The Securities and Exchange Commission (SEC) is the principal government agency tasked with protecting investors, maintaining fair markets and enforcing federal securities laws.
The sale and purchase of financial assets have the potential to harm the individuals involved. Hence, stringent oversight. But when – and how – might an investigation of alleged malfeasance begin?
Case creation
Generating a review of potential illicit activity may result from multiple sources. Examples include:
- SEC examination
- Media reports
- A private lawsuit
- Company auditors
- Trading technology
Government agencies like the Financial Industry Regulatory Authority (FINRA) may also refer a case. However, certain considerations factor into opening a formal matter under investigation (MUI).
Fact-based prioritization
Accusations of illicit gain or fraud cannot be taken lightly. Though, authorities may respond to tips differently depending on the specific details they receive.
A reported securities breach won’t always draw an immediate regulatory response. Cases may receive high-level consideration before an agency dedicates resources to fact finding.
Decisions to move forward with investigations depend on matters such as:
- Violation of specific laws, regulations or rules
- Severity of the potential infringement
- The scope of harm involved
- Possible exploitation of an especially vulnerable population
- The statute of limitations
- Which regulatory agency is best suited to handle the case
A general understanding of legal financial investigations may help you institute policies that protect the greatest good as well as your organization’s bottom line. Meanwhile, remember that strategizing a defense is imperative if you become a subject of interest.
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