Witness Interviews and Testimony in SEC Investigations

During the SEC’s investigative process, witness interviews and investigative testimony are pivotal elements. The latter is recorded under oath by a court reporter. Typically, the Staff considers soliciting witness interviews or testimony from the employees of a company once the document production phase is concluded. The Enforcement Division anticipates that a cooperating company will make every effort to ensure that its current employees are available for testimony or interviews. However, compelling non-US citizens to appear for testimony is likely to be a challenging endeavor for the Staff, unless those non-US citizens can be properly served while in the United States.

The sequence of witness testimonies, once initiated, is a crucial strategic decision. A company might persuade the Staff that a specific testimony order is the most efficient way to address their queries. Implementing such a strategy can prevent a situation where the SEC feels compelled to revert to previous witnesses based on subsequent testimonies that provide more comprehensive information.

Should the SEC request or subpoena witness testimony, it is the counsel's responsibility to ensure the witness is adequately prepared to provide accurate and effective testimony. Witnesses are entitled to be accompanied by their counsel during testimonies, and only attorneys who officially represent the witness are allowed to attend the investigative testimony. The process of witness preparation necessitates an in-depth understanding of key documents likely to be referenced during the testimony and adequate time. Counsel should scrutinize all documents pertinent to the investigative issues thoroughly and comprehend a witness's memory of critical facts. Further, witnesses should be adequately prepared for the likely questions from the Staff.

Joseph Lucosky

Throughout the investigation, careful consideration should be given to potential conflict issues, including the necessity for Upjohn warnings. These warnings clarify to employees that the counsel represents the company, not the individual employee. Under certain circumstances, due to conflicts or strategic reasons, a company employee may require separate counsel, distinct from the company's representation. The Staff is particularly wary of counsel representing multiple witnesses suspected of having adverse interests. If separate representation is required for employees, the company also needs to evaluate its advancement and indemnification obligations as per governing documents. Where not obligatory, voluntary advancement and indemnification should be contemplated to ensure that the employees have competent counsel to represent their interests.

Joint representation can be a cost-effective alternative and facilitate information sharing when separate representation isn't required. In situations where individuals retain separate counsel, the company should assess the viability of common interest agreements. These agreements facilitate the sharing of privileged information between parties, preserving the confidentiality of privileged communications. However, entering into such an agreement should be carefully considered regarding its format - whether oral or writtenand the obligations imposed on the company. Common interest agreements do pose certain risks, including restrictions on the use of information obtained from another party, which may be disadvantageous in certain scenarios.

Individuals have the right to invoke the Fifth Amendment privilege against self-incrimination throughout an SEC investigation and subsequent civil enforcement actions. While the individual's decision to assert this privilege should be informed by their counsel's advice, it can have profound implications for the company in the SEC investigation and related civil litigation - particularly if a senior executive asserts this right.

Joseph Lucosky

The Commission has the right to interpret an individual's assertion of this right negatively in deciding whether to proceed with an enforcement action and may request the court to do the same in subsequent enforcement proceedings.

Collaborative Engagement with SEC Staff during Investigations

The concept of cooperation with SEC Staff during investigations has taken center stage since 2001. The pivotal moment came with the release of the Seaboard Report by the SEC, which shed light on the considerations the Commission should bear in mind when evaluating whether a public company merits a reduction in charges or sanctions due to proactive measures such as self-policing, self-reporting, remediation, and cooperation. The Enforcement Cooperation Program, highlighted on the SEC's website, underscores the potential benefits of such collaboration. The range of benefits is vast, contingent on the degree of cooperation offered by the company. The SEC has demonstrated flexibility, agreeing to cease-and-desist orders, deferred prosecution agreements, non-prosecution agreements, and even offering "full passes" in cases of substantial cooperation during investigations. More often than not, the Commission acknowledges cooperation by reducing charges, penalties, or other sanctions they might have otherwise pursued. The decision to cooperate, and the manner of cooperation, are subjective judgments each company must make based on their individual circumstances.

The Seaboard Report presents an open-ended array of criteria that the Staff can consider when deciding the extent of credit to assign to self-policing, self-reporting, remediation, and cooperation. These criteria grant the Staff broad discretion to evaluate each case individually, based on its unique facts and circumstances.

Joseph Lucosky

Key questions posed by the Seaboard Report for consideration include: how did the company collaborate with the Staff's investigation; what compliance procedures were in place to prevent the now uncovered misconduct; who detected the misconduct and how; was the misconduct reported to the SEC by the company, or did the SEC discover the issue independently; what actions were taken by the company upon discovering the misconduct; and what measures are in place to ensure such misconduct is unlikely to reoccur.

In a sweeping effort to further promote cooperation by individuals and companies, the SEC updated the Enforcement Manual in January 2010. This update includes instructions on how to quantify and reward cooperation by individuals and public companies. This guidance builds on the foundational principles established in the Seaboard Report, introducing a "non-exclusive" list of tools designed to facilitate and reward cooperation. These tools encompass proffer agreements, cooperation agreements, deferred prosecution agreements, non-prosecution agreements, and immunity requests. These incentives, in conjunction with whistleblower rewards available to individuals, can greatly influence the extent and manner in which public companies and individuals cooperate with the SEC.

Under the leadership of Director Gurbir Grewal, the SEC administration has made it clear that obtaining credit for cooperation with the Staff involves more than merely responding to subpoenas and providing witnesses for testimony. In various speeches and press releases, Director Grewal has elaborated on the types of cooperation the Commission typically acknowledges. However, the SEC has consistently resisted assigning a quantifiable benefit to cooperation during settlement negotiations, unlike the Department of Justice in its FCPA Corporate Enforcement Policy, for instance.

Joseph Lucosky

It is important for a company to understand that cooperation does not negate the need for counsel to negotiate with the Staff regarding requests for documents and testimony, nor does it preclude vigorous advocacy on behalf of the company. The objective of these negotiations should be to maintain an open dialogue with the Staff to comprehend their specific requirements, enabling the counsel to deliver the requested information while taking into consideration the burden of the Staff's request and its potential impact on the company. The approach to negotiations must be strategic and tactful. The reputation of the counsel plays a significant role in shaping the Staff's perception of the client during an investigation. Employing delaying tactics could lead to adverse inferences against the client by the Staff.

Early cooperation during the investigation can reap considerable benefits during the Wells process, a stage to be discussed later. The Staff will take such cooperation into account when deciding whether to grant the party access to the Staff's non-privileged investigative files. This, in turn, can equip the counsel with valuable information necessary to construct a convincing and effective Wells submission.

Balancing Attorney-Client Privilege and Attorney WorkProduct Considerations during Investigations

In the complex environment of SEC investigations, matters of attorney-client privilege and work-product considerations carry significant weight. The Seaboard Report delineates the contours of these aspects by stating that a company's decision to voluntarily disclose investigative findings is a factor to be taken into account when assessing its cooperation credit. However, the Commission also emphasized that public companies are not obligated to waive attorney-client privilege, work-product protection, or other privileges in order to earn such credit. The Enforcement Manual further explicates the SEC Staff's perspective on this matter:

Joseph Lucosky

"Voluntary disclosure of information need not include a waiver of privilege to be an effective form of cooperation and a party’s decision to assert a legitimate claim of privilege will not negatively affect their claim to credit for cooperation. However . . . if a party seeks cooperation credit for timely disclosure of relevant facts, the party must disclose all such facts within the party’s knowledge"

The decision to share privileged materials with the SEC is a significant one, with potentially severe repercussions. The general rule is that voluntary disclosure to an independent third party, devoid of a shared legal interest, usually waives attorney-client privilege, even if the third party agrees not to divulge the communication to anyone else. The majority of courts have upheld that a company's disclosure of privileged materials to the SEC results in the waiver of attorney-client privilege. Such a waiver would not only apply to the SEC but also extend to other third parties, including potential civil litigants or the DOJ. The waiver, with respect to specific documents or information, would likely extend to all other communications related to the same subject matter as the disclosed communications.

Similarly, disclosure of materials protected by work-product protections to the SEC could also constitute a waiver of that protection. Work-product protections are typically waived when otherwise protected documents are either made available to an adversary, or to a third party that could potentially serve as a conduit to an adversary.

Companies frequently attempt to walk a fine line, aiming to secure cooperation credit without waiving privilege. This is often achieved by providing the Commission with oral summaries of non-privileged facts gleaned from investigation interviews. However, this approach is not without risk, as numerous cases have shown. Courts have, in certain instances, concluded that such information exchanges can result in a waiver of privilege, mandating the production of otherwise privileged interview documents, including memoranda, notes, summaries, and other related documents.

Joseph Lucosky

Moreover, signing a confidentiality agreement with the SEC does not necessarily safeguard against waiver of workproduct protections or attorney-client privilege. This is due to the prevalent stance adopted by most Courts of Appeal, who have uniformly dismissed the notion that a producing party can preserve the attorney-client privilege and workproduct protection as to documents produced to an adverse government agency, merely through the use of a confidentiality agreement.

Therefore, companies must exercise considerable discretion when deciding which documents to voluntarily produce to the SEC. They are called upon to strike a delicate balance between the advantages of cooperation and the potential risks of waiving attorney work-product protections. This delicate balancing act demands a keen understanding of the legal landscape, strategic decision-making, and meticulous attention to detail to protect the interests of the company while also cooperating with the SEC. It is imperative for companies to have experienced counsel guide them through these complex and high-stakes decisions to ensure that the best possible outcomes are achieved.

Safeguarding Privileges While Keeping Independent Auditors Informed During an SEC Investigation

One of the pivotal responsibilities for a company embroiled in an SEC investigation involves appropriately informing its independent auditors about the investigation, the progress made, and key facts. This communication process is vital, as keeping independent auditors uninformed can potentially exacerbate the situation. In an SEC accounting investigation, these auditors will be invested in several issues. They will be concerned about the accuracy of the company's financial statements and the potential need for restatements, their ongoing reliance on management's representations, and whether their past audits may become subject to investigation.

Joseph Lucosky

Notably, if the SEC's investigation pertains to accounting matters, independent auditors are likely to receive requests for documents and possibly even for investigative testimony. Keeping them updated facilitates the investigation and, as far as possible, ensures the company's continued issuance of audited financial statements.

However, working closely with auditors introduces potential dilemmas regarding privilege and work-product protections, necessitating a cautious balance between maintaining privileges and keeping the auditors informed. Court rulings have typically held that a company's disclosure of attorneyclient privileged information to its independent auditors results in a waiver of that privilege. Conversely, courts have generally determined that sharing work-product with auditors does not lead to a waiver of work-product protections, as the auditors are neither the company's adversaries nor conduits to its adversaries.

Suppose the company concurrently conducts an internal investigation. In that case, auditors often offer significant suggestions regarding the scope of document collection, search terms, investigative interviews, and fact-finding. In an investigation scenario, independent auditors may seek:

Comprehensive details of the document collection and data processing

The search terms used to identify relevant documents

Lists of interviewees

Key documents of potential interest

Detailed briefings on facts obtained from the document review and investigative interviews the company has conducted (including any internal investigations carried out by the board of directors or a board committee)

In certain cases, they may request the ability to conduct their own interviews

Balancing these requests against the need to preserve attorney-client privilege and work-product protections is a complex task. Nevertheless, a company can mitigate the risk of investigation delays by establishing a mechanism to supply this information to its independent auditors, thereby ensuring they are comfortable with the investigation process. This has to be done while being mindful of the potential privilege and work-product risks. This requires thoughtful and nuanced coordination between the company, its counsel, and its independent auditors.

In this delicate balancing act, it is crucial to consider that while communication with auditors is essential, one should avoid unnecessary disclosure of privileged information. A well-structured communication strategy with independent auditors can effectively maintain privileges, manage potential risks, ensure auditors are adequately informed, and consequently contribute to the overall efficiency of the SEC investigation. The path through this complex terrain requires experienced legal counsel capable of effectively negotiating these issues and safeguarding the company's best interests.

Navigating Privilege Disclosures amidst Parallel Civil Litigation and Other Governmental Investigations

In the complex landscape of an SEC investigation, a company must contemplate the potential impact of parallel civil litigation and additional regulatory investigations. The decisions pertaining to the disclosure of privileged information or work product ought to be influenced by the risks associated with these parallel proceedings. When the revelation of an investigation or the misconduct leading to the investigation (for instance, a financial restatement) precipitates a decrease in stock value, it is highly likely that shareholder class-action litigation will ensue. Such lawsuits can result in substantial potential damages.

Joseph Lucosky

Though less severe but more prevalent, shareholder derivative suits also pose significant concerns. These suits are purportedly instituted in the corporation's name and do not necessitate a stock drop. Instead, the plaintiff's attorneys argue that the company should litigate against its own officers or directors for allegedly instigating the misconduct that initiated the SEC investigation. Additionally, other regulatory bodies governing the company might also commence investigations into the same conduct.

A company must remain cognizant of the fact that waivers of privilege and work-product protections in one context generally translate into waivers in all other contexts. Therefore, it is crucial to strategize with this risk in mind. Actions that might be beneficial in one forum can have severe repercussions in another. For instance, providing the SEC with detailed written presentations or PowerPoint slides on a case's facts could earn SEC cooperation credit and potentially shorten the SEC investigation's duration. However, if produced in related civil litigation, the same presentation could equip plaintiffs' lawyers with a clear strategy to navigate the worst facts, consequently increasing the settlement value of the civil litigation.

Therefore, when contemplating privilege waivers, a company must undertake a comprehensive assessment of the risks and benefits across the array of actual and potential related matters. It is not a decision to be made lightly or in isolation, but one that requires a holistic evaluation of the company's overall legal landscape. The complexities involved necessitate the guidance of experienced legal counsel who can navigate these challenging waters, maintaining a clear-eyed view of the potential ramifications across multiple legal arenas.

The overarching aim is to align the strategy with the company's broader interests, ensuring that the path taken in the SEC investigation does not inadvertently undermine its position in other litigation or regulatory matters.

Joseph Lucosky

This necessitates a carefully calibrated and well-coordinated approach that contemplates the interplay between different proceedings, the potential for privilege waivers, and the broader implications for the company's legal position. It underscores the intricate challenges of dealing with SEC investigations and the profound importance of having a wellconsidered and comprehensive strategy in place.

Implementation of Remedial Measures: A Crucial Aspect of Corporate Compliance

Upon identifying potentially inappropriate or illegal conduct within a company, it is incumbent upon the organization to initiate immediate steps to mitigate any ongoing illicit activities and rectify any inaccuracies in financial statements. The SEC identifies timely and effective remediation as a critical aspect of corporate cooperation. The speed, efficacy, and breadth of remediation measures can directly influence the likelihood of enforcement action and the severity of resultant sanctions.

The plan for remediation should exhibit robustness, clearly indicating to the SEC the company's intention and proactive steps towards rectifying the identified issues. The range of remediation can encompass various actions. Notably, personnel actions are a common remedial measure in cases where there is evidence of misconduct. Remediation strategies can also include an assessment of any deficiencies in internal control by the management, and the subsequent plan of action designed by the management and the board to rectify these deficiencies, thereby preventing the recurrence of similar issues. In circumstances where a financial restatement is necessitated, the remediation process may also entail the consideration of 'clawback' of certain executive compensations. This is applicable even in situations where the executive in question was not directly involved in the misconduct. The SEC has the authority to enforce clawbacks under either Section 304 of the Sarbanes-Oxley Act or Section 954 of the Dodd-Frank Act.

Joseph Lucosky

Section 304 of the Sarbanes-Oxley Act enables the SEC to reclaim certain compensation and stock profits related to restatement from CEOs and CFOs of public companies if the restatement was prompted by misconduct. As evidenced in the case of SEC v. Jensen, a unanimous decision by the Ninth Circuit panel highlighted that Section 304 permits the SEC to seek a clawback, irrespective of whether the restatement was instigated by personal misconduct of a CEO or CFO or by other forms of misconduct within the company. In simpler terms, the SEC can pursue executive compensation clawback even in situations where the executive did not play a part in triggering the need for a restatement.

Section 954 of the Dodd-Frank Act also stipulates conditions for clawbacks in the event of a restatement. This section applies to all current and former executive officers, extending beyond the CEO and CFO, and places the responsibility on the company to claw back incentive-based compensation that exceeds what an executive officer would have received based on accurate financial statements. It should be noted that while Section 304 is confined to restatements instigated by misconduct, Section 954 does not have this limitation. The SEC issued the final rules implementing Section 954 on October 26, 2022.

The onus of developing and implementing a thorough remediation plan falls on the company’s management. It serves as a testament to the organization's dedication to adherence to the law and regulations, its willingness to correct its past mistakes, and its commitment to enhance internal control mechanisms to prevent the reoccurrence of similar issues in the future. Companies that swiftly and effectively rectify problematic conduct may find that their remediation efforts are rewarded with reduced sanctions, a decrease in the likelihood of enforcement action, and ultimately, the restoration of public and investor trust.

The resolution of an investigation, particularly one involving the SEC, can take several forms, each with its unique set of implications and potential impacts on a company's operations. The most advantageous outcome is undoubtedly the swift closure of the investigation without the filing of any charges. This outcome minimizes disruption to a company’s business operations and can help to preserve its reputation and standing. Such outcomes, while highly desirable, are indeed attainable and do occur.

However, even in instances where the duration of the investigation extends beyond initial expectations, a decision by the Staff to close the investigation without taking any further action should still be considered a positive outcome.

The ability of a company to demonstrate its cooperation, rectify any issues, and ensure there is no ongoing misconduct can influence the Staff's determination.

In some situations, the investigative process may be more complex and prolonged, requiring a deeper level of engagement with regulatory bodies. Following the completion of an investigation and the subsequent Wells process, if the Staff is intent on proceeding with an enforcement recommendation, the company is not left without recourse. In these circumstances, the company can negotiate the violations charged and the remedies sought in a manner that could potentially be more advantageous than the outcome of litigation.

The negotiation process often involves a thorough review of the charges and a careful assessment of the potential penalties or consequences. A company may seek to reduce the severity of the charges, limit the scope of the violations, or negotiate the type and extent of the relief sought. This process should involve collaboration between the company's legal team and the regulatory staff, with the shared goal of reaching a resolution that ensures regulatory compliance while mitigating the impact on the company's operations and reputation.

In this process, the company's legal team needs to consider the broader implications of the negotiated resolution, including potential impacts on other ongoing or future legal proceedings, the company's relationships with other regulatory bodies, and the public perception of the company. It is essential that the company's legal team is well-prepared, understands the regulatory environment, and is capable of effectively advocating for the company's interests.

While managing an investigation may pose significant challenges, the process of reaching a resolution provides an opportunity for the company to demonstrate its commitment to maintaining high standards of corporate governance, its willingness to rectify any issues that may have arisen, and its dedication to upholding the trust of its stakeholders Joseph Lucosky

Navigating this process effectively can help a company emerge from an investigation with minimal disruption to its operations and its relationships with regulators, stakeholders, and the public.

The Element of Time: Navigating the Duration and Implications of SEC Investigations

Understanding the temporal aspect of SEC investigations is crucial in devising a suitable strategy for managing them. The duration of SEC investigations is notoriously unpredictable and can be prolonged, often making the timeline a significant factor to consider. It's not uncommon for investigations, especially those related to financial disclosures, to extend over one to two years. In some extreme instances, investigations may even stretch up to five years or beyond.

This variability in timing stems from the complexities inherent in each investigation, the multiple entities involved, and the intricacies associated with legal and regulatory processes. The SEC staff have attempted to streamline the process by reducing the number of meetings between themselves and the entities involved, and by requiring entities to produce necessary documentation and responses more swiftly.

Despite these efforts, managing the timeline remains a considerable challenge. However, companies can proactively influence the pace of the investigation process by responding promptly and comprehensively to the SEC’s demands and adopting a proactive approach to internal fact-finding and legal argumentation, geared towards addressing the SEC staff's concerns effectively and efficiently.

Defending against, and cooperating with, an SEC investigation can be both financially and operationally taxing for a company. The uncertainty associated with an unresolved investigation can also have negative implications on a company’s standing in the capital markets. This uncertainty could be particularly detrimental for companies that issue securities, as it might affect investor confidence and stock performance.

Joseph Lucosky

Moreover, prolonged investigations can inflict reputational damage that extends beyond the investigation period itself. It is thus in the best interests of a company to resolve any SECrelated matter as promptly as possible, especially when it deems that a response to a Wells notice may not successfully divert an enforcement action, or if it perceives such an action as inevitable.

However, a caveat to this approach is that even if a company is inclined towards a swift settlement, the SEC staff may not reciprocate this sentiment. It is often the case that the SEC staff may refrain from entering into serious settlement negotiations until they have completed their investigation into the conduct of senior officers or potentially implicated board members.

The rationale behind this is twofold: Firstly, identifying the extent of individual culpability can influence the assessment of the company's overall culpability. Secondly, there has been a noticeable trend in the SEC's approach, where they have begun to pursue charges against individuals more aggressively in enforcement actions. This shift further underscores the importance of a company taking into account the role and potential culpability of its senior management and board members in its overall investigative and resolution strategy.

The Procedure and Deliberations Pertaining to Wells Notices and Settlement Negotiations

The architecture that underpins the conclusion of an investigation directed by the SEC enforcement staff is a flexible entity. This is typically characterized by the enforcement staff persisting with their investigative and analytical endeavors until they reach a preliminary conclusion that an enforcement action recommendation against a specific party is warranted.

This critical juncture in the investigation is denoted by a formal announcement known as a Wells notice. It signifies the staff's intention to recommend enforcement action and provides an opportunity for the implicated party to respond in writing.

Upon receipt of a Wells notice, the normative procedure entails a meeting between the implicated party's counsel and the enforcement staff. This interaction aims to facilitate a thorough understanding of the staff's position and the potential enforcement recommendations under consideration. Following this meeting, the company can draft a Wells submission to the SEC outlining its stance, presenting persuasive arguments why the enforcement action should not proceed, or why a lesser charge should be preferred.

For instance, the company may argue for a resolution under a reporting violation pursuant to Section 13(a)(2) instead of proceeding under the provisions pertaining to anti-fraud. The Wells submission is generally the singular opportunity a company possesses to directly communicate and present its case to the Commission. Following the Wells submission, it is commonplace for the company's counsel to arrange a meeting with senior members of the Enforcement Division who were not directly involved in the investigation. This meeting serves as a platform to advocate for reconsideration of the staff's enforcement recommendation.

However, it is crucial to clarify that the issuance of a Wells notice does not inherently signify the filing of charges. It is a procedural measure instituted to provide the Commission with an opportunity to consider the defendant's counterarguments prior to deciding on the progression of enforcement proceedings.

On an informal note, it is not uncommon for a party, which perceives a discrepancy in the staff's understanding of its position or anticipates an inevitable Wells call, to proactively engage the staff in discussions regarding the relative strength of their positions and potential settlement opportunities. This need not necessarily be postponed until the receipt of a Wells call. It is also not unusual for the staff to initiate inquiries into potential settlement options prior to the formal issuance of a Wells notice.

Should the enforcement staff decide to recommend an enforcement action post the Wells notice and subsequent submission from the company, a memorandum outlining this recommendation along with the Wells submission is presented to the Commission. This triggers a voting process among the Commissioners to decide whether to initiate enforcement action based on this recommendation, a decision which requires majority approval. The course of the Wells process and settlement negotiations, therefore, lies at the core of how investigations evolve and eventually conclude, underscoring their critical importance in the realm of SEC enforcement actions.

The Choice Between Settlement and Litigation

Public corporations frequently choose the path of settlement over litigation in instances where they are confronted with allegations from the SEC about potential inaccuracies in their financial declarations. This preference can be attributed to several factors beyond the simple monetary costs associated with legal proceedings.

Firstly, it is critical to recognize that any adverse determinations resulting from litigation are generally binding in subsequent private shareholder lawsuits. This could potentially open the floodgates for further legal challenges, translating to an escalation in reputational damage and financial liability for the corporation.

Joseph Lucosky

The SEC, in its procedural guidelines, allows for parties to settle without conceding to the allegations or findings of misconduct raised by the Commission. However, it's important to note that, in accordance with these guidelines, the parties are not permitted to deny these allegations or findings either. The SEC's approach, in certain circumstances, may necessitate an admission from the implicated party. The ability to settle without outright admissions of wrongdoing provides corporations a valuable route to manage potential reputational risks and maintain public confidence.

Additionally, corporations that opt for settlement often have the opportunity to shape the narrative of the alleged misconduct as presented by the SEC. A firm stance of cooperation and proactive remediation can facilitate negotiations with the Commission to highlight positive aspects of the corporation's conduct. In cases where good cooperation and remediation are demonstrable, the implicated party can sometimes negotiate for positive acknowledgments in the SEC's public disclosures. This can encompass commendations of the corporation's cooperation during the SEC's investigation and the remedial actions undertaken in response to the allegations.

In contrast, individual parties facing allegations from the SEC often approach the situation differently, demonstrating a higher propensity to engage in litigation. This differential response can be attributed to the unique set of variables and risk factors that individual defendants have to consider, which may diverge significantly from those of corporate entities.

Overall, the choice between litigation and settlement is a multifaceted decision, informed by an intricate matrix of factors. The nature of allegations, the potential for reputational damage, the cost implications, and the anticipated influence on stakeholder relationships are just some of the many considerations that corporations must navigate in the face of SEC allegations.

Joseph Lucosky