What Triggers SEC Referral to DOJ

Last Updated on: 13th December 2025, 01:34 pm

What Triggers SEC Referral to DOJ

The referral already happened. You just don’t know it yet.

That’s the part nobody explains when you search for “what triggers SEC referral to DOJ.” You’re looking for a list of factors, some warning signs, maybe a threshold you haven’t crossed yet. But here’s the reality: by the time you’re worried about what triggers a referral, there’s a decent chance the Department of Justice is already running a parallel criminal investigation. The SEC hasn’t told you. They’re not required to. And every answer you’ve given to their “civil” questions is being catalogued for a prosecution you don’t know exists.

This isn’t speculation. This is how the system actually works. The SEC conducts civil investigations. They can’t put you in prison. But they build the case for the agency that can – and they do it while you’re still cooperating, still thinking you’re handling a regulatory matter, still believing that being helpful will make this go away.

The Parallel Investigation You Don’t Know About

Heres the thing most people dont understand about SEC investigations. The question isnt whether the SEC will refer your case to the DOJ. The question is whether the DOJ is already investigating you in parallel – right now, while your still answering SEC questions, while your still producing documents, while your lawyer is still telling you that cooperation matters.

The Justice Manual explicitly allows this. Parallel proceedings – where a civil investigation and criminal investigation run simultaneously on the same conduct – are “entirely appropriate under the law.” The SEC dosent have to tell you theres a criminal investigation running alongside there civil one. They can legally decline to answer if you ask.

Think about what that means. Your sitting in a conference room with SEC enforcement staff. Your answering questions. Your trying to be helpful because everyone says cooperation is important. Meanwhile, DOJ prosecutors are recieving copies of everything your saying through something called an “Access Request.” One formal request from DOJ, and they get everything the SEC has collected. Your testimony. Your documents. Your own words, given freely because you thought this was civil.

Thats the trap. The SEC investigation IS the criminal investigation. You just dont realize it yet.

How the Access Request System Actually Works

OK so heres how this actually functions behind the scenes. The SEC has rules that allow sharing information with other government agencies. When DOJ wants what the SEC has collected, they submit an Access Request. Its basicly a formal ask for the entire investigative file.

The SEC grants these requests routinely. Why wouldnt they? There incentive structure rewards criminal prosecutions. An SEC enforcement action that results in criminal charges looks better in there annual reports. It justifies there budget. It shows Congress theyre being tough on securities fraud.

Heres what gets transfered through an Access Request. Every document you produced. Every email you turned over thinking it would show your good faith. Every transcript of every interview were you answered questions trying to be helpful. The SEC’s internal memos analyzing your testimony. There notes on which statements dont match the documents. There assessment of your credibility.

DOJ dosent start from zero. They start with a complete investigative file assembled by people who spent months or years getting you to cooperate. The prosecutors receiving that file already know were the bodies are buried because the SEC mapped the cemetery for them.

So the same SEC investigators who got you to cooperate – who assured you this was civil, who implied that being helpful would work in your favor – those investigators dont disappear when DOJ gets involved. They get “detailed” to the Justice Department. Literally assigned to help prosecutors build the criminal case. The people who know your file best, who know exactly which of your statements contradict the documents, who understand every weakness in your position – there now working for the prosecution.

Think about what that means for your defense. The people who know your case most intimately are now on the other side. Every strategic vulnerability they identified during the civil investigation becomes a prosecutorial weapon. Every inconsistency they flagged in there internal memos becomes fodder for cross-examination. You cooperated with people who are now actively trying to put you in prison.

This is not a theoretical risk. This happens constantly.

What Actually Triggers a Criminal Referral

Lets talk about the formal triggers, even though by now you understand the referral might of already happened without your knowledge.

The SEC Division of Enforcement investigates. When they find something, staff presents there findings to the SEC Commissioner. Not a committee. Not a panel. One person – the Commissioner – authorizes weather to bring civil charges, administrative action, or refer the case to DOJ for criminal prosecution.

The factors the SEC considers include:

The magnitude of the violation. A $50,000 fraud gets treated differently then a $50 million fraud. But magnitude alone dosent determine criminal exposure – the Theranos case involved fraud allegations in the billions, while Martha Stewart’s case involved avoiding losses of $45,673. She still went to prison.

Evidence of intent. Securities violations can be technical or they can be deliberate. The SEC looks for evidence you knew what you were doing was wrong. Emails help them here. So do recorded phone calls. So does testimony where you admit things you shouldn’t of admitted.

Harm to investors. More victims, more likely theres criminal exposure. But “harm” is defined broadly – it includes money lost, trust violated, and market integrity damaged.

Wether you obstructed. This is were Martha Stewart’s case becomes instructive. She wasn’t convicted of insider trading. She was convicted of lying about insider trading. The cover-up became the crime. Obstruction of justice, making false statements, conspiracy – these charges stick even when the underlying conduct dosent result in conviction.

The Numbers That Should Concern You

Heres were it gets uncomfortable. Roughly 0.56 criminal actions occur per SEC enforcement action. Thats more then one criminal case for every two enforcement actions. Its not rare. Its not exceptional. Its routine.

And once DOJ decides to prosecute? The federal conviction rate is 93%.

Read that again. Ninety-three percent.

DOJ dosent bring cases they think they might win. They bring cases there certain to win. By the time your charged, they’ve already reviewed all the evidence the SEC collected. They’ve already read your testimony. They’ve already identified the contradictions, the admissions, the moments were you said something that can be used against you. The trial is almost a formality.

The average SEC investigation takes 21.6 months before any enforcement action. Complex fraud cases average 34 months. Thats nearly three years of building evidence before anyone tells you what there planning to do with it. Three years of cooperation. Three years of document production. Three years of testimony that becomes criminal evidence.

Martha Stewart: What Everyone Gets Wrong

Everyone remembers Martha Stewart went to prison for insider trading. Except she didnt.

She was acquitted of the securities fraud charge related to insider trading. What she was convicted of was lying about it. Obstruction of justice. Making false statements. Conspiracy.

Heres the sequence that destroyed her. Merrill Lynch’s internal compliance department noticed unusual trading in ImClone stock. They referred it to the SEC. The SEC investigated. The FBI got involved. A federal grand jury indicted her on nine counts.

The amount of money at stake? She avoided losses of $45,673 by selling when she did. Less then fifty thousand dollars. Her civil penalty was $195,000 – four times what she saved. Her criminal sentence was five months in federal prison, five months home confinement, and two years probation.

The trade that started everything wasnt even proven illegal. The crime was how she handled the investigation.

This is why lawyers tell you to shut up. This is why cooperation without strategy is suicide.

Think about that for a second. You can be aquitted of the underlying conduct and still go to prison for how you responded to the investigation. The SEC dosent need to prove you committed securities fraud. They just need to catch you lying about it, or covering it up, or contradicting yourself in testimony.

The Fifth Amendment Trap

So you invoke your Fifth Amendment right not to testify. Problem solved, right?

Not exactly. Heres the cascade that follows.

In a civil proceeding, the judge or jury can draw an adverse inference from your refusal to testify. You invoke the Fifth, and the factfinder is allowed to assume you had something to hide. Your civil case becomes much harder to win. The SEC’s allegations become presumptively true because you wouldn’t answer questions about them.

But wait – theres more. If your in the securities industry and you invoke the Fifth, FINRA can bar you from the industry. No hearing required on the underlying allegations. Just the invocation itself becomes grounds for exclusion. Your career is over even if your never charged criminally. You’ve protected yourself from prison but destroyed your ability to work in your field.

And it gets worse. Your clients find out. Your employer finds out. The industry talks. Even if you win both the civil and criminal cases eventually, the reputational damage is permanent. Nobody wants to work with someone who invoked the Fifth in an SEC investigation. The stigma follows you forever.

So your choices are: Testify and potentially hand prosecutors everything they need to convict you. Or invoke the Fifth, probably lose the civil case, definitely get barred from your profession, destroy your reputation, and end your career while protecting yourself criminally.

There is no good option. There is only damage control.

This is the trap the system creates. Criminal law says protect yourself – dont talk, dont cooperate, assert your rights. Securities regulation says cooperate or we’ll destroy your career through adverse inference and industry bars. The two frameworks contradict each other, and your caught in the middle.

This is why people plead guilty to things they might of been acquitted of at trial. This is why cooperation becomes a trap. The system is designed so that every path has consequences, and most of those consequences are bad. The only question is which set of bad consequences your willing to live with.

Three Warning Signs a Parallel Investigation Already Exists

If your reading this because your already in an SEC investigation, heres what to watch for.

The SEC wont confirm or deny criminal involvement. You ask directly: “Is there a parallel criminal investigation?” They decline to answer. Thats not evasion – thats policy. But it tells you something. If there definitely wasn’t a criminal investigation, they’d probably just say so.

Multiple agencies are requesting the same documents. Your producing to the SEC. Suddenly theres also a grand jury subpoena, or an FBI interview request, or questions from a US Attorney’s office. The duplication isnt inefficiency. Its parallel proceedings.

Your Wells Notice response matters too much. A Wells Notice is the SEC telling you they intend to recommend enforcement action. You get to respond before they decide. If your lawyers are treating that response like life or death – if there agonizing over every word, if there worried about how it will read to a jury – they know something. They know that document might be exhibit A at a criminal trial.

Heres the uncomfortable truth. By the time you see these signs, the parallel investigation has been running for months. Maybe years. The DOJ dosent launch criminal investigations because they might find something. They launch because they already know something is there. The question isnt whether to prevent referral. The question is how to minimize the damage from an investigation thats already underway and already has momentum.

The Theranos Pattern

Elizabeth Holmes faced SEC civil charges in March 2018. The SEC alleged she engaged in years of fraud, deceiving investors about Theranos’s technology.

But heres what most people dont know. Federal prosecutors had been running a criminal investigation since early 2016. Two years before the SEC filed civil charges, DOJ was already building a criminal case. Holmes didn’t know. She was responding to SEC inquiries, producing documents, making statements – all while a parallel criminal investigation catalogued everything.

Think about that timeline for a second. In 2016, Holmes probably thought she was dealing with regulatory scrutiny – maybe some questions about clinical accuracy, some concerns about lab practices. She was managing the SEC relationship, being responsive, trying to contain the damage. Meanwhile, federal prosecutors were interviewing former employees, analyzing documents, building a wire fraud case that would eventually result in an eleven-year prison sentence.

The federal grand jury indictment came after the SEC settlement. Two counts of conspiracy to commit wire fraud. Nine counts of wire fraud. The allegations weren’t new – they were the same conduct the SEC had been investigating. DOJ just had two extra years of evidence collection, much of it provided through SEC cooperation.

Holmes settled with the SEC in March 2018, agreeing to pay a penalty and accept a bar from serving as an officer or director of a public company. She probably thought that was the end – a painful conclusion but a conclusion nonetheless. Three months later, the criminal indictment dropped. The civil matter she thought she’d resolved was just the surface. The criminal case had been building underneath the entire time.

This is the pattern. The SEC investigation you know about is the visible part. The criminal investigation you dont know about is running underneath, fed by the same cooperation, the same document production, the same testimony. By the time the indictment arrives, the case against you is already built.

What You Should Do If Your Facing an SEC Investigation

Stop thinking about this as civil. Assume criminal exposure exists until proven otherwise. The statistics say more then a quarter of SEC enforcement actions have a criminal component. You might be in that quarter. Acting like this is “just regulatory” when theres a DOJ investigation running in the background is how people end up in prison.

Get criminal defense counsel immediately. Not securities lawyers who sometimes handle criminal matters. Criminal defense attorneys who understand federal prosecution. They think differently. They protect differently. They understand that everything you say to the SEC might be read at your trial. Securities lawyers optimize for civil outcomes. Criminal lawyers optimize for keeping you out of prison. Those are different objectives that require different strategies.

Evaluate the Fifth Amendment calculation honestly. Yes, invoking destroys your civil case. Yes, it probably ends your career in the industry. But prison is worse. Make the calculation with eyes open. Understand the tradeoffs. Dont let fear of career consequences lead you to testify your way into a criminal conviction.

Dont assume cooperation will save you. Cooperation gives the government more evidence. Sometimes that evidence helps them understand you werent culpable. Sometimes it gives them exactly what they need to convict you. Cooperation is a strategy, not a virtue – and it needs to be deployed tactically, not reflexively. Your lawyer should be making calculated decisions about what to provide and when – not just handing over everything because “cooperation matters.”

Review every document before producing it. Not for privileged – your lawyers are doing that. Review it for criminal exposure. Does this email show intent? Does this memo contradict what you told investigators? Does this spreadsheet prove knowledge you claimed you didn’t have? The SEC wants documents to build there civil case. Those same documents become exhibits at your criminal trial.

Understand that by the time your worried about triggering a referral, the referral might of already occurred.

The SEC dosent announce criminal referrals. DOJ dosent call ahead. The first indication many people have that there facing federal prosecution is the indictment itself. Everything before that – all the cooperation, all the testimony, all the helpful document production – was evidence collection for a case you didn’t know existed.

Thats what triggers SEC referral to DOJ. Not a specific threshold. Not a checklist of factors. The trigger is the SEC’s judgement that your conduct warrants criminal attention – combined with evidence strong enough that DOJ will want to prosecute. And by the time you know they’ve made that judgement, the damage is done. The evidence has been collected. The testimony has been given. The file has been transfered.

The question was never “what triggers referral.” The question was always “what do I do now that it might of already happened.”

The answer starts with recognizing that the civil investigation your managing might be a criminal investigation in disguise – and acting accordingly before its to late. Every day you cooperate without understanding the criminal exposure is another day of evidence collection for prosecutors. Every document you produce without criminal review is another potential exhibit. Every statement you make without considering how it sounds to a jury is another nail.

The trigger already happened. Now the question is what you do about it.