What Happens When SEC Opens a Crypto Investigation

{ "body": "SEC crypto investigations typically begin with a formal order of investigation signed by the Director of Enforcement. Triggers include suspicious trading activity flagged by market surveillance, whistleblower tips, media coverage of your token project, or referrals from other regulators like FinCEN or CFTC. Before formal investigation, the SEC often sends an informal inquiry letter requesting documents voluntarily. Refusing to cooperate informally almost always escalates the matter to a formal subpoena. The investigation is assigned to a regional office — typically New York, San Francisco, or Miami for crypto cases — and a team of enforcement attorneys and accountants is assembled.", "heading": "How SEC Crypto Investigations Begin" }

{ "body": "Once formal investigation is opened, expect a subpoena for documents covering your token offering documents, investor lists, communications with investors, marketing materials, financial records, and internal legal opinions. You must immediately issue a litigation hold to preserve all relevant documents — deleting emails or files after receiving a subpoena is obstruction of justice. SEC subpoenas are broad and courts have upheld them. You have the right to object to scope but objections must be filed promptly and rarely succeed entirely. Engaging experienced securities defense counsel before responding is non-negotiable — everything you produce becomes part of the evidentiary record.", "heading": "The Subpoena Stage and Document Preservation" }

{ "body": "After reviewing documents and testimony, if the SEC staff believes violations occurred they issue a Wells Notice — a formal notification of their intent to recommend enforcement action. You have the right to submit a Wells submission arguing against charges. This is your best opportunity to present factual and legal defenses before charges are filed. Approximately 30% of Wells submissions result in no action. Your Wells submission is not confidential — it may later become evidence if litigation proceeds. The SEC enforcement staff then recommends action to the Commission, which votes whether to authorize charges. This stage typically takes 6-18 months from initial investigation.", "heading": "Wells Notice: The Decision Point" }

{ "body": "The vast majority of SEC crypto enforcement actions settle. Settlements typically involve disgorgement of profits, civil penalties (up to $250,000 per violation for individuals), injunctions, and officer/director bars. Criminal referrals to the DOJ occur when the SEC finds evidence of willful fraud — market manipulation, deliberate investor deception, or obstruction. DOJ crypto prosecutions carry prison sentences up to 20 years. Parallel civil and criminal proceedings are common. During a parallel proceeding, anything you say in civil testimony can be used against you criminally — requiring careful coordination with both civil and criminal defense counsel.", "heading": "Settlement vs. Litigation and Criminal Referrals" }