Formal Order of Investigation

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The SEC Formal Order of Investigation is the starting point of every formal investigation. The following is taken from the SEC Enforcement Manual:

2.3.3 Formal Orders of Investigation The federal securities laws authorize the SEC, or any officer designated by the SEC, to issue subpoenas requiring a witness to provide documents and testimony under oath. See, Section 19(c) of the Securities Act, Section 21(b) of the Securities Exchange Act, Section 209(b) of the Advisers Act, and Section 42(b) of the Investment Company Act. The Commission designates members of the staff to act as officers of the Commission in an investigation by issuing a Formal Order of Investigation (“formal order”).

2.3.4 Formal Order Process Introduction: Pursuant to delegated authority, the Director of the Division may, in his or her discretion, issue a formal order when a formal investigation is appropriate and necessary to determine 17 whether a violation of the federal securities laws may have occurred or may be occurring. The formal order serves two important functions. First, it generally describes the nature of the investigation that has been authorized, and second, it designates specific staff members to act as officers for the purposes of the investigation and empowers them to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of documents and other materials. Formal investigative proceedings are nonpublic unless otherwise ordered by the Commission. Basics of the Formal Order Process: The Commission has delegated authority to issue formal orders to the Director of the Division of Enforcement. To seek a formal order of investigation, staff should draft a memo for review by the Director, as well as a proposed order. If authorized by the Director, the formal order will be issued by the Office of the Secretary. A MUI should be converted to an investigation in HUB before issuance of a formal order. Supplementing a Formal Order Once a formal order has been issued, the Division has delegated authority to issue supplemental orders naming additional staff members as officers empowered to act pursuant to the order or removing previously named staff. 17 C.F.R. § 200.30-4(a)(1) and (4). Requests for a Copy of the Formal Order Basics: Rule 7(a) of the SEC’s Rules Relating to Investigations provides that a person who is compelled or requested to furnish documentary evidence or testimony at a formal investigative proceeding shall, upon request, be shown the Commission’s formal order. However, a copy of the formal order shall not be furnished to that person for their retention without the express approval of a Division official at the level of Assistant Director or higher. 17 C.F.R. § 203.7(a).

Procedures for Responding to a Request for a Copy of the Formal Order:

When a member of the staff receives a request for a copy of the formal order, staff should keep in mind the following procedures when determining whether the request should be granted:

  • The request must be made by a person or counsel for a person who has been asked to furnish documents or testimony in the formal investigation for which the person is requesting a copy of the formal order.
  • The request for a copy of the formal order must be in writing. A copy of the formal order may not be provided on the basis of an oral request. Therefore, staff should advise the person to submit their request in writing to the Assistant Director assigned to the investigation.
  • The written request for the formal order must include representations to show that approval of the request is “consistent both with the protection of privacy of persons 18 involved in the investigation and with the unimpeded conduct of the investigation.” 17 C.F.R. § 203.7(a).
  • Only an Assistant Director or higher level Division official may approve a written request for a copy of a formal order. There may be circumstances that warrant denial of the request, such as when there is evidence that the requester intends to use the formal order for purposes outside the representation in the matter, or does not intend to keep the formal order confidential.
  • Keep in mind that even if a request for a copy of the formal order is denied, a requesting person who is compelled or requested to furnish documentary evidence or testimony at a formal investigative proceeding is still entitled to review the formal order without retaining a copy. 17 C.F.R. § 203.7.

SEC Enforcement Manual –

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