SEC Enters Into First Deferred Prosecution Agreement with an Individual

by Ropes & Gray LLP

The U.S. Securities and Exchange Commission (“SEC” or “Commission”) announced on Tuesday that it entered into its first Deferred Prosecution Agreement (“DPA” or “Agreement”) with an individual in connection with a possible enforcement action. The Agreement is part of the SEC’s recent use of alternative enforcement tools to encourage voluntary disclosure of securities law violations, a trend begun when Ropes & Gray negotiated the first Non-Prosecution Agreement (“NPA”) for its client Carter’s Inc. in 2010

According to SEC documents, Connecticut accountant Scott Herckis was retained in 2010 by Berton M. Hochfeld—manager of Heppelwhite Fund—to serve as the Heppelwhite Fund’s administrator. Over the course of two years, Herckis purportedly complied with Hochfeld’s instructions to transfer a total of $1.5 million from the fund to accounts Hochfeld controlled, despite the fact that the fund’s limited partnership agreement prohibited the fund from making loans to Hochfeld.

Herckis resigned in September 2012, based on his growing concern about Hochfeld’s improprieties. He contacted the authorities and provided “immediate and complete cooperation” with the SEC’s resulting investigation. The SEC took special note that Herckis’s “proactive” cooperation allowed the SEC to initiate an emergency action to freeze more than $6 million of Hochfeld’s and the fund’s assets. Ultimately, Hochfeld pleaded guilty in a criminal case filed by the Department of Justice (“DOJ”) and consented to a judgment in a civil case filed by the SEC.

Herckis’s cooperation earned him a DPA with the SEC, the Commission’s first with an individual. According to Scott W. Friestad, an associate director in the SEC’s Division of Enforcement, Herckis received “significant credit for reporting the fraud and providing full cooperation.” Under the terms of the Agreement, the SEC will not bring an enforcement action against Herckis in connection with his actions at the fund, and in return Herckis agreed to provide continued cooperation and admitted that he aided and abetted Hochfeld’s fraud, including the specific acknowledgement that he knew or was reckless in not knowing that the money transfers and his statements in investor documents were improper. Herckis also agreed to pay approximately $50,000 total in disgorgement plus interest and agreed not to associate with an investment advisor or administer a hedge fund for a period of five years. Should Herckis breach the agreement, the SEC may use his admissions against him in an enforcement action and seek additional financial penalties and other remedies.

DPAs are one of a number of tools the federal government has at its disposal for facilitating and rewarding cooperation. Indeed, the DOJ has successfully used DPAs and NPAs for years in criminal investigations. Many institutional clients have found these types of agreements useful in criminal matters to address historic misconduct while at the same time avoiding the often draconian penalties authorities have at their disposal, including debarment, exclusion, and significant financial penalties.

The Herckis Agreement represents an extension of the SEC’s use of DPAs with individuals—though the SEC has already entered into similar arrangements with corporate entities. The first such agreement involved children’s clothing marketer, Carter’s Inc., after it discovered that an officer of the company had engaged in financial fraud. Acting on behalf of Carter’s, Ropes & Gray negotiated an NPA with the SEC in which, in exchange for Carter’s cooperation with the SEC’s investigation and any related enforcement proceedings, the SEC agreed not to charge Carter’s with violations of the federal securities laws or otherwise commence any enforcement action against Carter’s. Significantly, Carter’s was not required to pay a financial penalty nor was it required to admit to any misconduct.

The SEC’s Agreement with Herckis is the latest confirmation that the Commission is serious about its cooperation initiatives. It, along with the SEC’s highly publicized whistleblower program, signals the SEC’s resoluteness in relying on “insider” reports of securities law violations.

As the SEC’s use of DPAs and NPAs continues to expand, the incentives to proactively report securities law violations will only increase for companies and funds that seek to simultaneously root out noncompliance and avoid the often serious long-term consequences that accompany civil enforcement actions.

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.

© Ropes & Gray LLP | Attorney Advertising

Written by:

Ropes & Gray LLP

Ropes & Gray LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.