Employee Rights During SEC Investigation

Your employer is not on your side during an SEC investigation. That’s the first thing you need to understand. The lawyer your company sends to interview you doesn’t represent you. The HR person scheduling that meeting isn’t looking out for your interests. Everything you say in that conference room will be packaged, organized, and handed directly to federal investigators. That’s how this works. That’s what nobody explains until it’s too late.

The company will survive the investigation. The question is whether you will. Your employer is going to protect itself, and if that means sacrificing you for something called “cooperation credit,” that’s exactly what will happen. The rights you think you have may not exist where it matters most. And by the time you figure that out, you’ve already said too much.

Here’s what every employee facing an SEC investigation needs to understand: the internal investigation your company is running right now isn’t designed to find the truth. It’s designed to identify who gets blamed. And if you’re reading this article, there’s a decent chance they’ve already decided it’s you.

The Upjohn Warning You Dont Understand

When your company’s lawyer sits you down for an “interview” about the SEC matter, there going to say something at the beginning. It happens fast. Something about how they represent the company, not you personally. How you can get your own lawyer if you want. How the privilege belongs to the company and they can waive it anytime they choose.

Thats called an Upjohn warning, named after a 1981 Supreme Court case. And heres the thing nobody tells you – that case was about protecting the COMPANY’s privilege, not yours. The whole point of Upjohn v. United States was to let companies interview employees and then decide later whether to share those interviews with the government. The case exists to give companies flexibility. You dont factor into it.

So the lawyer gives you this warning, and your probably nervous, and your probably not really processing whats being said. You think “okay, theyve warned me, now were having a conversation.” But thats not whats happening. What’s happening is the company is building a file. There documenting everything you say. And when its convenient for them – when they want that cooperation credit from the SEC – they will hand over every word.

Heres the kicker. The company gets credit for “cooperating” with the SEC investigation by turning over employee interviews. The more detailed the interviews, the more credit they get. Your statements become currency. The company trades you for a reduced fine.

This isnt hypothetical. This happens constantly. Companies do internal investigations, compile reports, and present them to the SEC as evidence of their cooperation. The SEC loves this becuase it saves them work. They dont have to interview everyone themselves – the company already did it for them. And everything you said, thinking you were helping your employer, ends up in a federal file with your name on it.

Your Internal Investigation Is The Governments Investigation

Look, alot of employees dont understand this: the internal investigation your company is running right now IS the SEC investigation. The company has basicly outsourced the government’s job.

Think about what happens. The SEC sends a subpoena or opens an inquiry. The company immediately hires outside counsel. Those lawyers interview employees, collect documents, review emails, and build a timeline of who did what and when. Then they package it all up and present it to the SEC.

The SEC could of done all that themselves. But why would they? Its cheaper and faster to let the company do the work. The company wants cooperation credit, so there incentivized to be thorough. The employees think there helping there employer, so they talk freely. Everyone wins. Except you.

By the time the SEC actualy interviews you – if they bother to interview you at all – they already have your internal interview transcript. They know what you said to the company lawyers. Now there checking to see if your story stays consistent. If you say something different, thats a problem. If you say the same thing, youve just confirmed the evidence against yourself.

The internal investigation isnt about finding truth. Its about building a case that makes the company look cooperative while identifying who to blame. And that case file goes straight to federal investigators.

The Constitutional Rights That Dont Exist at FINRA

OK so heres were it gets really wierd. If you work in securities – broker, advisor, trader, compliance – you have a second problem. Its called FINRA. And at FINRA, the Constitution basicly dosent apply.

Most Americans grow up thinking the Bill of Rights protects them everywhere. The Fifth Amendment says you cant be forced to incriminate yourself. Thats a fundamental protection, right? Except when it isnt. And in the securities industry, theres a massive hole in that protection that nobody talks about until its to late.

FINRA is whats called a self-regulatory organization. Its technically a private entity, not a government actor. And the Fifth Amendment right against self-incrimination? It only applies to the government. FINRA can demand you answer questions, and if you invoke the Fifth, they can bar you from the industry.

Let that sink in.

You can assert your constitutional right not to incriminate yourself, and FINRA will end your career for doing it. Thats not a exaggeration. Over one-third of all FINRA industry bars are for Rule 8210 violations – thats the rule that says you have to cooperate with there investigations. If you dont cooperate, your out. If you invoke constitutional protections that technically dont apply because FINRA isnt the government, your out.

Theres a guy named Alex Lubetsky who learned this the hard way. He was a registered representative at Lek Securities. FINRA wanted to question him about potential market manipulation. He asserted his Fifth Amendment rights, figuring he had constitutional protections like any other American. FINRA suspended him permanently. Not because they proved he did anything wrong – they never proved that. They suspended him because he wouldn’t talk.

He was punished for silence, not for misconduct.

WARNING: If you work in securities and your facing both SEC and FINRA exposure, your Fifth Amendment strategy has to account for both. What protects you at one destroys you at the other.

The Employment-At-Will Squeeze

Now heres the real trap. Your probably thinking “I just wont cooperate with the internal investigation. Ill stay quiet until I have my own lawyer figured out.”

Sounds reasonable. One problem: your employer can fire you for that.

Most employment in America is at-will. That means your employer can terminate you for any reason or no reason, as long as its not discriminatory. Refusing to cooperate with an internal investigation? Thats a perfectly legal reason to fire someone. Plenty of companies do it.

So your choices are:

• Cooperate with internal investigation → Everything you say gets packaged and sent to SEC → Your own words used against you in federal proceeding
• Refuse to cooperate → Fired for non-cooperation → Career damage, employment gap, potential industry gossip
• Invoke Fifth Amendment → Fired anyway, plus if FINRA involved, industry bar

There is no safe path. Thats the uncomfortable truth nobody wants to tell you. Every option has consequences. Your choosing between bad outcomes, not between a good outcome and a bad one.

CRITICAL: The moment you learn about an SEC investigation involving your company, assume your interests and your employer’s interests have diverged completely. They have. Act accordingly.

The Parallel Investigation You Dont Know About

The SEC is a civil enforcement agency. They cant send you to prison themselves. But heres what they can do: they can share everything with the Department of Justice, which definitely can.

SEC investigations frequently run parallel to criminal investigations. Sometimes the DOJ opens its own investigation after seeing what the SEC found. Sometimes they open one simultaneously without telling anyone. The SEC is not required to inform you that a parallel criminal investigation exists.

So your sitting in an SEC interview, thinking “this is civil, not criminal.” Your probably more relaxed then you should be. There no Miranda warning becuase this isnt an arrest. The SEC staff are asking questions, your answering, thinking your dealing with a regulatory matter.

Meanwhile, DOJ prosecutors are watching. Or they will be soon. Everything you say in that “civil” interview can be shared with criminal investigators. The SEC and DOJ have information-sharing agreements. Your civil testimony becomes criminal evidence.

By the time you learn theres a criminal investigation, you’ve already testified. Under oath. On the record. And now DOJ has your words.

Theres something called SEC Form 1662 that gets handed to you before SEC interviews. It explicitly warns you that information can be shared with DOJ, other federal agencies, state regulators, and self-regulatory organizations. Its all written right there in black and white. The SEC tells you exactly what they’re going to do with your testimony. Nobody reads it. Or if they read it, they dont process it. They sign it and move on. Later, when there criminal charges, they wonder how this happened. The SEC told them. On paper. Before they said a word.

Early Warning Signs Your A Target

How do you know if your a target versus just a witness? There some signs:

Document Requests Focused On You

If the company is asking specifically for YOUR emails, YOUR files, YOUR calendar from certain dates – thats not random. Someone has pointed them in your direction.

The Upjohn Meeting Gets Scheduled

When the company lawyers want to interview you specifically, thats a signal. Witnesses get general interviews. Targets get focused, detailed questioning about there specific actions.

Your Access Gets Restricted

If your suddenly locked out of certain systems, or your asked to hand over devices, or your not invited to meetings you normaly attend – the company is containing you. Thats what companies do with targets.

Colleagues Stop Talking To You

People know. Word travels fast. If coworkers are suddenly awkward around you or avoiding lunches, theyve heard something.

Your Asked About Specific Transactions

General questions mean your a witness. Detailed questions about specific trades, specific clients, specific dates – thats target territory.

Whistleblower Protection – What Actualy Applies

Maybe your thinking “Im not the wrongdoer, Im the one who reported this.” Good for you. You might have protection. But which protection depends on who you told first.

Theres two main laws here: Dodd-Frank and Sarbanes-Oxley. There different in a important way.

Dodd-Frank gives you the big protections – double back pay, reinstatement, attorneys fees, anti-retaliation. But it ONLY covers you if you reported directly to the SEC. Reported to your boss first? Reported to compliance? Reported to internal audit? Dodd-Frank dosent protect that. You have to report TO THE SEC to get Dodd-Frank protection.

Sarbanes-Oxley covers internal reporting – telling your supervisor, HR, or compliance about securities violations. But the protections are weaker. You have to file a complaint with OSHA first. Theres shorter deadlines. The remedies arent as strong.

So the irony is: reporting internally gets you LESS protection then going straight to the feds.

Look at the Paradigm Capital case. First SEC retaliation enforcement ever, back in 2014. An employee reported problems to the SEC. Paradigm didnt fire them outright – that would be to obvious. Instead, they marginalized them. Stripped supervisory responsibilities. Changed there job function. Made work unbearable. Death by a thousand cuts. It took the SEC getting involved before anything happened. Paradigm paid $2.2 million.

Or look at NS8. The CEO, Adam Rogas, found out an employee had filed a SEC whistleblower complaint. Same day, the employee got locked out of the computer system. Same week, fired. But it gets worse – Rogas actually accessed the employees personal accounts to find there SEC correspondence. They went looking for proof that the employee had reported them. Then used that proof to fire them faster.

The SEC eventually came after Rogas, but that dosent undo what happened to the employee.

Decision Matrix – Your Actual Options

Let me lay this out clearly. Your options and there consequences:

Option 1: Cooperate Fully With Internal Investigation

• Consequence: Everything you say goes to SEC
• Consequence: Your statements used at your own proceeding
• Consequence: Company gets cooperation credit, you get exposed
• When this makes sense: Only if you genuinely did nothing wrong AND have your own lawyer reviewing what your saying

Option 2: Refuse to Participate in Internal Investigation

• Consequence: Likely termination for non-cooperation
• Consequence: Looks bad to future employers
• Consequence: Company may infer guilt from silence
• When this makes sense: When criminal exposure is serious and your lawyer advises silence

Option 3: Invoke Fifth Amendment at SEC Interview

• Consequence: SEC can draw adverse inference in civil case
• Consequence: May result in civil penalties anyway
• Consequence: If FINRA involved, automatic industry bar
• When this makes sense: When criminal exposure is real and more important then civil/career consequences

Option 4: Get Your Own Lawyer Immediately

• Consequence: Costs money
• Consequence: Company may view as adversarial
• Consequence: Buys you time to understand your exposure
• When this makes sense: ALWAYS. This is the only option that makes sense in every scenario.

BOTTOM LINE: Get your own lawyer before you say another word. Not the company’s lawyer. Not a recommendation from the company. Your own independent counsel who represents only you.

Timeline Reality Check

How these things actualy unfold:

Days 1-30: Internal Investigation Begins

• Company hires outside counsel
• Document preservation notices go out
• Initial employee interviews scheduled
• You might not even know your a focus yet

Days 30-90: Case Gets Built

• More interviews, more documents
• Pattern of conduct identified
• Potential targets identified
• Company starts thinking about cooperation strategy

Days 90-180: SEC Gets Involved (If Not Already)

• Company presents “cooperation package” to SEC
• Your internal interview transcripts included
• SEC reviews, decides on next steps
• You may be called for SEC interview

Months 6-12: Wells Notice Possible

• If SEC pursuing enforcement, Wells notice issued
• You get chance to respond before charges
• This is when most people finally get serious about defense
• Often too late – you’ve already talked to much

Years 1-2: Average Investigation Length

• SEC investigations average two years
• Some go longer
• Your career in limbo the whole time
• Cant really move on until its resolved

What You Actualy Need To Do

Forget everything you think you know about employment loyalty. Forget that your a team player. Forget that you have nothing to hide. The moment an SEC investigation touches your company, you need to think about yourself.

Get Your Own Lawyer – Not The Companys

The company’s lawyer does not represent you. I know Ive said this already. Im saying it again because people keep making this mistake. Upjohn warnings are given fast and forgotten faster. Get someone who works for you.

Stop Talking To Coworkers

Every conversation you have about the investigation is a potential problem. Your coworkers might be interviewed. What you said to them gets reported. Keep your mouth shut.

Preserve Everything But Touch Nothing

Dont delete emails. Dont organize files. Dont “clean up” anything. Document destruction is a federal crime under 18 USC 1519 – up to 20 years. But also dont access things you dont normaly access. Unusual system activity gets flagged.

Understand Your Exposure Across Agencies

SEC exposure. Possible DOJ exposure. FINRA exposure if your registered. State regulator exposure. Each one has different rules. Your Fifth Amendment strategy has to work across all of them.

Know What Whistleblower Protections Apply

If your the reporter, not the target, figure out your protection status. Did you report to SEC directly? Dodd-Frank applies. Did you report internally? SOX applies, but its weaker. Document everything about when you reported, to who, and what happened after.

Dont Wait For The Interview Request

By the time the company or SEC wants to interview you, they already have information. Getting ahead of this – with proper counsel – is almost always better then waiting.

The company will survive this investigation. Most companies do. The question is whether you will. Your employer is going to protect itself, and if that means handing over your statements for cooperation credit, thats exactly what happens. The rights you think you have may not exist at FINRA. The lawyer you thought was helping you is building a file.

Ive seen to many people learn these lessons the hard way. They trusted there employer. They thought the company lawyer was helping them. They didn’t understand Upjohn warnings or FINRA Rule 8210 or the way internal investigations become government cases. By the time they figured it out, there words were already in federal files. There careers were already damaged. The damage was done.

You dont have to be one of those people. But you have to act now. Not after the interview. Not after you “see how it goes.” Now.

Get your own representation. Today. Before you say another word to anyone.