What does Private Investigation mean?
In the United States of America, the United States Securities and Exchange Commission (“SEC”) is the regulator for public companies whose shares or securities publicly traded in a stock or securities exchange. The SEC has the power accorded to them to carry out preliminary investigations on public companies. The term is known as A Matter Under Inquiry (”MUI”) or Matter Under Investigation. The Enforcement Division of the SEC carries out the investigation, after obtaining evidence, against public companies for possible violation of securities laws. To begin with, the SEC will issue a Notice for Private Investigation to a public company when the SEC suspects a possible violation of securities laws. It is “Private” because the investigation is not open to the public nor the investigation has been concluded or completed with an instituted court action.
How SEC Private Investigation carry out?
The SEC will first notify the public company with a Notice of Investigation followed up with a formal order of investigation. The meaning here is that the SEC will put the President of the public company under investigation as custodian for all the records and subpoena the public company concern to submit and produce to the SEC all the books, records, registers and any other documents the SEC thinks fit and proper for the investigation. There is no time limit to the SEC Private Investigation. After the investigation completed and found a violation exists, the SEC will file a case in the Federal Court to bring an administrative action against the violator. In practice, the violator will negotiate with the SEC for a settlement without going to trial.
What are the common violations?
Common violations that lead to the SEC Private Investigation are:
- Misrepresentation or omission of relevant information in the Form S-1 or any document provided to the public or the shareholders of the public company
- Insider dealing (insider trading) or manipulating the market prices of the securities of a public company
- Selling unregistered securities or a breach of Rule 144
- Violating broker-dealers’ responsibility or stealing customers’ funds or securities
Stock exchanges, central banks and the Ministry of Finance in other countries also investigate public companies and financial institutions such as banks and finance companies for possible violation of securities laws, banking laws or financial institution laws. These authorities are “Regulators” in their home country.
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Categories: Public Company, SEC, Financial Investigation, Central Bank