Fort Lauderdale, FL SEC defense attorney David R. Chase talks about what happens in an SEC investigation. He describes how SEC investigations can begin through several different sources, including whistleblowers, news or media reports that alert the SEC to a potential issue, or referrals from other regulatory agencies. He notes that insider trading investigations, in particular, often arise from referrals from FINRA or NASDAQ when potentially suspicious trading activity is identified. He also points out that the SEC has its own technology designed to detect suspicious trading patterns, which can generate leads for further investigation.

He explains that once the SEC begins investigating, the matter is usually treated as an informal inquiry, meaning the agency does not initially have subpoena power but may request voluntary cooperation from individuals. He notes that licensed individuals and entities, such as investment advisers and securities broker-dealers, generally do not require a subpoena because they are licensed and registered and are therefore required to cooperate with the SEC. If the inquiry advances or the SEC cannot obtain the necessary information voluntarily, the agency may seek subpoena power, at which point the investigation becomes formal.

He points out that during a formal investigation, the SEC can issue subpoenas requiring individuals and companies to produce documents, appear for testimony under oath, and provide other information as the agency uses its extensive resources to investigate the matter. He states that once the investigation concludes, the SEC generally has two options: determine that there is insufficient evidence to bring charges and close the investigation, or determine that sufficient evidence exists to support an enforcement action.

He further describes the Wells notification process, explaining that if the SEC staff believes it has sufficient evidence to pursue charges, it may issue a Wells notification to the targeted individual and their legal counsel informing them that the staff intends to recommend an enforcement action to the SEC Commission. He notes that counsel then has an opportunity to respond and present reasons why the SEC should not bring charges against the client. If that effort is unsuccessful, he explains that the parties may attempt to negotiate a resolution, and if no settlement can be reached, the matter may ultimately proceed to litigation.