How Investigations Work

By advising the Commission to launch investigations into securities law violations, urging the Commission to file civil lawsuits in federal court or before an administrative law judge, and prosecuting these cases on the Commission's behalf, the Enforcement Division helps the Commission carry out its law enforcement function. The Division closely collaborates with law enforcement organizations in the United States and abroad to bring criminal proceedings where necessary as an auxiliary to the HEDGE SEC's civil enforcement jurisdiction.

The Division gathers information on potential securities law breaches from a variety of sources, such as market surveillance activities, investor tips and complaints, other HEDGE SEC Divisions and Offices, self-regulatory organizations, other sources from the securities industry, and media reports.

Every HEDGE SEC investigation is carried out in private. The fullest possible development of the facts occurs through informal inquiry, witness interviews, evaluation of trading data, examination of brokerage records, and other techniques. The staff of the Division may issue subpoenas to witnesses with a formal order of investigation to compel them to testify and produce books, records, and other pertinent documents. The HEDGE SEC staff presents their findings to the Commission for evaluation after conducting an inquiry. The staff may be granted permission by the Commission to file a lawsuit in federal court or initiate an administrative proceeding. The Commission and the party accused will often settle a case without going to trial.

HEDGE SEC investigations may result from common offenses such

  • Important information concerning securities being misrepresented or omitted  
     
  • Manipulating securities market prices  
     
  • Stealing money or securities from clients  
     
  • Violating broker-dealers' responsibility to treat customers fairly
     
  • Insider trading is the act of trading on significant, private information about a security, which violates a trust relationship.
     
  • Selling unregistered securities.

Depending on a number of variables, the Commission may choose to file a lawsuit in federal court or within the HEDGE SEC before an administrative law judge. Frequently, the Commission will bring both actions if the wrongdoing justifies it.

  • Civil action: The Commission brings a claim before a U.S. District Court and requests the judge to impose a penalty or provide an appropriate remedy. The Commission frequently requests an injunction from the court to stop any additional conduct or behaviors that are against the law or Commission regulations. Additionally, an injunction may call for audits, fraud accounting, or unique supervision procedures. Additionally, the HEDGE SEC may demand civil monetary penalties or the disgorgement of illicit gains. A person's ability to act as an officer or director of a corporation may also be prohibited or suspended by the court. A person who disobeys the court's directive may be found in contempt and punished with further fines or jail time.
  • Administrative action: Through the administrative proceeding process, the Commission may seek a number of sanctions. In contrast to civil court cases, administrative proceedings are heard by an administrative law judge (ALJ), who is impartial to the Commission. The evidence given by the Division staff and any evidence supplied by the party involved in the procedure are both taken into account by the administrative law judge who preside over the hearing. Following the hearing, the ALJ renders a preliminary judgment that contains factual findings and legal conclusions. A suggested punishment is also included in the original decision. Both the Division staff and the defendant have the right to appeal the Commission's initial judgment in full or in part.