Investigations conducted by the US Securities & Exchange Commission are private. The first public notice of an investigation is usually the SEC’s press release saying it has filed a case. The UK is considering turning that on its head.
An SEC investigation begins well before the press release, obviously. When I was at the SEC, information that came to an attorney’s notice would usually spark an informal inquiry. This is essentially just asking questions of people. Documents can be requested and voluntary interviews conducted, but nothing can be subpoenaed.
If more information is needed, the staff can “get numbers,” or formally initiate a matter (when entered into the investigation-tracking system, the matter is given a control number that follows the investigation and litigation through to the final conclusion, hence “getting numbers.”) This allows the staff to request a “formal order,” which gives the staff the authority to issue subpoenas for documents and for testimony. But during this entire process, no notice would be given to the public. This protected people against whom the Commission instituted an investigation who were later exonerated.
It appears the UK is taking a different position. Compliance Week has reported that the Financial Conduct Authority (the successor to the Financial Services Authority) could soon get permission to publicise its cases at the investigation stage. This would purportedly give a higher level of transparency into agency actions. The proposal was floated in a guidance document issued last week.
The difficulty this guidance seeks to solve is that a company could easily keep an investigation into their conduct secret by taking their case to the Financial Services and Markets Tribunal. Allowing early publication would, according to the Government, “increase the visibility of the actions it is taking to protect consumers’ interests….” As a safeguard, if an early notice was published, a follow-up Notice of Discontinuance must be published at the end of the investigation.
This power is problematic. First, people remember the headline, not the retraction. Once this notice is published, a large part of the reputational damage will have been done, which won’t be fixed by the notice of discontinuance. Second, this will have an effect on charging decisions. Once a public notice has been issued saying a company is under investigation, there will be tremendous pressure on the enforcement agent to bring a case. Finally, the idea of innocent-until-proven-guilty isn’t an American invention. And this comes dangerously close to its opposite.
The UK would do well to proceed with extreme caution. Combined with the fright that the UK Bribery Act is causing, any further moves that would cause UK companies unnecessary reputational damage would be viewed as unwelcome.