Enforcement The Process
An investigation involves fact-gathering by Enforcement staff through customary discovery methods such as data and document requests, interrogatories, interviews, and depositions. The time needed to complete an investigation depends on many factors, including the complexity of the conduct involved and the nature of the alleged violations. Staff will discuss with company representatives relevant facts and data as the fact gathering progresses, and subjects of an investigation may at any time contact Enforcement staff to provide additional information or explanations of their conduct.
At any time during the course of its investigation, staff may determine to close the investigation without taking any further action. This happens when staff determines that no violation occurred, that the evidence is insufficient to warrant further investigation, or that no further action is otherwise called for based on a totality of the circumstances. In such cases, staff notifies the subject that the investigation is closed.
If staff reaches the preliminary conclusion that a violation occurred that warrants sanctions, it will share its views of the facts and the law with the subject either orally or in writing. The subject may respond with any additional information it deems to be helpful. When this exchange alters the complexion of the investigation, staff may reconsider and potentially close the investigation or revise its view of the appropriate sanction. If staff continues to believe that sanctions are warranted, staff will submit its views and recommendations along with the subject’s response to the Commission and proceed according to Commission guidance.
Should the Commission agree to sanctions, the Director of the Office of Enforcement will authorize the Secretary of the Commission to issue a public Preliminary Notice of Violations. Staff will engage in settlement discussions first as the preferred resolution. The public interest is often better served through settlements because compliance problems are remedied faster, disgorged profits may be returned to customers sooner, and staff is able to reallocate resources to other enforcement matters. For the subject, settlement can often result in significantly lower penalty amounts than those resulting from a public proceeding, and avoids litigation risk and the time and costs of a proceeding. If staff and the subject agree on the terms, staff submits a Stipulation and Consent Agreement to the Commission for approval. The Commission publicly orders the Stipulation and Consent Agreements it approves.
In cases in which staff and the subject cannot reach settlement consistent with the Commission’s guidance, staff will notify the subject pursuant to 18 C.F.R. § 1b.19 that it plans to recommend the matter for an administrative proceeding or civil action. The subject has 30 days to respond, at which time staff submits both its recommendation, in the form of a staff report, and the subject’s response to the Commission for consideration. Should the Commission decide to issue an Order to Show Cause, the Commission does not make any finding as to whether there has been a violation of the law. Rather, an Order to Show Cause commences a formal proceeding under Part 385 of the Commission’s regulations. The Office of General Counsel will take the lead in advising the Commission regarding the disposition of arguments made in response to, and support of, the Order to Show Cause.
Following issuance of the Order to Show Cause, potential settlement may proceed at any time in accordance with the requirements of Rule 602 of the Commission’s Rules of Practice and Procedure. In the event there is no settlement, the proceeding will continue as prescribed by the particular statute governing the violation at issue, as well as in accordance with any additional procedures set forth by the Commission in orders issued in the particular proceeding. During every stage of an investigation, subjects being investigated have the opportunity to make submissions to Enforcement staff to demonstrate that a violation did not occur, or to offer an explanation of why one occurred. Moreover, the Commission clarifies that, under section 1b.18, the subject of an investigation has the right, at any time during an investigation, to submit documents directly to the Commission, not just to Enforcement staff.
Should the Commission or a federal district court issue a final order assessing penalties or other remedies, the subject may petition the United States Court of Appeals for review of the order.