Worried That Your Next SEC Audit Will End in Fines? TAKE THE ASSESSMENT

Can an Alleged SEC Violation Be Settled?

SEC settlement concept, a lawyer shaking hands

When the Securities and Exchange Commission (SEC) initiates investigations into alleged violations of securities laws, it may create the perception that the subject of the investigation is entirely at the mercy of the Commission. However, it is important to note that alleged violations can and frequently do result in settlements.

In practice, the SEC often prefers settlement agreements as long as certain conditions are met. These conditions typically involve compensating affected investors and ensuring the protection of the public interest. Settlements allow for a resolution that benefits both parties involved. Rather than solely dictating the terms of the investigation, the SEC recognizes the value of reaching a settlement agreement. This approach allows for a more efficient resolution while still fulfilling the SEC’s mandate to safeguard investors and maintain the integrity of the financial markets.

It is worth noting that during settlement negotiations, the subject of the investigation can have the opportunity to provide input and engage in discussions with the SEC. By working cooperatively and demonstrating a commitment to remedying any potential harm, the subject of the investigation can actively participate in the resolution process.

Overall, while the SEC has a significant role in investigating alleged violations, settlement agreements provide a potential avenue for resolving matters in a manner that considers the interests of all parties involved, including investors and the public.

You need diligent legal representation to protect your rights in an SEC settlement. You can count on My RIA Lawyer to advocate for you and your interests.

Pros and Cons of an SEC Settlement

Making a settlement offer can save the alleged violator significant sums of money in penalties. It can also save time, attorney’s fees, court costs, and other expenses. Finally, the right settlement can give the alleged violator certainty in the outcome versus protracted court action. This helps the subject move on and put the matter behind him or her.

However, there are drawbacks to settling an SEC investigation. You may have to admit liability for actions you genuinely did not know were wrong. You could also face public scrutiny as certain facts are made public. Finally, you may need to waive certain rights and be subject to discipline that could threaten your licensure or business.

It is critical to retain legal counsel as soon as you learn you are the subject of an SEC investigation. Your lawyer will help you weigh your options and decide the best path forward.

Early Settlement Is Favored

Under 17 CFR § 201.240 (a), a rule governing SEC settlements:

“Any person who is notified that a proceeding may or will be instituted against him or her, or any party to a proceeding already instituted, may, at any time, propose in writing an offer of settlement.”

The SEC generally favors settlement because it can compensate affected investors more quickly than litigation. But it is generally advised that settlement be commenced sooner rather than later. If an early offer is not made, the SEC will ramp up its litigation efforts to reach its desired outcome.

How the SEC Settlement May Be Worked Out

There’s an intricate process to making and considering an SEC settlement offer. The Commission must be convinced that the settlement is within the range of possible outcomes it could achieve through litigation. Investors and anyone else harmed by the alleged violation must be compensated. Some restrictions, such as license suspension, should be expected.

Counsel representing the subject of an investigation can submit an offer to SEC lawyers. The attorneys will review the offer and then decide whether to recommend it to the Commission. If the settlement is rejected, it does not go on record.

If it is accepted, the Commission will send the following items to the alleged violator:

  • Offer of settlement and proposed order that institutes an administrative proceeding
  • A document production certification
  • District court consent
  • Final judgment of the court
  • Escrow agreement regarding the settlement money

There could be a series of negotiations back and forth between the subject and the Commission. But by settling the offer, the SEC agrees to not litigate or pursue the matter any further. The subject of the investigation agrees to not dispute or litigate the matter either. All terms, conditions, and stipulations are finalized during the settlement process. The SEC will file and publish a litigation release at the conclusion of the matter.

Let My RIA Lawyer Represent You During SEC Settlement Proceedings

The decision of whether to settle an SEC investigation is serious business. It needs to be undertaken with the assistance of experienced legal counsel looking after your best interests. Our team can help you weigh the advantages and disadvantages of taking this step. We can also ensure that the terms of the settlement are fair to you and answer questions you have during the process.

If you’re the subject of an SEC investigation, reach out to My RIA Lawyer today.

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

LinkedIn | State Bar Association | Avvo | Google