Investigation Exposure: Proposed Law Could Give SEC Greater Access to Information

Companies simultaneously undergoing civil and criminal investigations will have one more thing to worry about if the Investor Protection Act, which the House passed in December 2009, becomes law.

Under the potential legislation, information obtained during a Department of Justice (DOJ) grand jury investigation may be shared with the Securities and Exchange Commission (SEC), a departure from the secrecy previously granted to DOJ grand jury investigations. Though many companies investigated for securities fraud face scrutiny from both agencies, this rule would more closely intertwine the civil and criminal inquiries.

This poses a challenge for in-house attorneys trying to protect their company's brand in the face of agency scrutiny, says Nicolas Morgan, a partner at DLA Piper.

"One of the purposes of secrecy is it's the same as having a non-public investigation," he says. "The mere presence of an investigation can have an immense reputational impact prior to any formal allegations of wrongdoing."

Though the act, just one part of the massive financial reform bill, still needs to pass muster in the Senate, Morgan says the ability to share information from grand jury investigations would likely prove monumental for the in-house bar. The SEC would have access to information it wouldn't normally have, he says--something that will definitely keep legal departments on their toes.

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