United States: Surviving A Regulatory Inquiry

Last Updated: October 5 2012
Article by Joseph V. Moreno

Most Read Contributor in United States, December 2018

Regulators are using increasingly aggressive tactics in seeking information during an inquiry or investigation. However, there are a number of steps that may be taken to reduce costs, minimize the impact on resources, and protect sensitive and confidential information that can be the difference between a merely unpleasant experience and a catastrophic one.

IN RECENT YEARS, United States regulators, such as the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), have used increasingly aggressive tactics in seeking information during an inquiry or investigation. Similarly to banks, unregulated commercial trading houses are now facing regulatory scrutiny for their commodity trading.

Under such circumstances, information demands can be extremely broad, time limits are often unrealistic, and the penalties for non-compliance are severe. Surviving such an ordeal can be tremendously costly in terms of time, money, and reputational damage. However, there are a number of steps that may be taken to reduce costs, minimize the impact on resources, and protect sensitive and confidential information that can be the difference between a merely unpleasant experience and a catastrophic one.

Negotiate the Terms of the Request

It has become routine for regulators to issue exceedingly broad information requests and require compliance within an impossibly short deadline. This is because frequently at the initial stage, an inquiry or investigation is fluid and regulators are still formulating their thoughts about potential violations. In order to ensure they capture all possible relevant information, their requests often go far beyond the true scope of the matter. In many cases, information requests are simply regurgitated versions of previous document requests used in other, possibly unrelated, matters. They are often made seemingly without any consideration for the time and resources needed to fully comply.

The first reaction to what may appear to be a "fishing expedition" is to come out fighting. Regulatory subpoenas are not self-executing, meaning that although a subpoena is written in the form of a demand, the regulator must go to court to enforce its subpoenas if the recipient chooses not to comply. While it is possible to contest a regulator's subpoena, such challenges are rarely successful. The United States Supreme Court has consistently upheld an agency's authority to enforce subpoena requests so long as the information "is within the authority of the agency, the demand is not too indefinite and the information sought is reasonably relevant."

Rather than adopting an aggressive posture, it can be much more effective to attempt to negotiate the timing and scope of the request. At the initial phase of an investigation, regulators will be unwilling to divulge their case theory which will make negotiations that much more difficult. However, spending some time contemplating the government's case can help bolster an argument as to why it would be in the regulator's interest to make a more targeted information request. You may not convince them to narrow their investigation, but perhaps they will see the value in focusing it. Try to negotiate irrelevant subsidiaries and affiliates out of the demand, narrow the date range, and limit the number of document custodians.

Another effective strategy is to prepare a set of search terms and request that the regulator approve and add to them as they see fit. This way, there is less room later for accusations that search efforts were inadequate.

Most importantly, negotiate a realistic production timetable. Be prepared to make regular updates and to discuss the logistical and technical issues you expect to face in collecting, reviewing and producing the information. Request permission to make partial productions on a rolling basis, and alert the regulator in advance of any anticipated delays. While technical glitches or minor holdups may be explained, nothing will undercut a regulator's confidence in one's cooperation more than repeatedly missing production deadlines.

Identify & Preserve Responsive Information

Immediately upon receipt of an informal demand or subpoena, take steps to identify and preserve responsive information. Issue a written document preservation notice that supersedes your regular retention policy, and be sure to suspend routine deletion of paper or electronic files. Employees should be instructed to preserve all potentially responsive documents, and a custodian of record should be appointed who will be responsible for tracking compliance with the regulator's request. If responsive information is later found to have been intentionally altered or destroyed, a recipient may find itself facing criminal charges of making a false statement or impeding or obstructing a government investigation.

Protect Privileged & Confidential Data

Before producing any information, first conduct a thorough review for information that may be legally privileged. Under United States law, this includes documents protected by the attorney-client privilege, as well as those subject to the attorney work product doctrine. Record the details of all documents withheld from production in a privilege log, and be prepared to present the log and defend any assertions of privilege if challenged. Mark all produced documents with a caption requesting confidential treatment to prevent them from being released under the Freedom of Information Act.

Invariably, privileged documents can fall through the cracks and into regulators' hands. Under the Federal Rules of Evidence and local Bar Rules, a recipient still possesses recourse in the event that privileged information is inadvertently produced.

For example, Federal Rule of Civil Procedure 26(b)(5)(B) states that "if information produced in discovery is subject to a claim of privilege or of protection as trial preparation material, the party making the claim may notify any party that received the information of the claim and the basis for it. After being notified, a party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim. The producing party must preserve the information until the claim is resolved." While this rule does not govern administrative investigations, it provides certain guiding principles with respect to produced documents and communications.

Furthermore, regulators in the District of Columbia may also have an ethical obligation to return privileged documents. Under District of Columbia Bar Rules 1.15(a) and 8.4(c), an attorney has an obligation not to read or use documents, and to return documents to the sending attorney, where it is clear to the receiving attorney that the communication is privileged and was inadvertently disclosed.

In certain cases, regulators may also permit the withholding or redaction of documents that may not otherwise be legally privileged. These may include documents relating to employee compensation, succession plans, merger and acquisition activity, classified government contracts, national security matters, and other confidential and sensitive information. If a subpoena recipient has concerns about the release of such information, make this a point of negotiation with the regulator.

Review Communications

Communications between corporate employers and in-house legal and compliance personnel may be privileged, depending on the nature of the communication and where it is made. In the United States, confidential communications involving in-house counsel are potentially eligible for privilege protection, provided the communication was made for the purpose of obtaining legal advice or services. The privilege may also extend to communications involving compliance personnel who may be attorneys, or may act at the direction of an attorney. This will generally depend on whether the communication was offered in a professional legal capacity.

This analysis may be difficult when dealing with communications made by in-house attorneys with multiple responsibilities, some of which do not involve providing legal advice. In these cases an attorney's title or position is not always dispositive. While an argument may be made that an attorney who is part of a company's legal department is giving legal advice when communicating with the company's employees, the converse position may be adopted that communications by personnel who are attorneys but who work in management or operations are presumed not to constitute legal advice. The question should be asked – "which hat, legal or otherwise, was the employee wearing at the time they made the communication, and was it made for the express purpose of giving legal advice?"

In most European Union (EU) countries, whether protection applies depends on the status of the lawyer making the communication. The privilege is limited to communications prepared by an "independent" lawyer who is a member of an EU Bar Association [which excludes in-house and non-EU qualified lawyers].

It is somewhat broader in the United Kingdom, whose legal advice privilege applies to communications between a company and members of legal professional bodies such as solicitors and barristers (including qualified foreign lawyers), and includes legally-qualified in-house lawyers acting in a legal capacity. It does not extend to compliance personnel, even when providing legal advice, unless that person also has formal legal qualifications.

Responding to Cross-Border Data Requests

Regulators have long asserted their reach beyond the borders of the United States to activity that affects American markets and consumers. Courts historically permitted the application of United States securities and commodities laws overseas despite the lack of clear language providing for extraterritorial jurisdiction. While this practice was recently scaled back by the US Supreme Court in the landmark case, Morrison v. National Australia Bank Ltd., Congress subsequently provided for extraterritorial application of certain aspects of the securities laws in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Foreign individuals and companies facing a regulatory demand from a United States regulator must be wary of a number of issues. In the EU, the Data Protection Directive regulates the export of "personal data" to jurisdictions outside the European Economic Area (EEA). This includes any information that "relates to" an identified or identifiable individual, such as home address, personal or work email address, telephone numbers, salary, medical history, tax records and bank statements. In the United Kingdom, the Directive is implemented by the Data Protection Act 1998 (DPA) and is enforced by the Information Commissioner's Office (ICO). Violations may lead to criminal liability and civil penalties of up to £500,000.

Despite these laws, US courts could enforce subpoenas extraterritorially. In such situations, recipients have several options to avoid a potential civil or criminal contempt order.

  • Consent. You may transfer personal data outside the EEA if you have the affected individual's unambiguous consent to do so. Some nations permit consent to be obtained through the terms of a routine employment contract, while others require it to be collected on a case-by-case basis. However, relying on one individual's consent may be problematic since the information being transferred may contain personal data relating to other individuals who have not consented to its export.
  • Legal Proceedings. The Directive provides that personal data may be exported if necessary or legally required on public interest grounds. Whether compliance with a foreign (non-EEA) subpoena or court order will qualify depends on the data privacy laws of the particular nation. In the United Kingdom, the DPA permits the export of personal data for the purpose of complying with legal proceedings, and the ICO has provided guidance that this includes foreign legal proceedings. In other countries, subpoena recipients should verify that the need to comply with a United States subpoena qualifies for this exemption. Use of this exemption also requires data export to be limited to only the information that is strictly necessary to comply with the terms of the subpoena or court order.
  • Seek an Exemption. Most courts will be reluctant to enforce a subpoena if the recipient can show a good faith attempt was made to obtain an exemption from the applicable data privacy law.

Rather than utilising subpoenas, over the last ten years, regulators have sought to obtain foreign information using other alternatives. In 2002, the International Organization of Securities Commissions created a Multilateral Memorandum of Understanding (MMOU) among international regulators. Both the CFTC and the SEC are signatories, as is the UK's Financial Services Authority (FSA) and numerous other European financial organizations. The MMOU allows regulators to exchange information in investigating cross-border violations, and they use it to enforce compliance with securities and derivatives laws and regulations. In addition, both the CFTC and the SEC are signatories to a separate multilateral agreement with the FSA in which all parties pledge to share information needed as part of an investigation, enforcement proceeding, or criminal prosecution.


Aside from the cost, time and anxiety of defending against a regulatory inquiry or investigation, there are a number of legal pitfalls that can arise if not properly navigated. Good faith efforts to cooperate can be undercut by missed deadlines, improper privilege calls, and a variety of technical production issues. Data protection violations may result in significant fines. To guard against these and other unforeseen events, be sure to retain experienced defense counsel who is familiar with the regulator, keep the lines of communication open, and above all, operate in good faith.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions