Enforcement Cooperation Program
The SEC Enforcement Division’s Cooperation Program includes various measures designed to encourage greater cooperation by individuals and companies in SEC investigations and enforcement actions. The program provides incentives to individuals and companies who come forward and provide valuable information to SEC investigators. The SEC uses an analytical framework to evaluate whether, how much, and in what manner to credit the cooperation by individuals and companies in its investigations and enforcement actions.
The Benefits of Cooperation
There is a spectrum of tools available to the Commission and its staff for facilitating and rewarding cooperation by individuals and entities. These benefits to cooperators can range from reduced charges and sanctions in enforcement actions to taking no enforcement action at all.
Cooperation by individuals and entities in SEC investigations and related enforcement actions can contribute significantly to the success of the agency’s mission. Information obtained from cooperators helps detect violations of the federal securities laws, increase the effectiveness and efficiency of SEC investigations, and provide important evidence necessary to take enforcement actions. The program gives SEC investigators access to high-quality, firsthand evidence, resulting in stronger cases that can shut down fraudulent schemes earlier than otherwise would be possible.
Commission statements regarding cooperation
Cooperation by individuals
In January 2010, the Commission issued a policy statement articulating a framework for evaluating cooperation by individuals in the Commission’s investigations and actions. This policy statement identified four general considerations to use in assessing cooperation:
- Assistance provided by the cooperator. This includes considerations such as the value and nature of the cooperation;
- Importance of the underlying matter. This includes considerations such as the danger posed to investors by the underlying misconduct;
- Interest in holding the individual accountable. This includes considerations such as a cooperator’s culpability relative to that of other violators; and
- Profile of the individual. This includes considerations such as acceptance of responsibility for the misconduct.
For additional information, see the Policy Statement of the Securities and Exchange Commission Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions, SEC Rel. No. 34-61340 (Jan. 13, 2010). Information concerning the circumstances under which individuals may receive credit as part of the SEC’s cooperation initiative also is available in a litigation release, SEC Credits Former AXA Rosenberg Executive for Substantial Cooperation during Investigation, Lit. Rel. No. 22298 (March 19, 2012).
Cooperation by entities
In October 2001, the Commission issued a Report of Investigation and Statement explaining its decision not to take enforcement action against a public company it had investigated for financial statement irregularities. In this report, commonly referred to as the Seaboard Report, the Commission articulated an analytical framework for evaluating cooperation by companies. The report detailed the many factors the Commission considers in determining whether, and to what extent, it grants leniency to investigated companies for cooperating in its investigations and for related good corporate citizenship. Specifically, 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 regulatory agencies, and to self-regulatory organizations;
- 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.
For additional information, see the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, SEC Rel. Nos. 34-44969 and AAER-1470 (Oct. 23, 2001).
SEC Cases Utilizing Cooperation Tools
The SEC’s cooperation program has proven valuable in a wide range of cases spanning the full spectrum of its enforcement program from insider trading and market manipulation to FCPA violations and financial fraud.
Here are some examples:
The Enforcement Division has signed dozens of agreements under which it recommends to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.
Some cases involving cooperation agreements include:
- Reverse merger scheme involving China-based companies
- Coding error at money manager
- Accounting fraud at animal feed company
- Fraud on senior citizens who invested $75 million in purported charity
- Revenue recognition scheme
- Mismanagement of collateralized debt obligations
- Insider trading in shares of insurance company
- Subprime bond pricing scheme during credit crisis
Deferred Prosecution Agreements
These are agreements under which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees to cooperate fully and truthfully and comply with express prohibitions and undertakings during a period of deferred prosecution.
Cases involving DPAs include:
- The first DPA with a corporate director
- The first with an individual in an FCPA case
- FCPA violations involving attempted bribes in Qatar
- Misclassification of impaired loans at a bank
- Former hedge fund administrator
- Non-profit fund for mortgages and construction
- FCPA violations involving bribes in Uzbekistan
These agreements are entered into in limited circumstances in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees to cooperate fully and truthfully and comply with express undertakings.
Cases involving NPAs include:
- Two companies who promptly self-reported bribes paid to Chinese officials by foreign subsidiaries, cooperated extensively with the ensuing SEC investigations, and took swift remedial measures
- Insider trading in shares of e-commerce company
- FCPA violations involving bribes to Argentinian government officials
- Misstatements concerning mortgage exposure by executives at Fannie Mae and Freddie Mac
- Financial fraud at children's clothing marketer
- Cooperation Initiative for Muni Issuers and Underwriters
Under the MCDC initiative, the Division will recommend standardized, favorable settlement terms for issuers and underwriters who self-report inaccurate statements in bond offerings about prior compliance with continuing disclosure obligations.
More Details and Self-Report Form