SEC Cooperation Is Still More Art Than Science


The quest for individual cooperation credit from the U.S. Securities and Exchange Commission is more of an art than a science, involving outcomes based largely on subjective judgments and a process that resists definition and standardization. Indeed, those who seek cooperation credit necessarily take a risk. But that risk comes with the tantalizing prospect of significant rewards — namely, the possibility of avoiding the SEC’s increasingly aggressive enforcement efforts.

Take the example of Philip Falcone. On June 27, 2012, the SEC filed securities fraud charges against Falcone and his advisory firm, Harbinger Capital Partners, alleging that Falcone “used fund assets to pay his taxes, conducted an illegal ‘short squeeze’ to manipulate bond prices, [and] secretly favored certain customers at the expense of others” and that Harbinger Capital Partners “unlawfully bought equity securities in a public offering, after having sold short the same security during a restricted period.”[1] In May 2013, Falcone tentatively agreed to pay $4 million and accept a two-year investment adviser ban.[2] However, incoming SEC Chairwoman Mary Jo White felt the deal was too lenient, and the commissioners scrapped it, forcing renegotiation.

Originally Published in Law360 - January 23, 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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