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SEC Cooperation Initiative

By Howard W. Goldstein

With the hope of encouraging corporate insiders to cooperate during investigations, the SEC issued a new Enforcement Cooperation Initiative in mid-January. The Initiative, which Enforcement Division Director Robert Khuzami heralded as a “potential game-changer,” mirrors cooperation tools successfully used by the Department of Justice (DOJ). Specifically, it embraces the use by the SEC of proffer agreements, cooperation agreements, deferred-prosecution agreements, and non-prosecution agreements in exchange for cooperation.

Yet, the SEC's ability to attract cooperating insiders differs in significant respects from that of the DOJ. The incentive for an individual to cooperate with the DOJ, which wields the heavy hammer of both fines and incarceration, is obvious. The advantages of cooperating with the SEC are more nuanced. For those companies and individuals subject to SEC oversight and licensing, the potential penalties for failing to cooperate already virtually require cooperation. For those not in this category, the benefits of cooperation are less clear, particularly if the DOJ is lurking in the background and not yet prepared to negotiate. This article discusses some of the SEC's newly announced cooperation tools and provides some tips for practitioners whose clients are considering cooperating with the SEC.

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