August 6, 2021

Receiving a “Voluntary” SEC Enforcement Request: What Now?

For quite a few companies, the late June SolarWinds enforcement sweep may have been the first time they received a “voluntary” request for information from the SEC’s Division of Enforcement. These requests, which are not necessarily “voluntary,” send companies scrambling for a game plan on how to respond. In this memo, BakerHostetler outlines the process behind these types of requests and how they fit into the larger inquiry or investigation that the SEC’s Division of Enforcement may be pursuing when a company receives this type of request. The memo offers advice on how to approach these requests, noting:

Companies are placed in a more favorable position if they provide to the Staff documents and information sufficient to avoid the possibility of receiving a formal order directed specifically at the company. This is because, as stated above, the Staff is often moved by a company’s willingness to cooperate, which in turn could shape the outcome of the investigation, including its resolution. Furthermore, from an optics perspective, a formal order initiating an investigation against a specific company (as opposed to an MUI or a general sweep) could pose a threat to the company’s reputation and have market consequences because, more often than not, companies tend to disclose the existence of a formal investigation to their shareholders and in public filings.

In my experience, it is best to have a game plan in place before receiving a voluntary request from the SEC, so that everyone knows how to respond and quickly implement appropriate measures, such as preserving documents. Given the current enforcement environment and the SEC’s embrace of big data, we certainly may be seeing more sweep investigations that will generate these sorts of voluntary requests for information.

Dave Lynn