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U.S. Securities and Exchange Commission

SEC Issues Report of Investigation and Statement Setting Forth Framework for Evaluating Cooperation in Exercising Prosecutorial Discretion



Washington, D.C., October 23, 2001 — The Securities and Exchange Commission today issued a Report of Investigation and Statement explaining its decision not to take enforcement action against a company it had investigated for financial statement irregularities. In so doing, the Commission articulated a framework for evaluating cooperation in determining whether and how to charge violations of the federal securities laws.

The Report identifies four broad measures of a company's cooperation:

  • Self-policing prior to the discovery of the misconduct, including establishing effective compliance procedures and an appropriate tone at the top;
  • Self-reporting of misconduct when it is discovered, including conducting a thorough review of the nature, extent, origins and consequences of the misconduct, and promptly, completely, and effectively disclosing the misconduct to the public, to regulators, and to self-regulators;
  • Remediation, including dismissing or appropriately disciplining wrongdoers, modifying and improving internal controls and procedures to prevent recurrence of the misconduct, and appropriately compensating those adversely affected; and
  • Cooperation with law enforcement authorities, including providing the Commission staff with all information relevant to the underlying violations and the company's remedial efforts.

The criteria are set forth in greater detail in the Report. Credit for cooperative behavior may range from the extraordinary step of taking no enforcement action at all to bringing reduced charges, seeking lighter sanctions, or including mitigating language in documents the Commission uses to announce and resolve enforcement actions.

Stephen M. Cutler, Acting Director of Enforcement, said: "Crediting those who seek out, self-report and rectify illegal conduct is critical to achieving the Commission's goal of 'real-time enforcement.' We hope that, by setting forth a framework for exercising its prosecutorial discretion, the Commission will encourage companies to address unlawful conduct swiftly and meaningfully and to cooperate with law enforcement authorities. The result will be more efficient and effective enforcement of the federal securities laws."

The Commission welcomes the constructive input of all interested persons, who may direct their suggestions to the Division of Enforcement.

See also 34-44970.

For further information, call Stephen M. Cutler at 202-942-4500.

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Modified: 10/23/2001