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Important facts about SEC investigations

On Behalf of | Aug 2, 2019 | federal offenses | 0 comments

Texas state authorities may investigate potential violations of state laws. When it comes to federal violations, though, various federal government agencies step in to investigate, enforce and prosecute. According to the U.S. Department of Justice, the U.S. Securities and Exchange Commission is the agency most likely to investigate an accusation of securities fraud.

The Enforcement Division of the SEC has the authority to recommend investigations and civil or administrative actions, and prosecute the cases.


Common violations that prompt the SEC to investigate include the following:

  • Sale of unregistered securities
  • Insider trading
  • Theft of customer securities or funds
  • Manipulation of securities market prices
  • Misrepresentation of securities information
  • Omission of securities information

Investigative methods

SEC investigations are private, and involve a variety of methods to uncover evidence and develop a clear picture of the facts of a case. Investigative activities such as the following are often used:

  • Conducting informal inquiries
  • Surveilling market activities
  • Following up on investor tips and complaints
  • Interviewing witnesses
  • Reviewing trading information
  • Examining brokerage records

Civil actions

The SEC may file a civil action in federal court if it determines that someone has violated securities law. If the Commission requests an injunction, it typically will prohibit the defendant from any actions or practices that violate SEC rules and regulations. It may also require accounting for frauds, audits and special supervisory arrangements.

The court may order civil monetary penalties and/or require the offender to return illegal profits. The defendant may also receive a suspension from serving as a director or officer of a corporation. Violating a court order could lead to more fines and/or a prison sentence.

Administrative actions

Rather than taking the case to a federal district court, the Commission may seek sanctions through an administrative proceeding instead. At a hearing, an administrative law judge will consider evidence from the Enforcement Division staff and from the defendant and issue a decision that includes recommended sanctions. These may include revocation of broker-dealer registration or investment advisor registration, censures, monetary penalties, cease and desist orders and disgorgement.

At this point, the defendant and the Division could appeal all or a part of the judge’s decision to the SEC, and the decision may be reversed, remanded or affirmed.

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