Don’t Panic! Three Things to Remember when Contacted by SEC/FINRA

One of the more frequently asked questions our team at Jacko Law Group, PC (“JLG”) answers is whether to (and how to) respond when contacted by the state or federal securities regulators, including the U.S. Securities and Exchange Commission (“SEC”).

The simple answer is yes, but with caveats. It is important to realize that the state and federal regulators (collectively, the “regulators”) will always prioritize its regulatory protections, and might tell you that your firm is not a target (at the moment), but that you should be adequately prepared to review the regulators specific requests and respond accordingly.

Now that you’ve been contacted by the regulators, there are a few things to consider to make certain you don’t end up in the regulator’s crosshairs.

Responding to the SEC’s Initial Request List

Examinations may be conducted on an announced or unannounced basis. If the examination is announced, the examination staff may send the entity a letter notifying it of the examination and containing a request list that identifies certain information or documents that the examination staff will review as part of the examination.

If you do receive an initial document request list, the SEC provides approximately one to two weeks to produce the requested books and records. If you didn’t receive advance notice, you will still be given a reasonable amount of time (usually 24 – 48 hours) to provide all requested information. Initial SEC requests usually include one or more of the following:

  • A copy of your compliance policies and procedures, as well as details about your risk assessment program
  • Your cybersecurity and business continuity plan
  • A copy of your most recent financial statements
  • Organizational diagram of adviser and affiliates, detailing ownership, control relationships, and any changes in ownership

You’ll need to provide these documents, and others, promptly.

Read more about our Regulatory Quick Response Team.

The federal and state regulators often receive incomplete responses at first, which can be problematic when you have to address their questions a second time to provide additional or corrected context. As such, we urge firms to seek experienced counsel for guidance within these sensitive and complex moments, as we have seen these inquiries can extend for one or two years if not responded to correctly. A premature response, can leave firms vulnerable for new and additional questions based on any tidbits you provide. A firm can set themselves up for success, by simply requesting for more time to prepare a complete response and an opportunity to consult with counsel.

Your Next Step: Aligning with Counsel

If you ever needed a securities regulatory attorney, this is the time. Don’t wait. Whether your firm is the target of a regulatory investigation or simply chosen to undergo a common sweep exam, you can be vulnerable during the examination process if you don’t first consult with specialized counsel for additional guidance. In fact, this is why regulators offer the opportunity to adjourn providing testimony to seek a lawyer beforehand[1].

It should be noted that one common reason that you may receive a call from the regulators is because your firm has been chosen to undergo a sweep exam. Specifically, the SEC regularly conducts sweeps to gather information related to timely areas of compliance risk such as retirement investing, cybersecurity, and business continuity plans.

Regardless of the circumstance, it is in your firm’s best interest to leverage an experience securities regulatory team while under SEC scrutiny.

A Final Point to Remember: Preparation is Key

Preparing for a visit from the regulators is not an advisable “do-it-yourself” project. Our regulatory attorneys collaborate with clients to thoroughly address their concerns and expectations and prepare them for the best possible outcome.

In reality, you should begin your preparation for a regulatory exam long before you are first contacted. A daily focus on developing and adhering policies and procedures is the best way to prepare for any exam. That being said, steps can be taken to improve your chances at a successful exam regardless of how confident you are that your firm will pass regulatory muster.

To assist, our team can help perform mock examinations that are tailored to your firm and assists with every aspect of your interaction with regulators. We work with you to keep your answers succinctly consistent to ensure you do not find yourself in an unnecessarily challenging situation. Successful interactions with the regulators depend on a level of specialized experience with similar situations, carefully planned strategic communication, and dedicated preparation.

In short, when contacted by the regulators, you should not respond until you’ve had time to huddle with regulatory specialists who can help you prepare for your specific situation. Contact our office today to learn how we can help.


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