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SEC Subpoenas in Microcap Investigations: Promptly Engaging Experienced Counsel is Critical

By: Lucosky Brookman
SEC Subpoenas in Microcap Investigations: Promptly Engaging Experienced Counsel is Critical

Receiving a subpoena from the Securities and Exchange Commission can be an unnerving and jarring event for microcap companies and their executives. However, it is important to keep in mind that while SEC subpoenas require cooperation, companies still have rights in the process. Promptly engaging experienced outside counsel to protect interests and guide the response is absolutely essential from the moment an SEC subpoena is received.

Common Microcap Investigation Triggers Leading to SEC Subpoenas

The SEC typically issues subpoenas to microcap companies and executives in the course of inquiries into:

  • - Questionable financial reporting, accounting and internal control matters
  • - Concerns over potential misstatements, omissions or lack of transparency in public disclosures
  • - Suspicions of improper insider trading around market moving events or news
  • - Potential unregistered distributions of securities lacking appropriate exemptions
  • - Failures to adequately disclose beneficial ownership, control persons or networks of affiliated shareholders

Legally Required Response to an SEC Subpoena

It is critical to understand that an SEC subpoena carries the full force of law and compels cooperation. Recipients must respond by:

  • - Immediately preserving all potentially relevant documents, records, communications, data sources, and electronic devices
  • - Compiling and producing all materials falling within the scope of document requests
  • - Preparing for sworn investigative testimony and interviews of corporate representatives and executive officers

Refusing to substantially comply with an SEC subpoena risks federal court enforcement compelling cooperation. But improperly volunteering too much or over-cooperating also poses risks in an inherently adversarial investigative situation where regulatory pressure for admissions will be applied.

Absolute Necessity of Promptly Engaging Experienced Counsel

The stakes are extremely high any time a microcap company or its executives receive an SEC subpoena, given the broad powers of formal SEC investigations and the severe potential consequences.

As such, moving very quickly to engage experienced outside counsel with specific expertise in handling SEC and securities regulatory matters is absolutely essential. Qualified counsel zealously advocates for clients' rights while providing informed guidance on responding strategically. Counsel also oversees preparation for sworn investigative testimony to avoid pitfalls.

There are nuances to effectively navigating SEC subpoenas while mitigating exposure. We stand ready to guide clients through this serious process and protect their interests from the moment an SEC subpoena arrives. Please contact Lucosky Brookman immediately if your microcap firm is facing this situation so we can defend your rights.