During a May 13 speech at the University of Texas School of Law, Andrew Ceresney, chief of the SEC’s enforcement division, extolled the benefits of cooperation for individuals and companies embroiled in an SEC investigation. For individuals, Ceresney first emphasized the possibility that individuals who are “on the bubble” in terms of whether charges will be brought — for example, “peripheral or lower-level player[s],” or where the evidence is “less clear,” as opposed to more senior employees, who engaged in serious misconduct, and against whom there is significant evidence — could face reduced charges as a result of cooperation, or may not be charged at all. According to Ceresney, a “significant percentage” of the SEC’s cooperation agreements involved instances where the SEC declined to recommend charges.
Another potential benefit of cooperation according to Ceresney is that it can lead to a “significant reduction” in monetary relief. Ceresney emphasized that the “numbers bear out that cooperators receive significant benefits,” such that “[i]n cases where a cooperator has been charged and we have resolved the penalty question, two-thirds of the time the cooperator has paid no penalty at all.” Concerning disgorgement, Ceresney said that, even though the SEC will typically seek disgorgement of all of the proceeds of wrongdoing, the SEC may nonetheless take a “narrower view” of what should be disgorged in recognition of cooperation.
A third benefit to individuals of cooperation, Ceresney said, is its potential “impact on the need for remedial relief such as industry suspensions or bars.” The reason being that “true cooperation” bears directly on some of the factors the SEC and courts consider when deciding whether, and what type of, remedial relief is necessary. Those factors may include recognition of the wrongful nature of the conduct, sincerity of assurances against future violations, and the degree of future risk to investors and the markets that is posed by the individual.
Ceresney also offered advice to corporations considering a cooperative stance with the SEC. He opined that corporations “are gambling” if they fail to self-report FCPA misconduct to the SEC, in part because they risk that the SEC will be notified by another source, especially in light of the SEC’s whistleblower program. Ceresney warned of “significant consequences” to a company that fails to self-report, because if the SEC uncovers the misconduct on its own it will raise a number of troubling questions, such as concerns about the company’s supervisory systems, compliance program and other controls, or about an intentional effort to conceal the misconduct.
Ceresney also said that “the bar has been raised for what counts as good corporate citizenship” in terms of corporate cooperation. Specifically, he noted that internal investigations are now common and “a clear best practice for any company that discovers significant potential misconduct,” and that sharing the results of an internal investigation with the government has become “commonplace” and can accrue “immense benefits” for a company. Ceresney also “wholeheartedly agree[d]” with the recent comments by Leslie Caldwell, the Assistant Attorney General for the DOJ’s Criminal Division, in which she “reemphasized . . . the need for companies to share information on individual wrongdoers in order to receive credit for their cooperation.” Ceresney added that, for a company to receive cooperation credit, the SEC expects the company to provide “all relevant facts, including facts implicating senior officials and other individuals.”