Brownstein Hyatt Farber Schreck attorneys recently worked with staff in the Denver Regional Office of the U.S. Securities and Exchange Commission (“SEC”) to negotiate both a proffer agreement and a cooperation agreement on behalf of a client who faced a serious SEC regulatory investigation. For a host of reasons the client viewed this as preferable to being sued by the SEC in an enforcement action. Individuals facing the prospect of an SEC enforcement action traditionally have had to choose between settling early, with the hope that the SEC would be willing to reduce penalties to avoid a costly enforcement action, and litigating against the SEC in an adversarial context. That changed somewhat in the wake of the SEC’s January 2010 Cooperation Initiative, which was intended to provide incentives for companies and individuals to cooperate with the SEC to provide it with valuable information and assistance in its investigations and enforcement actions. Under the Cooperation Initiative, the SEC may employ a number of tools, ranging from proffer agreements and cooperation agreements to deferred- or non-prosecution agreements, to encourage and reward meaningful cooperation by individuals and companies facing enforcement actions. Individuals who agree to provide substantial cooperation may receive credit for doing so, which may include reduced financial penalties, reduced charges, deferred prosecution, or no prosecution at all. Since the program was introduced in 2010, the SEC has publicly announced only a handful of agreements with individuals who received credit for cooperation. Those who face threats by regulators should be aware of the entire array of defenses available to them to respond to regulatory allegations.
Factors the SEC Considers in Deciding Whether to Enter a Cooperation Agreement -
Despite the critical role cooperation can play in SEC enforcement actions, including enhancing the SEC’s ability to detect violations in the first place, the SEC has provided relatively little guidance regarding the availability of cooperation credit. The SEC’s Enforcement Manual sets forth four factors the SEC considers in determining whether, how much, and in what manner to credit cooperation by individuals: (1) the value and nature of the assistance provided, (2) the importance of the underlying matter, (3) the societal interest in holding the cooperating individual fully accountable, and (4) the profile of the individual, including the individual’s history of lawfulness and the degree to which he or she has accepted responsibility for the alleged misconduct. The Enforcement Manual states, however, that these factors are not intended to be all-inclusive, some may not apply at all in particular cases, and the SEC may weigh these factors differently in different cases. Moreover, while the SEC’s Enforcement Manual provides some additional detail as to the facts it considers relevant to the four factors, it gives little guidance as to how the SEC actually determines the nature or extent of cooperation credit it may give to an individual.
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