SEC Obtains Court Order to Enforce Investigative Subpoena for Testimony
Litigation Release No. 25261 / November 10, 2021
Securities and Exchange Commission v. Gerald Fauth, No: 21-mc-787 (S.D.N.Y. filed October 20, 2021)
Earlier today, the Hon. Andrew L. Carter Jr., United States District Judge for the Southern District of New York, granted the Securities and Exchange Commission's application to enforce a subpoena for testimony issued to Gerald Fauth, directing Fauth to comply with the subpoena.
If a person or entity refuses to comply with a subpoena issued by SEC enforcement staff pursuant to a formal order of investigation, the Commission may file a subpoena enforcement action in federal district court seeking an order compelling compliance.
According to the SEC's filing, the SEC is investigating whether certain individuals, including Mr. Fauth and his brother-in-law, U.S. Senator Richard Burr of North Carolina, may have violated the antifraud provisions of the federal securities laws, including the STOCK Act, by engaging in unlawful insider trading. The filing states that the SEC's investigation shows that on February 13, 2020, Senator Burr sold more than $1.6 million worth of stock held in a brokerage account he owned jointly with his wife while in possession of potentially material nonpublic information concerning COVID-19 and its potential impact on the U.S. and global economies. The filing further states that, shortly after placing his trade, Senator Burr placed a call to Mr. Fauth, who one minute later placed a call to his own broker to sell certain stocks held in an account in his wife's name.
As stated in the filing, SEC staff served Fauth with an investigative subpoena in May 2020 seeking his testimony. According to the filing, however, Fauth failed to comply and provide investigative testimony, citing health concerns, while continuing to fully perform his job duties as Chair of the National Mediation Board, a federal agency.
The SEC's application sought an order from the court directing Fauth to show cause why the court should not compel him to appear for testimony as required by the subpoena and sought an order from the court, following its ruling on the order to show cause, directing Fauth to comply fully with the subpoena. The court ordered Fauth to appear for a testimony session subject to certain conditions agreed to by the Enforcement Division staff. The SEC is continuing its fact-finding investigation and, to date, has not concluded that any individual or entity has violated the federal securities laws.
The SEC's investigation is being conducted by Tejal D. Shah, Nancy A. Brown, John O. Enright, and Sheldon L. Pollock of the SEC's New York Regional Office, and is being supervised by Sanjay Wadhwa and Richard R. Best.