Last week, I started receiving emails about an interesting speech given by SEC Enforcement Director Robert Khuzami that seemed to have grabbed the attention of the defense bar. The speech, which was delivered on June 1 to the Criminal Law Group of the UJA-Federation of New York, is now available on the SEC's website, and it is, indeed, quite interesting.

Khuzami said he has been thinking about numerous episodes of "questionable tactics" by defense counsel in SEC investigations, and how they are ultimately counter-productive for counsel and their clients. Khuzami also offered a reminder to counsel about the tools the SEC has its disposal to respond to "sharp practices" by counsel.

Khuzami listed five areas in which the SEC sees "defense counsel behavior that is questionable, or worse." These include:

Multiple representations of witnesses with what appear to be adverse interests;

 

Multiple witnesses represented by the same counsel who all adopt the same implausible explanation of events;

 

Witnesses who answer “I don't recall” dozens and dozens of times in testimony, sometimes hundreds of times, including in response to questions about basic and uncontroverted facts documented in their own writings;

 

Counsel signaling to clients during testimony; and

 

Questionable tactics in document productions and internal investigations.

Khuzami said that he recognized that counsel must zealously defend their clients, particularly in the type of high-stakes enforcement proceedings brought by the SEC. But the "truth-seeking function of the investigative process" may not be corrupted as a result, he said. Khuzami offered several specific examples, such as:

A cases where the same counsel represented both the company and over 30 employees despite "a real potential that some of those persons faced material legal exposure." Khuzami noted that the SEC's new Cooperation Program further "increases the likelihood that one counsel cannot serve the interests of multiple clients, given the real benefits that could result from cooperation, such as one client testifying against another client represented by the same counsel."

Witnesses claiming that they have no recollection "about nearly everything of any substance, including even the most basic facts, such as their own job responsibilities." In these situations, Khuzami said, the agency "is left to wonder whether witnesses are under instructions only to testify about those events that they recall with near certainty...."

Counsel tapping a client's foot under the table during investigative testimony to signal an “I don't remember” response.

Questionable investigative tactics in internal investigations conducted by counsel, such as interviewing multiple witnesses at once, aggressively promoting exculpatory evidence while dismissing clear and identifiable red flags, and more.

Khuzami warned that the SEC has several tools it can use in such situations. For example, where multiple representation conflicts the agency has raised later come to pass, it "can and will decline to extend courtesies" such as an extension of time to respond to a Wells notice because a client now seeks independent counsel.

The SEC also will increase the number of referrals it makes under Rule 7(e) of the SEC Rules Relating to Investigations to the SEC's Office of General Counsel. If the GC finds unethical or improper professional conduct, counsel may face consequences including a suspension or bar from practice before the Commission, or censure. Finally, Khuzami said, the SEC can and will increase referrals to the Department of Justice for witnesses who engage in obstruction and perjury, including false claims of a lack of recollection; as well as to state bar associations and possibly the DOJ if attorneys participate or assist in such misconduct.

In short, Khuzami concluded, the kind of sharp practices and gamesmanship he was discussing "will only diminish credibility of counsel and damage your client's interests. And that is in no one's interest, not yours, not ours."