University of Southern California

Protecting Privacy Expectations and Personal Documents in SEC Investigations


Note by Abraham Tabaie
From Volume 81, Number 4 (May, 2008)

Consider the following hypothetical: the Securities and Exchange Commission (“SEC”) is investigating a corporation for stock option backdating by the corporation’s officers and directors, and possible criminal charges are looming. The implicated company fires an executive, and seals her office. All of the executive’s documents inside the office, including her personal documents, are subpoenaed by the SEC. In a modern world, both work related documents and purely personal documents are often left at the office. These documents could include, but are not limited to, personal bank statements, other personal financial documents, letters, a diary, and even medical information. While personal files could have nothing to do with the corporation, the corporation must turn over these documents to the SEC pursuant to a valid subpoena. The SEC later can provide these documents to the U.S. Attorney’s office in a parallel criminal investigation of securities fraud. In a traditional criminal case, the government would need a search warrant and probable cause to enter someone’s home or office and take personal documents from the individual. Through the SEC subpoena, however, the documents may be subpoenaed for mere “official curiosity” and then handed over to the U.S. Attorney’s office, as long as the parallel proceedings were not carried out in bad faith.

The subpoena power is one of the SEC’s most commonly used and powerful tools for investigating and regulating securities transactions and is used in almost every formal SEC investigation. Once the SEC begins a formal investigation, it is granted the subpoena power which forces “corporations to release information that, because of financial privacy rules, they really cannot voluntarily produce.” In 2006, the SEC was believed to be investigating as many as 120 corporations for possible stock option backdating. Those subpoenaed in SEC investigations are not only corporations under investigation, but also individuals from whom the SEC has demanded document production. Requested documents can include “e-mails, travel records, expense reports and other documents” related in any way to an SEC investigation, even if such documents contain personal financial information. Many of those subpoenaed for documents also face criminal charges for possible securities violations. The SEC has even subpoenaed personal financial information from former Senator Bill Frist and has attempted to subpoena journalists in connection with its investigations. In the words of one author, “[t]here is very little that the SEC cannot obtain.”


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