SEC Enforcers Armed With New Cooperation Tools

“The U.S. Securities and Exchange Commission has announced a major policy shift that will allow its Enforcement Division attorneys to gain greater cooperation from informants and companies and act more like criminal prosecutors in procuring information.”

“Enforcement director Robert Khuzami described the SEC’s new power to enter into cooperation and other agreements with companies and individuals that provide information to the commission’s investigations as a ‘game-changer.’”

“Under the new rules, SEC enforcement attorneys will have various tools available to them while dealing with sources.

“One tool now available to the SECs enforcers are cooperation agreements. Deferred prosecution agreements, which allow the commission to hold off on pursuing civil charges against cooperating companies or individuals if they agree to cooperate with an investigation, will also be in the SEC’s tool box…. The third option available to Enforcement Division attorneys is offering nonprosecution agreements. A fourth tool now granted to the Enforcement Division is the use of proffer agreements.”

“All of these agreements will be based on how important information provided by companies and individuals is to an investigation; where an individual ranks within a scheme to defraud or company that is in violation of federal securities laws; and whether the company or individual came forward voluntarily.”

“Fiona Philip (DC), a partner at Howrey LLP and a former enforcement counsel to the SEC’s chairman, said that the new powers still leave questions to be answered.”

“‘The rules don’t specifically lay out how the SEC and the Department of Justice will coordinate or negotiate these cooperation issues among themselves. Up until now, such cooperation was handled on a case-by-case basis. That will probably still be the case,’ Philip said.”