Last Updated on: 28th July 2023, 07:32 pm

Being investigated for misconduct is stressful for any professional. But when the Securities and Exchange Commission gets involved, the stakes are even higher. SEC Rule 102(e) authorizes the Commission to censure, suspend, or bar professionals like accountants, actuaries, engineers, and lawyers from practicing before the SEC. This can have serious implications for your career.

If you find yourself facing potential discipline under Rule 102(e), here’s what you need to know.

An Introduction to SEC Rule 102(e)

The SEC enacted Rule 102(e) under the Sarbanes-Oxley Act of 2002. It gives the Commission authority to suspend or bar professionals who engage in improper or unethical conduct from appearing or practicing before the agency.

Specifically, the SEC can impose sanctions if it finds that a professional:

• Lacks qualifications to represent others
• Engaged in unethical or improper conduct
• Willfully violated securities laws or regulations
• Was found by a court of competent jurisdiction to have engaged in similar misconduct

The SEC uses Rule 102(e) proceedings as a regulatory enforcement tool. The aim is to protect investors and the public interest by keeping unfit professionals from interacting with the agency.

If you’re found to have violated SEC rules under 102(e), you could face a range of sanctions. This may include being censured, temporarily suspended, or permanently barred from practicing before the Commission.

Common Violations

So what kinds of misconduct typically lead to Rule 102(e) actions? Some of the most common include:

• Accounting violations – Misstating financial results, false recordkeeping, fraudulent filings, and other accounting improprieties. This is one of the top reasons accountants get charged under 102(e).
• Auditor independence violations – Auditors are prohibited from having financial, employment, or personal relationships with clients that could impair their objectivity. Rule 2-01 under Regulation S-X sets out these auditor independence rules.
• Failure to supervise – Lawyers, accountants, consultants, and other professionals can be sanctioned for failing to adequately supervise others who violate securities laws. Supervisors may be charged under 102(e) even if they weren’t directly involved in misconduct.
• Lack of qualifications or competence – Professionals can be barred if they don’t have the necessary qualifications, character, education, experience, intelligence, or judgment to represent others. Reckless, incompetent, or negligent conduct falls under this umbrella.
• Unlawful conduct – 102(e) covers any violation of federal securities laws and regulations. Insider trading, making false statements, aiding and abetting fraud, obstructing investigations, and other unlawful acts may prompt charges.

As you can see, the scope of Rule 102(e) is quite broad. Any unethical, unqualified, or illegal behavior related to SEC practice could potentially warrant sanctions.

If You’re Facing a 102(e) Investigation

So what should you do if you find out you’re the subject of a 102(e) investigation? Here are some important steps:

1. Consult experienced counsel – These complex cases require an attorney experienced in representing professionals facing SEC discipline. They can advise you on the investigation process and aggressively defend your interests. Retaining counsel should be your very first step.

2. Be responsive – Reply to any SEC requests for documents or interviews in a timely manner. Noncooperation will be viewed unfavorably and can be an independent basis for charges.

3. Seek background on SEC attorneys – Your lawyer can look into the backgrounds of the SEC attorneys handling your case. Understanding their priorities and track records can aid your defense strategy.

4. Negotiate when possible – In many cases, it’s in your best interest to try and settle 102(e) charges through negotiations rather than going to trial. An experienced SEC defense lawyer can pursue this option for you if appropriate.

5. Prepare a vigorous defense – If your case does go to trial, your legal team should be ready with a defense centered on the facts, SEC rules and procedures, and case law precedents. Witness testimony and expert opinions can also be important exculpatory evidence.

6. Submit a “Wells submission” – This allows you to present facts and arguments showing that charges aren’t warranted before the SEC makes a decision. Skilled counsel knows how to craft persuasive Wells submissions as part of your defense.

7. Appeal any adverse rulings – If you lose at trial, you can appeal to the SEC and federal courts. An appeals lawyer can help get suspensions, bars, and other penalties overturned or modified if errors were made at trial.

With the right guidance, it is possible to resolve or even defeat Rule 102(e) charges. But you need experienced professionals in your corner.

Finding the Right SEC Defense Attorney

Choosing the right lawyer is critical if you’re facing SEC discipline. Look for these important qualities:

• Substantial SEC experience – Your ideal counsel has defended many SEC cases involving Rule 102(e) charges against accountants, auditors, and other professionals. Extensive experience with SEC rules, procedures, case precedent, and regulators is a must.
• Focus on SEC defense – Some firms handle these cases occasionally, while others specialize in SEC defense work full-time. You want a lawyer whose top focus is defending clients before the SEC. That level of expertise is invaluable.
• Good track record – Of course, look for counsel with a proven history of getting positive results for professionals in SEC cases. Do they routinely settle favorable terms or win at trial? Their past outcomes speak volumes.
• Trial experience – Not all SEC cases settle. If yours goes to trial, your lawyer needs the litigation chops to mount a vigorous defense before an SEC administrative judge.
• Appeals expertise – As mentioned, you can appeal adverse SEC rulings. Opt for a lawyer who knows how to win appeals before the Commission, courts, and other appellate bodies if needed.
• Resources to match the SEC – The SEC brings significant manpower and firepower to Rule 102(e) cases. Choose counsel with the resources to thoroughly investigate, develop defenses, research precedents, and match the SEC’s force.
• Industry connections – Seasoned SEC defense lawyers have cultivated relationships with former SEC officials and other professionals. Those connections can often lend advantages in investigations and negotiations.
• Clear communication skills – You want an attorney who will keep you informed each step and clearly explain important decisions, strategies, and outcomes. Responsiveness and communication acumen are invaluable assets.

Doing research and asking the right questions will lead you to SEC counsel with those attributes. The Spodek Law Group checks every box. Their veteran NYC defense attorneys have decades of combined experience defending clients against SEC investigations and Rule 102(e) charges.

With in-depth knowledge of SEC rules and procedures plus relentless dedication to client interests, they are skilled at getting charges reduced or dismissed pre-trial. And if a trial becomes necessary, they have an exceptional track record of securing favorable verdicts in the courtroom.

Don’t take chances with your career and reputation. Contact a reputable SEC defense firm like Spodek Law Group for a consultation if you’re facing discipline under Rule 102(e). Their case-tested attorneys will protect your rights and future.