Regulatory Violations

Every day we hear of another company being investigated, fined, or even shut down for basic trade and business compliance issues.   The Federal Trade Commission (“FTC”), the Immigration and Naturalization Service (“INS”), the Registrar of Contractors, the SEC, Arizona’s FINRA, as well as various consumer protection agencies and attorneys general are always on the watch for potential regulatory violations or business tactics that harm consumers’ or the public interest.  Search and seizure warrants; warrantless “investigative” searches, and raids of business operations are standard enforcement or investigative tactics.  Sometimes, these searches and raids are giant “fishing expeditions” designed to use surprise to gain an advantage and allow for more efficient information gathering.  On-site searches, seizures of business materials, and similar tactics are intimidating to employees and business owners alike  – as they are intended to be.  Searches and seizures of company data, computers, assets, and bank accounts can be so crippling  for to day-to-day operations that a business is ultimately forced to close its doors, indefinitely or permanently.  These tactics have proven so effective in safeguarding the public interest with respect to a particular industry, that it’s unlikely law enforcement will stop using them at any time in the near future.  On-site searches (with or without a warrant), seizures of equipment, business files and cash, or freezing of corporate bank accounts are efficient ways of gathering information about regulatory violations and extracting additional funds from businesses to bolster increasingly-dwindling agency funding.  Given the current state of the economy and the creativity of entrepreneurs looking to cut corners by any way they can imagine, use of these tools by law enforcement and regulatory agencies will become increasingly frequent and visible for businesses in all industries and market sectors.  Unfortunately, very few companies’ in-house counsel or executives have given any thought, let alone received proper training, on how to handle searches, raids and business property.  Search/seizure tactics and on-site raids are not only useful for gathering physical evidence, documents and  electronic documents, data and metadata, but also to create circumstances and an environment that prompts business owners, executives, and employees to make  inconsistent statements or say things that they wish they hadn’t said.  Generally, employees and business owners are questioned on-site without having an attorney present to control the flow of information—and the most innocuous statement (from the perspective of the lay person speaker) can be used against the company’s interests  by law enforcement. ,  these statements are made outside the presence of company counsel or a witness to ensure accuracy and completeness, giving law enforcement a tactical edge and a huge information advantage that it would not have otherwise have.

The most important and immediate strategy for dealing with the possibility of a future search/seizure or on-site raid of your business is knowing what to expect and having a game plan.  Just as you plan for employee grievances by providing a procedure in your employee handbook, you should have a plan for how to deal with a visit from your friendly industry regulators, the Attorney General’s consumer protection watchdogs, the INS, the FTC, the IRS, the USPS Postal Inspector, or a civil investigation proceeding spearheaded by FINRA or another trade and commerce or enforcement agency.  When business is humming along and no storm clouds loom on the horizon, you should sit down and your business law attorney and craft a game plan for how to handle a potential investigation, search/seizure, or on-site raid so as to minimize disruption to business and revenues.


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