For the Defense - Vol. 7, Issue 4 - 41

The Use of Fifth Amendment
Invocations in SEC
Investigations
I
magine you have just been retained to represent an individual who
received a subpoena from the Securities and Exchange Commission
seeking documents and testimony related to an investigation into
insider trading. The subpoena provides little information about the
investigation besides the securities at issue, and the SEC Staff are
less than forthcoming. From the face of the documents, you don't
know what evidence the SEC has of insider trading. For example,
does the SEC have evidence of a phone call or email between your
client and the suspected insider at or around the time the insider
learned of the material non-public information? Does the SEC have
evidence that your client shared the alleged material information
with another person who subsequently traded the security at issue?
At this stage, it is entirely unclear what the SEC has, but the
possibility (or probability?) exists that the SEC has referred the case to
a United States Attorney's Office and there is also a parallel criminal
investigation. This scenario raises one of the most important initial
considerations a defense attorney faces in an SEC insider trading
(or other securities fraud) investigation: whether you should advise
your client to assert the Fifth Amendment privilege as to testimony
and the production of documents.
The Fifth Amendment privilege against self-incrimination applies
in the context of testimony in a civil regulatory investigation.1
Marjorie Peerce,
David Axelrod,
and Hannah Welsh
Importantly, " the innocent and guilty alike have a right of recourse
to the Fifth Amendment, " 2
and the privilege extends " not only
'to answers that would in themselves support a conviction . . . but
likewise embraces those which would furnish a link in the chain of
evidence needed to prosecute the claimant.' " 3
The fact that your
client is facing an insider trading investigation, coupled with the
fact that insider trading is often prosecuted criminally, places your
client in real legal jeopardy, and thus you should think long and
hard as to whether you should advise your client to assert the Fifth
Amendment privilege.
Typically, an SEC insider trading subpoena will seek all financial
records over which your client has control, and more importantly
communications (emails, text messages, phone records, calendar
history) relating to the particular securities at issue. An individual
may also invoke the Fifth Amendment privilege in the context of
document production. In United States v. Hubbell, the Supreme
Court held that the constitutional privilege against self-incrimination
" has the same application to the testimonial aspect of a response
to a subpoena seeking discovery " of " sources of potentially
incriminating evidence. " 4
The Fifth Amendment's application to
producing documents, otherwise known as the " act of production
privilege " is critically important to remember when defending your
client in an insider trading investigation.5
Vol. 7, Issue 4 l For The Defense 41
For the Defense - Vol. 7, Issue 4

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