For clients contending with Securities and Exchange Commission enforcement matters, the federal government shutdown "creates a lot of uncertainty" and the potential for higher legal expenses, an enforcement defense attorney said.
Kathleen Marcus, a partner at Stradling Yocca Carlson & Rauth, said Stradling clients facing SEC enforcement issues "were fortunate to receive proactive contact from SEC staff to reschedule imminent matters leading up to the shutdown."
Those matters – which included the rescheduling of testimony and a meeting to discuss subpoena responses – related to investigations that included at least one municipal securities-related probe, she said.
"However, the government shutdown and its unknown duration creates a lot of uncertainty," said Marcus, who co-chairs Stradling's enforcement defense and investigations practice. "For example, productions under subpoenas remain due, but the staff is not available to answer questions or negotiate the scope of the subpoena requests."
Marcus, who prior to joining Stradling in 2009 served as senior counsel in the SEC's Division of Enforcement, said an SEC subpoena for instance might specify a due date for providing responsive documents that is two weeks from the date of receipt of the subpoena.
"And often the SEC will like you to produce something in those two weeks, but generally the subpoenas are quite broad and it will take longer than that to complete a production," she said. "You may be months rolling out documents."
During that period, "you're continually communicating with the staff about what you'll be producing and when and making agreements about that schedule," she said.
Document production in connection with an SEC subpoena is expensive, Marcus said, adding that lawyers review all the documents before they go out.
In addition to determining which documents are responsive to the subpoena and categorizing them according to the SEC's document delivery specifications, attorneys must "also be on the lookout for privileged communications that need to be either redacted or withheld entirely and then logged," she said.
"So that can be a very expensive undertaking if done well," Marcus said.
Frequently, SEC staff is willing to engage in discussions that will help a subpoena recipient "provide the most pertinent materials as quickly as possible," she said.
"And the staff in some ways looks to defense counsel to know their client and be able to have a discussion meaningfully about what's there or not there," Marcus said, adding that guidance provided by staff can result in "meaningful scope limitations," whereby documents that otherwise would be deemed necessary to be responsive can be deferred.
Due to the shutdown, "those routine discussions are not happening," she said.
For clients contending with an SEC subpoena, that can mean a tough choice, Marcus said. If clients decide to continue with document production without being able to have those discussions, they could be subjecting themselves to unnecessary expenses, she said.
"And if they don't proceed, then there's a risk that they will be viewed as noncompliant and noncooperative when the staff comes back online," she said.
A shutdown that lasts a few more days isn't a big deal in terms of deciding how to proceed when it comes to a subpoena response, she said.
"But if it becomes prolonged, then it is," she said.
Consequently, Marcus is starting to have discussions with clients, especially in situations "where we are about to shift into another category of documents under the subpoena and want to be sure that they are comfortable with us continuing to do those reviews."
