An SEC formal order of investigation is an order authorizing the Securities and Exchange Commission’s Enforcement staff to conduct a formal investigation and, when authorized, exercise subpoena powers. Importantly, it does not mean that the SEC has already determined that a person or company violated the federal securities laws.
For individuals, executives, public companies, investment advisers, brokers, traders, and other securities-market participants involved in an SEC investigation, however, the formal order can provide important information about what the SEC is investigating, approximately when the inquiry may have been initiated, the potential securities-law violations under consideration and the factual grounds upon which they are based.
This article explains what an SEC formal order is, how to obtain it, what information it may reveal, its limitations, and why it can be a very important document for an SEC defense lawyer when analyzing an investigation.
What Is an SEC Formal Order of Investigation?
An SEC formal order of investigation authorizes designated SEC Enforcement staff to conduct a formal investigation into potential violations of federal securities laws.
A formal order can designate SEC staff as officers of the Commission and authorize them to:
- Issue subpoenas
- Compel witnesses to appear
- Take testimony under oath
- Administer oaths and affirmations
- Require production of books and records
- Obtain documents, communications, and other evidence
Formal orders can be used in investigations involving securities fraud, insider trading, market manipulation – including spoofing, accounting and disclosure issues, investment adviser violations, and securities offerings, and all other potential violations of the federal securities laws.
Does a Formal Order Mean the SEC Thinks You Violated the Law?
No.
This is one of the most important points to understand.
An SEC formal order is an investigative authorization, not a finding of wrongdoing. The SEC is authorized to investigate whether violations occurred; the formal order itself does not establish liability.
An SEC investigation can ultimately result in:
- No enforcement action
- A settlement
- A Wells Notice and possible enforcement recommendation
- An administrative proceeding
- A federal court action
- A referral to another government agency, including the Department of Justice, when appropriate
Accordingly, receiving an SEC subpoena or learning that an investigation has become formal does not necessarily mean that charges are coming; however, a formal investigation should be taken extremely seriously because it gives designated SEC staff formal investigative and subpoena authority.
What Is the Difference Between an Informal and Formal SEC Investigation?
The SEC may begin an inquiry by voluntarily requesting information, documents, or interviews.
An informal SEC investigation generally relies on voluntary cooperation.
A formal SEC investigation, by contrast, is authorized by a formal order and can give designated Enforcement staff the power to compel testimony and documents through subpoenas.
This distinction is important because a subpoena recipient has legal obligations that do not apply to a purely voluntary request.
How Do You Obtain an SEC Formal Order?
If you have received an SEC subpoena or have been requested or compelled to provide documents or testimony in a formal investigation, you may be entitled to receive a copy of the formal order.
SEC Rule 203.7 addresses this procedure.
The SEC’s Enforcement Manual explains that a person who is compelled or requested to provide documentary evidence or testimony in a formal investigative proceeding may request to be shown the formal order.
Obtaining a copy to retain is a separate issue. The SEC’s procedures require appropriate approval before a copy may be furnished for retention, and confidentiality and other considerations can apply.
For that reason, if you have received an SEC subpoena, it is generally advisable to have an SEC defense attorney handle the request and review the order with you.
What Information Can You Learn From an SEC Formal Order?
A formal order can be one of the most useful documents available in the early investigative stage. In my over thirty years of securities law experience, including serving as Senior Counsel in the SEC’s Enforcement Division, I have found that the contents of a SEC Formal Order can help reduce the informational disadvantage that typically exists in an investigation, particularly at the early stages.
Early analysis may also provide an opportunity to address issues with Enforcement staff before the investigation progresses to a Wells Notice or enforcement action.
- The Subject Matter of the Investigation
The order may describe the conduct the SEC is authorized to investigate, such as:
- Insider trading
- Securities fraud
- Market manipulation
- Accounting fraud
- False or misleading statements
- Unregistered securities offerings
- Investment adviser violations
- Broker-dealer violations
- Public-company disclosure issues
- Books-and-records violations
- Internal accounting controls
The precise wording can help an attorney understand the general investigative theory.
- Potential Securities-Law Violations
A formal order typically identifies specific statutory or regulatory provisions under investigation, such as:
- Exchange Act Section 10(b)
- Exchange Act Rule 10b-5
- Securities Act Section 17(a)
- Securities Act Section 5
- Exchange Act reporting provisions
- Investment Advisers Act provisions
- Investment Company Act provisions
These references can help counsel begin analyzing the legal elements the SEC might ultimately need to establish.
However, the citations should not automatically be treated as the SEC’s final enforcement theory. Investigations can and do evolve.
- Relevant Time Periods
The formal order may identify the period during which the SEC believes relevant conduct occurred.
That can help counsel construct a chronology:
What happened? When did it happen? Who knew what? When did they know it? What communications occurred? What transactions took place?
A chronology can be particularly important in SEC insider trading investigations.
- Factual Basis for the Potential Securities Law Violations
The formal order usually includes a brief description of the factual basis for the proposed securities violations under scrutiny. For example, if the SEC is investigating a securities offering fraud, it may indicate that it is looking at the issuer’s representations regarding the promised return, the risks involved and the use of investor funds. For SEC defense counsel, this insight can be highly valuable as it allows for a more focused approach to analyzing the client’s potential legal exposure.
- Securities, Transactions, Individuals, or Entities
Depending on the order, it may identify particular securities, transactions, companies, individuals, or other conduct.
This information can then be compared with the SEC subpoena and subsequent document requests to provide useful intelligence about where the SEC’s investigative focus began and where it may be headed.
Does the Formal Order Tell You Whether You Are a “Target”?
Not necessarily.
While the SEC, unlike the DOJ, does not officially have a classification system of “targets”, “subjects” or “witnesses”, in practice they do.
The fact that the SEC wants your testimony or records does not, by itself, establish that you are the primary target.
Conversely, not being specifically named in a formal order does not necessarily mean you face no risk.
Determining your status requires looking at the formal order, subpoena, SEC correspondence, requested testimony, and surrounding facts together in order to make an intelligent assessment.
What Are the Limitations of an SEC Formal Order?
While a formal order certainly provides valuable information, it is not by any means the SEC’s complete investigative file.
The formal order is therefore a roadmap to the authorized investigation—not a complete blueprint of the SEC’s case.
Formal Order vs. SEC Subpoena vs. Wells Notice
These documents represent different stages or functions in the SEC enforcement process.
| Document | Purpose |
| SEC Formal Order | Authorizes a formal investigation and designates staff with investigative powers |
| SEC Subpoena | Compels a person or entity to provide documents or testimony |
| Wells Notice | Advises that SEC staff is considering recommending enforcement action |
| Enforcement Action | Commences an administrative or federal court proceeding |
A formal order is not a Wells Notice, and a Wells Notice is not a finding of liability.
What Should You Do If You Receive an SEC Subpoena?
If you just received a SEC Subpoena or have been requested to be interviewed, this is the critical time to retain experienced an SEC defense lawyer to avoid making critical mistakes that may irreparably harm your chances of avoiding charges.
Have an attorney review the subpoena
An experienced SEC subpoena lawyer can analyze the scope of the subpoena, its definitions, time periods, document categories, testimony topics, privilege issues, and potential areas of exposure.
Obtain and review the formal order
Where appropriate, counsel can request a copy of the formal order.
Prepare before providing testimony
If the SEC requests an interview or sworn testimony, preparation should occur before the testimony date.
The attorney should understand the documents, chronology, potential weaknesses, favorable evidence, and questions that may arise.
SEC Defense Attorney – Nationwide Representation
The SEC Defense Law Firm of David R. Chase is based in Fort Lauderdale, Florida, and represents clients throughout South Florida—including Miami, Fort Lauderdale, Boca Raton, Palm Beach, and other Florida communities—as well as clients nationwide.
The firm’s practice includes SEC investigations, SEC subpoenas, insider trading investigations, securities fraud investigations, market manipulation matters, Wells Notices, and other securities enforcement proceedings.
Because David R. Chase previously worked in the SEC’s Division of Enforcement, he brings firsthand insight and highly-valuable experience with the investigative and enforcement process to the defense of clients facing SEC scrutiny.
Frequently Asked Questions About SEC Formal Orders
What is an SEC formal order of investigation?
An SEC formal order authorizes a formal investigation and designates SEC staff to exercise investigative powers, including subpoena authority where authorized.
Does a formal order mean the SEC has charged me?
No. A formal order is an investigative authorization and does not establish that a securities-law violation occurred.
Does an SEC subpoena mean I am a target?
Not necessarily. A subpoena recipient may be a witness or third party whose information is relevant to another person’s or company’s investigation.
Can I obtain a copy of an SEC formal order?
Depending on the circumstances, a person requested or compelled to provide testimony or documents in a formal investigation may request to be shown, or receive a copy of, the formal order. Obtaining a retained copy is subject to applicable SEC procedures.
What does an SEC formal order reveal?
It may identify the subject matter of the investigation, relevant conduct, securities, transactions, entities, individuals, time periods, and potential securities-law provisions.
What does an SEC formal order not reveal?
It does not disclose the SEC’s entire investigative file — all witnesses, confidential sources, internal investigative analysis, or the staff’s complete enforcement assessment.
Can an SEC investigation end without charges?
Yes. An SEC investigation can successfully conclude without an enforcement action.
Contact an SEC Defense Attorney
If the SEC has contacted you, issued an SEC subpoena, requested documents, or asked you to provide an interview or testimony, do not assume that the matter will simply go away—and do not assume that an enforcement action is inevitable.
Understanding the formal order, the subpoena, and the SEC’s apparent investigative focus are important first steps in developing an effective defense.
David R. Chase is a former SEC Enforcement attorney representing clients in SEC investigations and securities enforcement matters nationwide.
For a strictly confidential consultation directly with David R. Chase, call 800-760-0912.
This article is for general informational purposes only and does not constitute legal advice. Every SEC investigation is fact-specific, and the procedures and legal issues applicable to a particular matter may vary. No attorney-client relationship is created by reading this article or contacting the firm through this website.
