Businesses are subject to a wide range of regulations at the federal, state, and local levels that can result in liability for both individuals and companies. Enforcement agencies may start an investigation any time they believe a party has not complied with a regulation or may have information or ill-gotten gains related to another party’s violation of the law. Since the consequences of a violation can be serious, if you are contacted by an agency regarding an investigation, it is critical to take it seriously and get legal guidance on how to respond in a timely manner.
Reason for the Investigation
An investigation can be triggered by whistleblowers, competitors, anonymous tips, lawsuits, financial institutions, and other means. The primary goal of an investigation is to determine whether there has been a violation of a regulation and, if so, what remedies should be pursued. The enforcement agency gathers information from witnesses and documents. If a party fails to comply with a regulation, the information from the investigation can be used to bring an enforcement action.
Notably, multiple agencies may join forces or run parallel investigations. Evidence may be shared across agencies, making it even more important to obtain legal counsel.
Notice of the Investigation
Typically, a party learns of the investigation when it receives a letter from the lead investigator requesting information. Some agencies provide more details than others. Importantly, parties have a right to request a report of the agency’s investigation. The report indicates what the agency is investigating and whether the party receiving notice is a target of the investigation. Sometimes, a party is not the target but may have received funds from an illegal scheme or have information relevant to an investigation of another party.
Regardless of the reason for the notice, recipients must contact an attorney right away. A lawyer will know the procedure for requesting the report and will be able to review the report to evaluate the client’s potential exposure. It is best to consult an attorney with both civil and criminal experience because a civil investigation can result in criminal liability. A civil lawyer may allow a party to make statements that could be used in a criminal indictment.
An attorney is also needed to advise the party about gathering and retaining documents and notifying employees about their document retention obligations.
Responding to Administrative Subpoenas
Agencies can issue subpoenas to individuals and corporations to produce documents or testify as part of their investigation. While it may seem best to cooperate, it may not be the best path. Where a party has received a subpoena, an attorney can evaluate whether there are grounds for challenging the subpoena, such as because it is overly broad, asks for irrelevant information, requests privileged information, or on other grounds.
Individuals may also invoke their 5th Amendment right against self-incrimination to avoid producing documents or testimony depending on the circumstances, as discussed in a prior blog post. Notably, companies other than sole proprietorships generally don’t have a 5th Amendment right.
Consequences of a Regulatory Investigation
If the agency finds a violation, it can resolve the matter administratively, bring a civil lawsuit, and/or provide information to another agency for a criminal indictment. Courts may grant an injunction; award restitution, fines, and sanctions; and even ban a party from the industry in the case of securities law violations. Action by one agency can lead to other jurisdictions and agencies taking an interest in the matter and launching their own investigations. Class action lawsuits may also be filed depending on the nature of the violation.
Preventative Measures
To minimize potential liability, companies must know what laws and regulations apply to their business and stay abreast of changes. They must also develop appropriate policies, procedures, and training programs to ensure employees understand their obligations. Businesses should also conduct internal investigations to verify whether they are in compliance and identify risk areas and strategies for mitigating those risks. An attorney should be consulted to provide guidance on all aspects of compliance and risk management.
If you have received notice of a regulatory investigation, contact us for assistance. We have extensive experience successfully representing clients in all types of enforcement actions.