Published On: March 27, 2017Categories: Director & Officer

Do You Need Your Own Lawyer When the SEC or DOJ Come Knocking? Three Things to Think About

Most Directors and Officers generally believe that their company’s law firm will defend the company and therefore, that will take care of them too, by extension or as a natural part of the process. I call this the “unified show of force” fallacy. Nothing could be further from the truth. The truth is that more Directors, Officers and Senior Executives find themselves in hotter water, potentially as scapegoats, when they rely on the “unified show of force” fallacy.

A trend I’ve seen: I do quite a bit of Director & Officer litigation, especially involving the SEC, CFTC, DOJ and state attorneys general. And I have been getting a lot of work lately that follows this familiar pattern:

  • SEC or DOJ sends a CID or subpoena, or informally asks for interviews from a business or fund.
  • Company/fund hires large firm to be counsel and represent the company and the .
  • Sr. Executives, Officers and Directors decide not to even ask to hire their own counsel, and rely on the company’s counsel to represent them all.
  • Company gets into more hot water, Sr. Execs and Officers are asked to sit for deposition, whereby their sworn testimony may hurt them — but no one tells them to get their own lawyer.
  • Suddenly, they find themselves at the wrong end of an enforcement action or worse, an indictment.

The trouble is this: Once I become being involved, I am often hamstrung having been added so late in the game. I am basically representing a client who two years ago had some real options to get out of the quagmire with barely a scrape, but now has to settle, pay money or plea some kind of deal. I cannot do for my clients what I otherwise would have liked to to do (except start to threaten these law firms with malpractice suits, which I have now done on two occasions). Two years prior I could have managed the litigation and a more positive outcome–even an outright dismissal. That option is often gone if you wait too late.

If your company is facing a CID (Civil Investigative Demand), subpoena, deposition request, administrative action or civil enforcement action — Here are three questions to ask yourself:

  1. Do you have something to lose if you end up being singled out for investigation, deposition, or prosecution?
  2. Does the company’s current law firm have a conflict that will prevent it from representing you to the max? How will they protect the company and you (hint: they can’t without a glaring conflict of interest).
  3. Does the company have Director & Officer litigation insurance, or other insurance that would pay for you to have your own lawyer?

If you need help answering these three questions, give me a call at (214) 432-2899 or email me at with “Urgent D&O Issue” in the subject line.