Andrew Ceresney, Director of the SEC’s Division of Enforcement, spoke on May 13, 2015, at the University of Texas School of Law about the division’s Cooperation Program that recently celebrated its five-year anniversary. His remarks focused primarily on the successes of the program, the various cooperation agreements and tools utilized by the program, and the benefits of cooperation for both cooperators and the division. “Cooperation is critical to building cases,” Director Ceresney stated, “[...] all too often, we at the SEC are left without such a narrator in our cases, facing nothing but hostile witnesses who have no incentive to tell the truth and no desire to assist us.”
Mr. Ceresney explained that cooperation is achieved through a number of different tools, including, but not limited to, formal cooperation agreements. The use of formal cooperation agreements are, however, in Mr. Ceresney’s view, “[...] at the heart of [the division’s] cooperation program.” He indicated that more than 80 formal cooperation agreements have been signed over the past five years, and that these agreements have been particularly successful in insider trading cases. The division also uses deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs), but they are a “relatively limited” part of the division’s practice. The division has announced its use of only five DPAs and five NPAs since the start of the program.
The division also utilizes defendants’ admissions of fact and wrongdoing. Mr. Ceresney noted that admissions are especially beneficial in order to “lock in a witness’s version of events before trial to ensure predictable testimony” or when a cooperation agreement is not feasible for any number of reasons. For example, if the division feels that a defendant is not credible or would not provide especially helpful testimony, they may obtain admissions.
Reverse proffers are also used by the division. Reverse proffers involve sharing with a defendant and his counsel key documents and other information that may be used against him. This tool has helped the division obtain settlements and also persuade defendants to cooperate.
Mr. Ceresney also noted that the SEC’s history over the last five years demonstrates that the benefits of cooperation are real in terms of charging decisions, monetary relief and bars.
Prosecutorial discretion may work to certain cooperators’ benefit by either resulting in dropped charges or charges for less serious violations. The SEC does not announce whether charges are dropped for certain cooperators, but Mr. Ceresney stated that “based on an analysis of our cooperation agreements, [...] a significant percentage involved instances where the Division declined to recommend charges.” A significant reduction in monetary penalties is also a benefit to cooperators. While reductions do not extend to disgorgement, relief for cooperators may come in the form of a flexible calculation of such disgorgement, or a reduction or elimination of a penalty. Finally, cooperators may receive a benefit in the form of remedial relief from certain industry suspensions or bars.
Mr. Ceresney ended his remarks with a strong recommendation: “When faced with the prospect of a potential enforcement action, I hope that individuals will consider seriously cooperation, which carries with it significant benefits and which can be a viable way to avoid a terrible result.”