You can only test the patience of the SEC Enforcement Division for so long during the course of an investigation, as an oil and gas company and its principal recently found out the hard way.
On June 9, 2017, the Securities and Exchange Commission filed a subpoena enforcement action in US District Court against two entities and an individual seeking the production of books and records in connection with a limited partnership oil and gas offering investigation.
The SEC’s court action arose out of the issuing of subpoenas by the Enforcement Staff to the oil and gas issuer in October 2016. The subpoenas sought certain company books and records, including offering materials, communications with investors and documents evidencing how investor funds were used — standard requests in a garden variety SEC securities offering investigation.The oil and gas issuer evidently delayed (and delayed, and delayed some more) and requested, and was apparently granted, nine separate extensions of time to produce the required documents. I assume on the tenth request the SEC simply said no more and immediately filed its subpoena enforcement action.
In the SEC’s court papers, the SEC asserted that it was investigating possible violations of the federal securities laws, including the unregistered offer and sale of oil and gas limited partnerships and joint ventures, the making of untrue statements to investors, and the possible misappropriation of investor funds. The SEC further alleged that its Enforcement Division Staff had developed evidence in its investigation thus far indicating that since 2012 more than $10 million had been raised from over 180 investors in the targeted securities offering.
The SEC’s application with the District Court requests an order compelling the oil and gas entities and its principal to fully comply with the SEC’s subpoena requests.
In my twenty-five years of experience in SEC matters, I have learned that nothing ever good comes from forcing the SEC’s hand and causing it to file a subpoena enforcement action.
Absent a privilege, the SEC will eventually obtain the documents sought by the subpoena anyway. Given that, why would you needlessly pick a fight with the SEC — which you will likely lose given the SEC’s broad powers to enforce its subpoenas under law — and thereby cause the SEC’s investigation about your company to be made public, when it otherwise would have remained non-public and confidential. In forcing the SEC to file, you create needless damaging publicity, draw further attention to an investigation that may ultimately be dropped without enforcement action, and make it much more difficult to negotiate a favorable settlement with the SEC in the event it seeks to file charges at the conclusion of the investigation.
Delaying and hoping that the SEC just goes away (the ostrich approach) is not a prudent or effective strategy during the course of a SEC investigation. There are much more effective ways to deal with SEC subpoena requests, even where they may ultimately uncover wrongdoing and securities law violations.
David Chase is a SEC defense attorney and former SEC Prosecutor who represents and defends those around the world who are being investigated or prosecuted for insider trading in SEC investigations or insider trading criminal cases. Mr. Chase is the principal of the Law Firm of David R. Chase, a SEC law firm, located in Fort Lauderdale, Florida. For a confidential consultation, you may contact Mr. Chase at: firstname.lastname@example.org or toll-free at: (800) 760-0912. The law firm’s website is: securitiesfrauddefense.net.