A Strategic Approach to SEC Investigations (Portfolio 5504)

  • This Portfolio discusses the essential and fundamental aspects and functions of audit committees, focusing on their working relationship with other corporate governance participants.


Tax Management Portfolio 5504, A Strategic Approach to SEC Investigations (Accounting Policy and Practice Series), discusses strategic considerations for a company under investigation by the SEC for financial reporting problems. The Portfolio focuses on evaluating the company’s risks and developing a strategy to preserve the value of the company’s corporate franchise to the fullest extent possible for the benefit of shareholders and other investors. The dangers of defending the company without fully understanding its legal exposure are described. The importance of self-evaluation, particularly by means of a properly conducted internal investigation, is emphasized.

The Portfolio discusses the SEC’s policy of rewarding cooperation by companies under investigation, and its policy of penalizing lack of cooperation. It also explains the sanctions available to the SEC and the process for settling with the SEC. Finally, the Portfolio presents a paradigm for determining the appropriate strategy for defending the company. The Portfolio is organized according to the timeline of major steps in a typical SEC investigation. Thus, after an introductory section, Section II details the beginning of the investigation, Section III its middle stages, and Section IV the final stages of the investigation, including possible sanctions and their collateral consequences. Section IV also discusses the Wells process, settlements of investigations, and important strategic considerations. For the reader’s convenience, the worksheets reproduce pertinent documents from the SEC and the U.S. Department of Justice. These documents include reports of investigations, settlement agreements with companies, and press releases.

This Portfolio emphasizes strategic considerations for a company under SEC investigation. The Portfolio is not intended to address comprehensively the many technical issues and nuances with which defense counsel must concern themselves during SEC investigations and litigation.

Securities law attorneys will appreciate that this Portfolio covers an enormous range of topics within the body of the federal securities laws and should understand that the citation of cases and other authorities herein is illustrative, not comprehensive. This Portfolio is intended first and foremost to be a practical aide to the management and directors of public companies, and not a traditional legal treatise. In the interest of making the issues discussed herein accessible to nonlawyers, this Portfolio is written in the vernacular, and gives preference to comprehensibility for the layperson over technical legal precision. A reader seeking a more detailed and technical discussion of relevant issues should refer to Tax Management Portfolios concerning particular bodies of law or accounting rules.

This Portfolio may be cited as Tax Management Portfolio 5504, Wang, A Strategic Approach to SEC Investigations (Accounting Policy and Practice Series).

Table of Contents

I. Introduction, Scope, and Purposes of Portfolio
II. The Beginning of the Investigation
III. The Middle Stages of the Investigation
Introductory Material
IV. The End Game

Leonard Wang
Former Assistant Director
Division of Enforcement, SEC
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