably be expected to identify the
whistleblower must be kept confidential. Staff should consult with OWB if there are
questions regarding the handling of whistleblower information.
•
All BSA information is sensitive; in particular, SARs, and related information that would
reveal the existence of a SAR, must be protected from inadvertent disclosure. SARs and
SAR material must be segregated, labeled as “sensitive,” and stored securely. Steps must
be taken to avoid inadvertent dissemination of these documents or inadvertent disclosure
of the existence of these documents. See Section 2.1.2.1. and Section 4.7.
•
Staff should keep in mind that original files may ultimately be used at trial or during a
similar litigation proceeding and should not alter any original documents or other
materials. In the limited circumstances in which the staff allows an entity or individual to
produce original documents in paper format, the staff generally should scan the original
documents and return the originals as soon as practicable. There might be circumstances
in which we must maintain possession of an “original” document if, for example,
authenticity of the document or signatures on it are disputed, and we need to keep the
original for forensic testing and for use at trial. The staff should not add any identifying
notations to the original documents. The staff should also create and maintain a chain of
custody log for each original, including from whom and when it was received, and for its
return, the date it was returned and all tracking information. When possible, this log
should be prepared, dated, and signed by someone other than the investigating attorney in
case the authenticity of the scanned documents is later challenged.
Further Information:
•
Staff should refer any questions about receiving, using, storing, and disposing of
electronic files to the Division’s IT staff in the Litigation Support Branch.
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•
Investigative staff should consult with staff in the Division’s Trial Unit regarding any
concerns regarding the future use of documents in litigation.
•
Staff should contact the BSA Review Group for specific information and guidance about
how to handle BSA materials properly. See also Section 2.1.2.1. and Section 4.7.
3.2.10.1.
Document Control
Basics:
In implementing good document management and control during an investigation or
litigation, the staff should have a structured and consistent system for labeling, storing, and
keeping track of documents.
To that end, the staff should follow the procedures below, adjusted as appropriate for the
particular circumstances:
•
The staff should maintain an index of all document requests and subpoenas issued during
an investigation. The index should be saved in the matter-specific subfolder in the
appropriate shared location.
•
The staff should index all documents and other materials received during an investigation
or litigation after receipt, including documents and other materials received from
document productions, testimony transcripts, etc. The index should be saved in the
matter-specific subfolder in the appropriate shared location. The index should typically
include the following:
o A description of the documents produced or obtained, including Bates numbers;
o Identity of the producing party or source;
o Location of the documents;
o The document request or subpoena that sought the documents, if any; and
o Whether the response to the request or subpoena is complete.
•
The staff should index any paper documents or other materials sent to off-site storage.
Considerations:
Staff should update the document index with each new production in a timely manner.
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3.2.10.2.
Complying with Rule 26(a) of the Federal Rules of Civil Procedure
Basics:
FRCP Rule 26(a)(1) requires the SEC to make certain disclosures at the onset of
litigation. Additionally, the SEC is required to conduct a reasonable search of documents within
its possession, custody, or control to respond to discovery requests pursuant to FRCP Rule 34.
Failure to produce documents during discovery can result in sanctions, including an order
precluding the SEC from using those documents as evidence.
Creating and maintaining an accurate contact list and document index will help the
investigative staff effectively manage a complex investigation and greatly assist the SEC’s trial
attorneys when compiling initial disclosures pursuant to FRCP Rule 26(a)(1) and in responding
to subsequent discovery requests.
•
Contact list – The contact list should include the name, address, and telephone number of
all individuals and entities likely to have discoverable information and, where applicable,
their counsel.
•
Document index – The document list should include all documents, electronically stored
information, and tangible things that the staff obtains during the investigation and provide
at least the following:
o A description of the documents by category;
o Location of the documents;
o Identity of the party that produced the documents;
o Identification of the request or subpoena and correspondence relating to the
documents; and
o Bates numbers, if possible.
Further Information:
For questions about contact lists and document indexes, staff should consult with the
Trial Unit.
3.2.10.3.
Preserving Evidence in Anticipation of Litigation
Basics:
A duty to preserve electronically stored information (“ESI”) and paper records generally
arises when litigation is reasonably anticipated or foreseeable, as well as when litigation is
pending. Failure to preserve ESI and paper records can result in court sanctions. When there is a
duty to preserve, staff should make reasonable and good faith efforts to preserve ESI and paper
records relevant to an investigation or litigation. The Hub automatically sends litigation hold
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notices to staff assigned to a matter and to other individuals working for the SEC who are not
assigned to the matter, but who may have relevant information directing them to preserve
relevant ESI and paper records.
ESI is a broad term that includes, among other things, word processing files,
spreadsheets, databases, email, and voicemail.
3.2.10.4.
Off-Site Storage
Legacy paper records and physical evidence must be organized in boxes for transfer to
the Division’s off-site storage provider as follows:
•
The boxes should include a detailed description of all contents to facilitate storage and
retrieval.
•
The staff should maintain tracking logs to include the date and location when boxes are
sent to, or received from, off-site storage, and when boxes are destroyed or sent to the
SEC’s Office of Records Management Services.
3.2.10.5.
Preserving Internet Evidence
Basics:
Evidentiary issues may arise concerning authentication and preservation of internet
documents, particularly pertaining to pages from the internet. Website owners may, at any time
and within seconds, alter, edit or even remove contents of a website. Thus, upon discovering
relevant evidence on a website, the staff immediately should seek to preserve that website
evidence to capture information as it existed at the time the staff discovered the information.
Website preservation must be completed by the Division’s IT staff in the Litigation
Support Branch, to help ensure a forensically-preserved copy of the relevant information.
Further Information:
The staff should direct any questions about preserving internet evidence to the Division’s
IT staff.
3.2.10.6.
Preserving Audio Recordings
The staff should be able to trace the receipt and custody of audio recording data from the
time they are received through their use at trial and demonstrate that the audio recordings were
securely stored once they came into the staff’s possession. The goal is to ensure the admissibility
of the recording by establishing its authenticity and the requisite preservation of its condition.
To maintain authenticity, the staff should follow these procedures:
•
When obtained, audio recordings should be affixed with a Bates or control number.
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•
Testimony of the recording’s custodian should establish the producing party’s procedures
for making and maintaining audio recordings, the procedures used to produce the audio
recordings to the SEC, and the location of the originals (if copies were produced). The
custodian should also be asked to identify the date and time of the recordings, and the
speakers and the source of the recording, such as the telephone numbers associated with
the recording. This information is often available in digital recordings by retrieving data
files created at the time the recording was made that capture this information.
•
If copies of recordings are produced, the staff should ensure the custodian testifies on the
record that the custodian understands the obligation to maintain the originals in a place
and manner sufficient to preserve their authenticity.
•
The staff should have transcripts prepared of all audio recordings with evidentiary value.
The transcript should identify the source of the recording (e.g., meeting, presentation,
news video), each speaker, the speaker’s location, and the dates and times the original
recording was made. The transcript should also identify the name of the person who
prepared it, the date the transcript was prepared, and any information sufficient to
describe the specific medium (e.g., disc, tape) transcribed.
3.2.10.7.
Preserving Electronic Media
Basics:
Laptops, personal devices, such as smartphones or tablets, and data storage devices, such
as computer hard drives, CDs, DVDs, backup tapes, or USB flash drives, may contain
information that may be useful during an investigation. In instances where staff anticipates any
such devices might be submitted or requested, staff should first consult with the Division’s
Information Technology Forensic Lab (“ITFL”) within the Office of Technical Services
(“OTS”).
•
Staff should create an appropriate service request for ITFL support. Qualified digital
ITFL forensic analysts will create and analyze forensic images of the device(s). The
analysts will extract relevant data and artifacts, and those will be submitted for inclusion
into the SEC’s electronic file management and review systems.
o The ITFL will securely store and safeguard the original device(s) and subsequentlyderived forensic images according to its evidence handling procedures. These
procedures will establish the authenticity of the hardware and prevent against any
alteration or destructi
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